As Filed With The Securities And Exchange Commission On April 30, 1998
File Nos. 333-13185
811-7839
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No.
----
Post-Effective Amendment No. 6
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-----
Amendment No. 7
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CONSECO FUND GROUP
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(Exact Name of Registrant as Specified in Charter)
11825 North Pennsylvania Street
Carmel, Indiana 46032
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(Address of Principal Executive Offices) (Zip Code)
(317) 817-6300
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(Registrant's Telephone Number, including Area Code)
WILLIAM P. LATIMER, Esq.
Conseco Capital Management, Inc.
11825 North Pennsylvania Street
Carmel, Indiana 46032
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(Name and Address of Agent for Service of Process)
Copies to:
DONALD W. SMITH, Esq.
ROBERT J. ZUTZ, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Second Floor
Washington, D.C. 20036-1800
Telephone: (202) 778-9000
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
[ X ] Immediately upon filing pursuant to Rule 485(b)
[ ] On pursuant to Rule 485(b)
-------------------
[ ] 60 days after filing pursuant to Rule 485(a)(i)
[ ] On pursuant to Rule 485(a)(i)
-------------------
[ ] 75 days after filing pursuant to Rule 485(a)(ii)
[ ] On pursuant to Rule 485(a)(ii)
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<PAGE>
CONSECO FUND GROUP
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Asset Allocation Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
Contents of Registration Statement
This Registration Statement consists of the following papers and documents:
o Cover Sheet
o Contents of Registration Statement
o Cross Reference Sheet
o Part A - Conseco Fund Group, Class A , B and C Prospectus
Conseco Fund Group, Class Y Prospectus
o Part B - Statement of Additional Information, Class A, B and C
Statement of Additional Information, Class Y
o Part C - Other Information
o Signature Pages
o Exhibits
No change is intended to be made by this Post-Effective Amendment No. 6
to the prospectuses or statements of additional information for the Conseco High
Yield Focus Fund.
<PAGE>
CONSECO FUND GROUP
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Asset Allocation Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
N-1A Location in
Item No. Registration Statement
-------- ----------------------
Part A: Information Required In Prospectus
------------------------------------------
<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Fee Table
3. Condensed Financial Information Financial Highlights
4. General Description of Registrant Cover Page
5. Management of the Fund Management
6. Capital Stock and Other Securities Investment Objectives and Policies of
the Funds
7. Purchase of Securities Being Offered Purchase of Shares
8. Redemption or Repurchase Redemption of Shares
9. Pending Legal Proceedings Not Applicable
Part B: Information Required In
Statement of Additional Information
-----------------------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History General Information
13. Investment Objectives and Policies Investment Restrictions
14. Management of the Registrant Management
15. Control Persons and Principal Holders of Securities Control Persons and Principal Holders
of Securities
<PAGE>
N-1A Location in
Item No. Registration Statement
-------- ----------------------
16. Investment Advisory and Other Services Management
17. Brokerage Allocation Securities Transactions
18. Capital Stock and Other Securities General
19. Purchase, Redemption and Pricing of Purchase and Redemption of Shares
Securities Being Offered
20. Tax Status Taxes
21. Underwriters Distribution Arrangements
22. Calculation of Performance Data Investment Performance
23. Financial Statements Financial Statements
Part C: Other Information
-------------------------
24. Financial Statements and Exhibits Financial Statements and Exhibits
25. Persons Controlled By or Under Common Control Persons Controlled By or Under Common
Control
26. Number of Holders of Securities Number of Holders of Securities
27. Indemnification Indemnification
28. Business and Other Connections Business and Other Connections of
of Investment Adviser Investment Adviser
29. Principal Underwriters Principal Underwriters
30. Location of Accounts and Records Location of Accounts and Records
31. Management Services Management Services
32. Undertakings Undertakings
</TABLE>
<PAGE>
CONSECO FUND GROUP
Administrative OfficE: 11815 N. Pennsylvania Street, Carmel, Indiana 46032
800-825-1530
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Conseco Fixed Income Fund
Conseco High Yield Fund
ConsecO Asset Allocation Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
The Conseco Fund Group (the "Trust") is an open-end diversified management
investment company registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("1940 Act"). The Trust was
organized as a Massachusetts business trust on September 24, 1996. The Trust is
a "series" type of mutual fund which issues separate series of shares, each of
which represents a separate portfolio of investments. This Prospectus offers
shares of six series ("Funds") of the Trust, each with its own investment
objective and investment policies. Each Fund offers four classes of shares. This
Prospectus relates solely to Class A shares, Class B shares and Class C shares
of the Funds. Class Y shares are offered to certain institutional investors and
qualifying individual investors through a separate prospectus. Each class may
have different expenses, which may affect performance.
Conseco Capital Management, Inc. (the "Adviser") serves as the Trust's
investment adviser. The Adviser supervises the Trust's management and investment
program, performs a variety of administrative services on behalf of the Trust,
and pays all compensation of officers and Trustees of the Trust who are
affiliated persons of the Adviser or the Trust. The Trust pays all other
expenses incurred in its operations, including fees and expenses of Trustees who
are not affiliated persons of the Adviser or the Trust.
The Conseco International Fund invests all of its investable assets in
the International Equity Portfolio (the "Portfolio" or the "International
Portfolio") of AMR Investment Services Trust (the "AMR Trust"), which invests
primarily in equity securities of issuers based outside the United States. The
Portfolio invests in securities in accordance with an investment objective,
policies and limitations substantially similar to those of the Fund. The
investment experience of the Fund will correspond directly with the investment
experience of the Portfolio. Whenever the phrase "all of the Fund's investable
assets" is used, it means that the only investment securities that will be held
by the Conseco International Fund will be the Fund's interest in the Portfolio.
This "master-feeder" structure is different from that of many other investment
companies which directly acquire and manage their own portfolios of securities.
Accordingly, investors should carefully consider this investment approach. See
"Additional Information About the Master-Feeder Structure." AMR Investment
Services, Inc. ("AMR") provides investment management and administrative
services to the Portfolio.
The Conseco High Yield Fund may invest all of its assets in lower-rated
fixed income securities, commonly known as "junk bonds" or "high yield
securities." THESE SECURITIES ARE SUBJECT TO GREATER FLUCTUATIONS IN VALUE AND
GREATER RISK OF LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER THAN
ARE HIGHER-RATED SECURITIES; THEREFORE, INVESTORS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THIS FUND.
* * * * *
<PAGE>
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
Management ("Federated money market fund") through a separate prospectus. That
prospectus is available upon request by calling 800-986-3384.
This Prospectus sets forth concisely the information about the Trust
and the Funds that an investor should know before investing. A Statement of
Additional Information ("SAI") dated May 1, 1998, containing additional
information about the Trust and the Funds, has been filed with the SEC and is
incorporated by reference in this Prospectus in its entirety. You may obtain a
copy of the SAI without charge by calling or writing the Trust at the address
and telephone number above.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1998.
TABLE OF CONTENTS
OVERVIEW OF THE CONSECO FUND GROUP FUNDS................................3
FEE TABLE...............................................................4
FINANCIAL HIGHLIGHTS....................................................7
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS.........................9
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES....................17
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE...............26
MANAGEMENT.............................................................28
PURCHASE OF SHARES.....................................................33
ALTERNATIVE PRICING ARRANGEMENTS.......................................35
REDEMPTION OF SHARES...................................................41
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES...............................45
PERFORMANCE INFORMATION................................................47
MANAGEMENT DISCUSSION AND ANALYSIS.....................................51
OTHER INFORMATION......................................................53
APPENDIX A SECURITIES RATINGS...........................................1
2
<PAGE>
<TABLE>
<CAPTION>
OVERVIEW OF THE CONSECO FUND GROUP FUNDS
<S> <C> <C>
- ------------------------------------- -------------------------------- ---------------------------------------------------
CONSECO FUND GROUP FUND INVESTMENT OBJECTIVE PRINCIPAL INVESTMENTS
- ------------------------------------- -------------------------------- ---------------------------------------------------
CONSECO FIXED INCOME FUND Seeks the highest level of The Fund invests primarily in investment
income as is consistent with grade fixed income securities.
preservation of capital.
- ------------------------------------- -------------------------------- ---------------------------------------------------
CONSECO HIGH YIELD FUND Seeks a high level of The Fund invests primarily in lower-rated fixed
current income, with a income securities, commonly known as "junk bonds"
secondary objective of or "high yield securities."
capital appreciation.
- ------------------------------------- -------------------------------- ---------------------------------------------------
CONSECO ASSET ALLOCATION FUND Seeks a high total The Fund pursues an active asset allocation
investment return, strategy whereby investments are allocated,
consistent with the based upon thorough investment research,
preservation of capital and valuation and analysis of market trends and
prudent investment risk. the anticipated relative total return available,
among various asset classes, including debt
securities, equity securities, and money
market instruments.
- ------------------------------------- -------------------------------- ---------------------------------------------------
CONSECO EQUITY FUND Seeks to provide a high The Fund seeks to achieve its objective
equity total return primarily by investing in selected equity
consistent with preservation securities and other securities having the
of capital and a prudent investment characteristics of common stocks.
level of risk.
- ------------------------------------- -------------------------------- ---------------------------------------------------
CONSECO INTERNATIONAL FUND Seeks long-term capital The Fund invests all of its investable assets in
appreciation. the International Equity Portfolio (the
"Portfolio" or the "International Portfolio") of
AMR Investment Services Trust (the "AMR
Trust"), which invests primarily in equity
securities of issuers based outside the United
States.
- ------------------------------------- -------------------------------- ---------------------------------------------------
CONSECO 20 FUND Seeks capital appreciation. The Fund is "non-diversified" under the 1940 Act
and normally concentrates its investments in a
core position of approximately 20 common stocks
believed to have above-average growth prospects.
- ------------------------------------- -------------------------------- ---------------------------------------------------
</TABLE>
3
<PAGE>
FEE TABLE
The following fee tables are provided to assist investors in
understanding the various fees and expenses which may be borne directly or
indirectly by an investment in Class A, Class B and Class C shares of the Funds.
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)
CONSECO FIXED INCOME FUND 5.00% None None
CONSECO HIGH YIELD FUND 5.75% None None
CONSECO ASSET ALLOCATION FUND 5.75% None None
CONSECO EQUITY FUND 5.75% None None
CONSECO INTERNATIONAL FUND 5.75% None None
CONSECO 20 FUND 5.75% None None
- -------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed on Reinvested Dividends (as a None None None
percentage of offering price)
- -------------------------------------------------------------------------------------------------------------------
Maximum Contingent Deferred Sales Charge (as a percentage of offering None 5%* 1%**
price or net asset value at the time of sale, whichever is less)
- -------------------------------------------------------------------------------------------------------------------
Redemption Fees None None None
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*The maximum 5% contingent deferred sales charge applies to sales of
Class B shares during the first year after purchase. The charge generally
declines annually, reaching zero after six years.
**The 1% contingent deferred sales charge applies only if an investor
sells Class C shares within the first year after purchase.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
CLASS A SHARES
- ------------------------------------- ----------------- ------------------- ------------- ------------------------------------
FUND MANAGEMENT ADMINISTRATIVE 12B-1 OTHER TOTAL
FEES FEES FEES(2) EXPENSES(3) OPERATING
AFTER FEE EXPENSES(4)
RATE
REDUCTION(1) AFTER FEE WAIVERS AND
EXPENSE REIMBURSEMENTS
- ------------------------------------- ----------------- ------------------- ------------- ------------------------------------
Conseco Fixed Income Fund 0.40% 0.20% 0.65% 0.00% 1.25%
- ------------------------------------- ----------------- ------------------- ------------- ------------------ -----------------
Conseco High Yield Fund 0.60% 0.20% 0.50% 0.10% 1.40%
- ------------------------------------- ----------------- ------------------- ------------- ------------------ -----------------
Conseco Asset Allocation Fund 0.70% 0.20% 0.50% 0.10% 1.50%
- ------------------------------------- ----------------- ------------------- ------------- ------------------ -----------------
Conseco Equity Fund 0.70% 0.20% 0.50% 0.10% 1.50%
- ------------------------------------- ----------------- ------------------- ------------- ------------------ -----------------
Conseco International Fund 0.48% 0.75% 0.50% 0.52% 2.25%
- ------------------------------------- ----------------- ------------------- ------------- ------------------ -----------------
Conseco 20 Fund 0.70% 0.20% 0.50% 0.35% 1.75%
- ------------------------------------- ----------------- ------------------- ------------- ------------------ -----------------
4
<PAGE>
CLASS B AND CLASS C SHARES
- --------------------------------------- ---------------- ------------------- ------------- ---------------------------------
FUND MANAGEMENT ADMINISTRATIVE 12B-1 OTHER TOTAL
FEES FEES FEES(2) EXPENSES(3) OPERATING
AFTER FEE EXPENSES(4)
RATE
REDUCTION(1) AFTER FEE WAIVERS AND
EXPENSE REIMBURSEMENTS
- --------------------------------------- ---------------- ------------------- ------------- ---------------------------------
Conseco Fixed Income Fund 0.40% 0.20% 1.00% 0.00% 1.60%
- --------------------------------------- ---------------- ------------------- ------------- ---------------- ----------------
Conseco High Yield Fund 0.60% 0.20% 1.00% 0.10% 1.90%
- --------------------------------------- ---------------- ------------------- ------------- ---------------- ----------------
Conseco Asset Allocation Fund 0.70% 0.20% 1.00% 0.10% 2.00%
- --------------------------------------- ---------------- ------------------- ------------- ---------------- ----------------
Conseco Equity Fund 0.70% 0.20% 1.00% 0.10% 2.00%
- --------------------------------------- ---------------- ------------------- ------------- ---------------- ----------------
Conseco International Fund 0.48% 0.75% 1.00% 0.52% 2.75%
- --------------------------------------- ---------------- ------------------- ------------- ---------------- ----------------
Conseco 20 Fund 0.70% 0.20% 1.00% 0.35% 2.25%
- --------------------------------------- ---------------- ------------------- ------------- ---------------- ----------------
</TABLE>
1The Adviser has voluntarily undertaken to reduce its advisory fee with respect
to the Conseco Fixed Income Fund to 0.40% of the Fund's average daily net assets
until April 30, 1999. Absent such undertaking the advisory fee would be 0.45% of
the Fund's average daily net assets. The Adviser has voluntarily undertaken to
reduce its advisory fee with respect to the Conseco High Yield Fund to 0.60% of
the Fund's average daily net assets until April 30, 1999. Absent such
undertaking the advisory fee would be 0.70% of the Fund's average daily net
assets.
The Adviser has voluntarily agreed to waive all of its fees under the Conseco
International Fund's Investment Advisory Agreement so long as that Fund invests
all of its investable assets in the International Portfolio. Absent such
undertaking the advisory fee would be 1.00% of the Fund's average daily net
assets. Accordingly, Management Fees in the fee table reflect only the Conseco
International Fund's pro rata portion of the Portfolio's management fees.
Similarly, because of the master-feeder structure, Other Expenses in the fee
table combine the Conseco International Fund's expenses and that Fund's pro rata
portion of the Portfolio's expenses.
2As a result of 12b-1 fees, a long-term shareholder in a Fund may pay more than
the economic equivalent of the maximum sales charge permitted by the Conduct
Rules of the National Association of Securities Dealers, Inc. ("NASD").
3 Other Expenses in the Fee Table for all classes and Funds except Class A of
the Conseco Equity Fund, Conseco Asset Allocation Fund and Conseco Fixed Income
Fund are based on estimated amounts for the current fiscal year. Other Expenses
exclude taxes, interest, brokerage and other transaction expenses, and any
extraordinary expenses.
4The expense information set forth above reflects voluntary commitments of the
Adviser, Conseco Services, LLC (the "Administrator") and Conseco Equity Sales,
Inc. (the "Distributor") to waive a portion of their fees under each Fund's
Investment Advisory Agreement, Administration Agreement and Distribution and
Service Plan, respectively, and/or to reimburse a portion of the Fund's expenses
through April 30, 1999. The voluntary commitments provide that the Total
Operating Expenses for the Funds, on an annual basis, will not exceed the
amounts set forth above.
In the absence of such waivers and reimbursements (as well as the
Adviser's undertaking with respect to the Conseco Fixed Income Fund, as noted
above), Other Expenses for Class A Shares of the Conseco Equity Fund, Conseco
5
<PAGE>
Asset Allocation Fund and Conseco Fixed Income Fund would have been 3.45%,
11.04% and 12.37%, and Total Operating Expenses would have been 4.85%, 12.44%
and 13.67%, of each Fund's average daily net assets, respectively. It is
estimated that Other Expenses and Total Operating Expenses with respect to the
classes and Funds listed in the table below would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------ ------------------------- ------------------------------
ESTIMATED OTHER EXPENSES ESTIMATED
TOTAL OPERATING EXPENSES
- ------------------------------------ ------------------------- ------------------------------
FUND CLASS B AND CLASS C CLASS B AND CLASS C
- ------------------------------------ ------------------------- ------------------------------
CONSECO FIXED INCOME FUND .81% 2.46%
- ------------------------------------ ------------------------- ------------------------------
CONSECO ASSET ALLOCATION FUND .75% 2.65%
- ------------------------------------ ------------------------- ------------------------------
CONSECO EQUITY FUND .71% 2.61%
- ------------------------------------ ------------------------- ------------------------------
- ------------------------------------ ------------------------- ------------------------------
ESTIMATED OTHER EXPENSES ESTIMATED
TOTAL OPERATING EXPENSES
- ------------------------------------ ------------------------- ------------------------------
FUND CLASS A CLASS B CLASS A CLASS B
CLASS C CLASS C
- ------------------------------------ ----------- ------------- --------------- --------------
CONSECO HIGH YIELD FUND 1.14% 1.14% 2.54% 3.04%
- ------------------------------------ ----------- ------------- --------------- --------------
CONSECO INTERNATIONAL FUND .99% .99% 2.72% 3.22%
- ------------------------------------ ----------- ------------- --------------- --------------
CONSECO 20 FUND .86% .86% 2.26% 2.76%
- ------------------------------------ ----------- ------------- --------------- --------------
</TABLE>
EXAMPLE
Assuming a hypothetical investment of $1,000 and a 5% annual return, an
investor in Class A, Class B and Class C shares of each of the Funds would pay
transaction and operating expenses at the end of each year as follows:
CLASS A SHARES
- ------------------------------------- ---------- ---------- ---------- ---------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------- ---------- ---------- ---------- ---------
Conseco Fixed Income Fund $62 $87 $114 $191
- ------------------------------------- ---------- ---------- ---------- --------
Conseco High Yield Fund $71 $99 N/A N/A
- ------------------------------------- ---------- ---------- ---------- --------
Conseco Asset Allocation Fund $72 $101 $133 $223
- ------------------------------------- ---------- ---------- ---------- --------
Conseco Equity Fund $72 $101 $133 $223
- -------------------------------------- --------- ---------- ---------- --------
Conseco International Fund $79 $123 N/A N/A
- ------------------------------------- ---------- ---------- ---------- --------
Conseco 20 Fund $74 $109 N/A N/A
- ------------------------------------- ---------- ---------- ---------- --------
<PAGE>
CLASS B SHARES
- ----------------------------------------------- ------------------------
FUND 1 YEAR 3 YEARS
- ----------------------------------------------- ------------- ----------
CONSECO FIXED INCOME FUND
Assuming redemption at end of period $68 $83
Assuming no redemption $16 $50
- ----------------------------------------------- ------------- ----------
CONSECO HIGH YIELD FUND
Assuming redemption at end of period $71 $92
Assuming no redemption $23 $69
- ----------------------------------------------- ------------- ----------
CONSECO ASSET ALLOCATION FUND
Assuming redemption at end of period $72 $95
Assuming no redemption $20 $62
- ----------------------------------------------- ------------- ----------
CONSECO EQUITY FUND
Assuming redemption at end of period $72 $95
Assuming no redemption $20 $62
- ----------------------------------------------- ------------- ----------
6
<PAGE>
CONSECO INTERNATIONAL FUND
Assuming redemption at end of period $79 $116
Assuming no redemption $28 $84
- ----------------------------------------------- ------------- ----------
CONSECO 20 FUND
Assuming redemption at end of period $74 $102
Assuming no redemption $23 $69
- ----------------------------------------------- ------------- ----------
CLASS C SHARES
- ----------------------------------------------- ------------- ----------
FUND 1 YEAR 3 YEARS
- ----------------------------------------------- ------------- ----------
CONSECO FIXED INCOME FUND
Assuming redemption at end of period $26 $50
Assuming no redemption $16 $50
CONSECO HIGH YIELD FUND
Assuming redemption at end of period $29 $59
Assuming no redemption $19 $59
- ----------------------------------------------- ------------- ---------
CONSECO ASSET ALLOCATION FUND
Assuming redemption at end of period $30 $62
Assuming no redemption $20 $62
- ----------------------------------------------- ------------- ---------
CONSECO EQUITY FUND
Assuming redemption at end of period $30 $62
Assuming no redemption $20 $62
- ----------------------------------------------- ------------- ---------
CONSECO INTERNATIONAL FUND
Assuming redemption at end of period $38 $84
Assuming no redemption $28 $84
- ----------------------------------------------- ------------- ---------
CONSECO 20 FUND
Assuming redemption at end of period $33 $69
Assuming no redemption $23 $69
- ----------------------------------------------- ------------- ---------
THESE EXAMPLES ILLUSTRATE THE EFFECT OF EXPENSES, BUT ARE NOT MEANT TO
SUGGEST ACTUAL OR EXPECTED COSTS OR RETURNS, ALL OF WHICH MAY VARY.
FINANCIAL HIGHLIGHTS
The financial highlights set forth on the following pages present
certain financial information and ratios as well as performance information for
Class A of the Conseco Equity Fund, Conseco Asset Allocation Fund and Conseco
Fixed Income Fund. This information is derived from the December 31, 1997
Conseco Fund Group Annual Report and has been audited by Coopers & Lybrand LLP,
independent accountants, whose report thereon is also included in the Annual
Report. The Annual Report is incorporated by reference in the Statement of
Additional Information and may be obtained without charge by calling (800)
986-3384.
7
<PAGE>
FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
DECEMBER 31, 1997
----------------------------
ASSET FIXED
EQUITY ALLOCATION INCOME
CLASS A SHARES FUND FUND FUND
------ ---------- ------
Net asset value per share,
beginning of period........................ $10.00 $10.00 $10.00
Income from investment operations (a):
Net investment income (loss).............. (.04) .28 .66
Net realized gains and change in
unrealized appreciation on investments .. 2.33 1.43 .18
- --------------------------------------------------------------------------------
Total from investment operations ....... 2.29 1.71 .84
- --------------------------------------------------------------------------------
Distributions:
Dividends from net investment income ..... -- (.27) (.58)
Distributions of net capital gains ....... (1.22) (.71) (.13)
- --------------------------------------------------------------------------------
Total distributions......................... (1.22) (.98) (.71)
- --------------------------------------------------------------------------------
Net asset value per share, end of period $11.07 $10.73 $10.13
================================================================================
Total return (b) (c)........................ 22.90% 17.19% 8.66%
================================================================================
Ratios/supplemental data (c):...............
Net assets, end of period..... ........... $4,876,355 $1,075,505 $153,444
Ratio of expenses to average net assets (b) 1.50% 1.50% 1.25%
Ratio of net investment income (loss) to
average net assets (b)................... (.35%) 2.50% 5.51%
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding during the year ended December 31, 1997.
(b) The Adviser, Administrator and Distributor have voluntarily agreed to waive
their fees and/or reimburse Fund expense to the extent that the ratio of
expenses to average net assets would exceed on an annual basis 1.50 percent
for the Equity and Asset Allocation Funds and 1.25 percent for the Fixed
Income Fund. These voluntary limits may be discontinued by the Adviser,
Administrator and Distributor at any time after April 30, 1998. If the
aforementioned agreements had not been in effect during the period, the
annualized ratio of expenses to average net assets would have been 4.85
percent for the Equity Fund, 12.44 percent for the Asset Allocation Fund and
13.67 percent for the Fixed Income Fund.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
<PAGE>
ASSET FIXED
EQUITY ALLOCATION INCOME
FUND FUND FUND
------ ---------- ------
Supplemental data for all classes:
Net assets, end of period....... $65,210,629 $13,112,655 $22,029,226
Portfolio turnover rate......... 199.12% 506.64% 367.82%
Average commission rate paid (a) $.0584 $.0584 --
- ----------
(a) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each of the Funds has a different investment objective as described
below. There can be no assurance that any of the Funds will achieve its
investment objective. Each Fund is subject to the risk of changing economic
conditions, as well as the risk inherent in the ability of its investment
adviser to make changes in investments in anticipation of changes in economic,
business, and financial conditions. The investment objectives of the Funds are
not fundamental, as defined below; the investment objective of the International
Portfolio is fundamental.
The different types of securities and investment techniques common to
one or more Funds all have attendant risks of varying degrees. For example, with
respect to equity securities, there can be no assurance of capital appreciation
and there is a substantial risk of decline. With respect to debt securities,
there can be no assurance that the issuer of such securities will be able to
meet its obligations on interest or principal payments in a timely manner. In
addition, the value of debt instruments generally rises and falls inversely with
interest rates. The investments and investment techniques common to one or more
Funds and their risks are described in greater detail in "Description of
Securities and Investment Techniques" in the SAI.
The Funds and the International Portfolio are subject to investment
restrictions that are described under "Investment Restrictions" in the SAI.
Those investment restrictions that are "fundamental policies" may not be changed
without a majority vote of the outstanding shares of the affected Fund or the
outstanding interests of the International Portfolio. Except as otherwise noted,
all investment policies and practices described in this Prospectus and in the
SAI are not fundamental, meaning that the Trust's Board of Trustees ("Board") or
the AMR Trust's Board of Trustees ("AMR Trust Board") may change them without
shareholder approval. See "Description of Securities and Investment Techniques"
and "Investment Restrictions" in the SAI for further information.
CONSECO FIXED INCOME FUND
In seeking its investment objective of providing the highest level of
income as is consistent with the preservation of capital, the Conseco Fixed
Income Fund invests primarily in 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, if unrated, is determined by the Adviser to
be of comparable quality. 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 Conseco 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 Conseco 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 Fund's assets may be invested
in lower-rated fixed income securities, commonly known as "junk bonds" or "high
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yield securities." Lower-rated fixed income securities are securities rated BB
or lower by Standard & Poor's ("S&P") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), securities comparably rated by another NRSRO, or
unrated securities of equivalent quality. For information about the risks
associated with lower-rated fixed income securities, see "Risks Associated With
High Yield Debt Securities" below and "Description of Securities and Investment
Techniques" in the SAI.
Debt securities purchased by the Conseco 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 Conseco Fixed Income Fund intends to
invest in debt securities in order to achieve its investment objective of
obtaining the highest level of income as is consistent with preservation of
capital, it may from time to time invest in debt 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 Conseco 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. For more information, see "Portfolio Turnover" below.
The Conseco 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 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 and reverse
repurchase agreements; investing in when-issued or delayed delivery securities;
and selling securities short. See "Description of Securities and Investment
Techniques" in the SAI for further information.
CONSECO HIGH YIELD FUND
The investment objective of the Conseco High Yield Fund is to provide
investors with a high level of current income, with a secondary objective of
capital appreciation. In seeking to achieve the Fund's objectives, the Adviser,
under normal circumstances, invests at least 65% of the Fund's total assets in
high yield, high risk lower-rated fixed income securities (as defined above in
the investment program of the Conseco Fixed Income Fund). The lower-rated fixed
income securities in which the Fund invests include corporate debt securities
and preferred stock, convertible securities, zero coupon securities, other
deferred interest securities, mortgage-backed securities and asset-backed
securities. The Fund may invest in securities rated as low as C by Moody's or D
by S&P, securities comparably rated by another NRSRO, or unrated securities of
equivalent quality. Such obligations are highly speculative and may be in
default or in danger of default as to principal and interest. For information
about the risks associated with lower-rated fixed income securities, see "Risks
Associated With High Yield Debt Securities" below and "Description of Securities
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and Investment Techniques" in the SAI. The Appendix to this Prospectus describes
Moody's and S&P's rating categories.
The Fund may invest in high yield municipal securities. The interest on
the municipal securities in which the Fund invests typically is not exempt from
federal income tax. The Fund's remaining assets may be held in cash, money
market instruments, or securities issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities ("U.S. Government securities"),
or may be invested in common stocks and other equity securities when these types
of investments are consistent with the objectives of the Fund or are acquired as
part of a unit consisting of a combination of fixed income securities and equity
investments. Such remaining assets may also be invested in investment grade debt
securities (as defined above in the investment program of the Conseco Fixed
Income Fund, and including municipal securities). Moreover, the Fund may hold
cash or money market instruments without limit for temporary defensive purposes
or pending investment.
The Fund may invest in zero coupon securities and payment-in-kind
securities. A zero coupon security pays no interest to its holders prior to
maturity, and a payment-in-kind security pays interest in the form of additional
securities. These securities will be subject to greater fluctuation in market
value in response to changing interest rates than securities of comparable
maturities that make periodic cash distributions of interest.
The Fund may also invest in equity and debt securities of foreign
issuers, including issuers based in emerging markets. As a non-fundamental
policy, the Fund may invest up to 50% of its total assets (measured at the time
of investment) in foreign securities; however, the Fund presently does not
intend to invest more than 25% of its total assets in such securities. In
addition, the Fund presently intends to invest in foreign securities only
through depositary receipts. See "Foreign Securities" below for further
information.
The Fund may invest in private placements, securities traded pursuant
to Rule 144A under the Securities Act of 1933 ("1933 Act") (Rule 144A permits
qualified institutional buyers to trade certain securities even though they are
not registered under the 1933 Act), or securities which, though not registered
at the time of their initial sale, are issued with registration rights. Some of
these securities may be deemed by the Adviser to be liquid under guidelines
adopted by the Board. As a matter of fundamental policy, the Fund will not (1)
invest more than 5% of its total assets in any one issuer, except for U.S.
Government securities or (2) invest 25% or more of its total assets in
securities of issuers having their principal business activities in the same
industry.
The Adviser does not rely solely on the ratings of rated securities in
making investment decisions but also evaluates other economic and business
factors affecting the issuer. Ratings are only the opinions of the agencies
issuing them and are not absolute standards as to quality. The Adviser seeks to
enhance total return specifically through purchasing securities which it
believes are undervalued and selling, when appropriate, those securities it
believes are overvalued. In order to determine value, the Adviser utilizes
independent fundamental analysis of the issuer as well as an analysis of the
specific structure of the security.
The Fund may use various investment strategies and techniques when the
Adviser determines that such use is appropriate in an effort to meet the Fund's
investment objectives. Such strategies and techniques include, but are not
limited to, writing listed "covered" call and "secured" put options and
purchasing options; purchasing and selling, for hedging purposes, interest rate
and other futures contracts, and purchasing options on such futures contracts;
entering into foreign currency futures contracts, forward foreign currency
contracts ("forward contracts") and options on foreign currencies; borrowing
from banks to purchase securities; investing in securities of other investment
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companies; entering into repurchase agreements, reverse repurchase agreements
and dollar rolls; investing in when-issued or delayed delivery securities;
selling securities short; and entering into swaps and other interest rate
transactions. See "Description of Securities and Investment Techniques" in the
SAI for further information.
CONSECO ASSET ALLOCATION FUND
The investment objective of the Conseco 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 fixed income 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 Conseco Asset Allocation Fund follows an asset
allocation strategy contemplating shifts (which may be frequent) among a wide
range of investments and market sectors. These shifts may result in high
portfolio turnover. See "Portfolio Turnover" below for further information. 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 Conseco Asset Allocation Fund may 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 Conseco Asset Allocation Fund may make temporary defensive
investments (i.e., money market instruments) without limit if it is believed
that market conditions warrant a more conservative investment strategy.
The Conseco 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 futures contracts, forward contracts and options on foreign
currencies; borrowing from banks to purchase securities; purchasing securities
of other investment companies; entering into repurchase agreements and reverse
repurchase agreements; purchasing restricted securities; investing in
when-issued or delayed delivery securities; and selling securities short. See
"Description of Securities and Investment Techniques" in the SAI for further
information.
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The maturities of the debt securities in the Conseco 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 issued by small- and mid-cap companies may also
be selected. See "Small and Medium Capitalization Companies" below for further
information.
The Conseco Asset Allocation Fund may invest in high yield, high risk
lower-rated fixed income securities (as defined above in the investment program
of the Conseco Fixed Income Fund). which are not believed to involve undue risk
to income or principal. The Conseco Asset Allocation Fund does not intend to
invest more than 25% of its total assets (measured at the time of investment) in
lower-rated fixed income 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. For information about the
risks associated with lower-rated fixed income securities, see "Risks Associated
With High Yield Debt Securities" below and "Description of Securities and
Investment Techniques" in the SAI. The Fund may also invest in investment grade
debt securities (as defined above in the investment program of the Conseco Fixed
Income Fund). 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 Conseco Asset Allocation Fund may also invest in zero coupon
securities and payment-in-kind securities. (see the discussion with respect to
the Conseco High Yield Fund, above).
The Conseco 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 Conseco 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.
CONSECO 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 Conseco
Equity Fund attempts 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 Conseco Equity
Fund in money market instruments.
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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 be sought among
securities of small- and mid-cap companies. See "Small and Medium Capitalization
Companies" below for further information. Securities issued by larger,
established companies may also be selected.
By investing in securities that are subject to market risk, the Conseco
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 variety of investment techniques and strategies including
but not limited to: writing listed "covered" call and "secured" put options,
including options on stock indices, and purchasing options; purchasing and
selling, for hedging purposes, stock index, interest rate, and other futures
contracts, and purchasing options on such futures contracts; 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 and reverse repurchase agreements; purchasing
restricted securities; investing in when-issued or delayed delivery securities;
and selling securities short. See "Description of Securities and Investment
Techniques" in the SAI for further information. The Conseco Equity Fund may also
invest up to 5% of its assets in lower-rated fixed income securities. The Fund
will not invest in rated fixed income securities which are rated below CCC/Caa.
See "Appendix A" to this Prospectus for further discussion regarding securities
ratings. For information about the risks associated with lower-rated fixed
income securities, see "Risks Associated With High Yield Debt Securities" below
and "Description of Securities and Investment Techniques" in the SAI.
CONSECO INTERNATIONAL FUND
The investment objectives of the Conseco International Fund and the
International Portfolio are to realize long-term capital appreciation. The Fund
has a fundamental investment policy which allows, but does not require, it to
invest all of its investable assets in another investment company having
substantially the same investment objective and policies. All other fundamental
investment policies and the non-fundamental investment policies of the Fund and
the Portfolio are substantially similar (except with respect to borrowing, as
discussed in the SAI). The Fund invests only in the Portfolio. Therefore,
although the following discusses the investment policies of the Portfolio, it
applies equally to the Fund.
The Portfolio invests primarily in a diversified portfolio of equity
securities of issuers based outside the United States. AMR allocates the assets
of the Portfolio among one or more investment advisers designated for the
Portfolio. Hotchkis and Wiley, Morgan Stanley Asset Management Inc. and
Templeton Investment Counsel, Inc. currently serve as investment advisers to the
Portfolio. See "Management - AMR and the Investment Advisers to the
International Equity Portfolio."
Ordinarily the Portfolio will invest at least 65% of its assets in
common stocks and securities convertible into common stocks of issuers in at
least three different countries located outside the United States. However,
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excluding collateral for securities loaned, the Portfolio generally invests in
excess of 80% of its assets in such securities. The remainder of the Portfolio's
assets will be invested in non-U.S. debt securities which, at the time of
purchase, are rated in one of the three highest rating categories by any NRSRO
or, if unrated, are deemed to be of comparable quality by the applicable
investment adviser and traded publicly on a world market, or in cash or cash
equivalents, including investment grade short-term obligations, or in other
investment companies. However, when its investment advisers deem that market
conditions warrant, the Portfolio may, for temporary defensive purposes, invest
up to 100% of its assets in cash, cash equivalents, other investment companies
and investment grade short-term obligations.
The investment advisers select securities based upon a country's
economic outlook, market valuation and potential changes in currency exchange
rates. When purchasing equity securities, primary emphasis will be placed on
undervalued securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. These risks are often greater for investments in emerging or
developing countries. See "Investment Techniques and Other Investment Policies
Foreign Securities" below.
The Portfolio will limit its investments to those in countries which
have been recommended by AMR and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
determining which countries will be approved, the AMR Trust Board will evaluate
the risks of investing in a country and will particularly focus on the ability
to repatriate funds, the size and liquidity aspects of the country's market and
the investment climate for foreign investors. The current countries in which the
Portfolio may invest are Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Mexico,
Netherlands, New Zealand, Norway, Portugal, Singapore, South Korea, Spain,
Sweden, Switzerland and the United Kingdom.
The Portfolio may trade forward contracts, which are derivatives, to
hedge currency fluctuations of underlying stock or bond positions or in other
circumstances permitted by the Commodity Futures Trading Commission. Forward
contracts to sell foreign currency may be used when the management of the
Portfolio believes that the currency of a particular foreign country may suffer
a decline against the U.S. dollar. Forward contracts are also entered into to
set the exchange rate for a future transaction. In this manner, the Portfolio
may protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar or other currency which is being used
for the security purchase and the foreign currency in which the security is
denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received. Forward
contracts involve certain risks which include, but are not limited to: (1)
imperfect correlation between the securities hedged and the contracts
themselves; and (2) possible decrease in the total return of the Portfolio.
Forward contracts are discussed in greater detail in the SAI.
The Portfolio also may trade currency futures for the same reasons as
for entering into forward contracts as set forth above. Currency futures are
traded on U.S. and foreign currency exchanges. The use of currency futures also
entails certain risks which include, but are not limited to: (1) less liquidity
due to daily limits on price fluctuation; (2) imperfect correlation between the
securities hedged and the contracts themselves; (3) possible decrease in the
total return of the Portfolio due to hedging; (4) possible reduction in value
for both the contracts and the securities being hedged; and (5) potential losses
in excess of the amounts invested in the currency futures contracts themselves.
The Portfolio may not enter into currency futures contracts if the purchase or
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sale of such contract would cause the sum of the Portfolio's initial and any
variation margin deposits to exceed 5% of its total assets. Currency futures
contracts, which are derivatives, are discussed in greater detail in the SAI.
As a matter of fundamental policy, the Portfolio may not (1) invest
more than 5% of its total assets (taken at market value) in securities of any
one issuer, other than U.S. Government securities, or purchase more than 10% of
the voting securities of any one issuer, with respect to 75% of the Portfolio's
total assets, or (2) invest more than 25% of its total assets in the obligations
of companies primarily engaged in any one industry, provided that: (i) this
limitation does not apply to U.S. Government securities; (ii) municipalities and
their agencies and authorities are not deemed to be industries; and (iii)
financial service companies are classified according to the end users of their
services (for example, automobile finance, bank finance, and diversified finance
will be considered separate industries). In addition, as a non-fundamental
investment restriction, the Portfolio may not invest more than 15% of its net
assets in illiquid securities, including time deposits and repurchase agreements
that mature in more than seven days.
The above percentage limits are based upon asset values at the time of
the applicable transaction; accordingly, a subsequent change in asset values
will not affect a transaction which was in compliance with the investment
restrictions at the time such transaction was effected. See the SAI for other
investment limitations.
CONSECO 20 FUND
The investment objective of the Conseco 20 Fund is to seek capital
appreciation. The Fund invests primarily in common stocks of companies that the
Adviser believes have above average growth prospects. The Fund is
"non-diversified" (meaning that it is not limited under the 1940 Act in the
percentage of assets that it may invest in any one issuer) and normally
concentrates its investments in a core position of approximately 20 common
stocks. Because the Fund may invest a larger portion of its assets in the
securities of a single issuer than a "diversified" fund, an investment in the
Fund may be subject to greater fluctuations in value than an investment in a
"diversified" fund. However, the Fund intends to comply with the standards under
the Code, that limit a regulated investment company's investments in any one
issuer's securities or in securities (other than U. S. Government securities) of
a limited number of issuers. See "Taxes" in the SAI.
The Fund generally will invest in companies whose earnings are believed
to be in a relatively strong growth trend and, to a lesser extent, in companies
in which significant further growth is not anticipated but whose stocks are
thought to be undervalued by the market. In identifying companies with favorable
growth prospects, the Adviser ordinarily looks to certain characteristics, such
as the following:
o prospects for above-average sales and earnings growth
o high return on invested capital
o overall financial strength, including sound financial and
accounting policies and a strong balance sheet
o competitive advantages, including innovative products and service
o effective research, product development, and marketing
o stable, capable management.
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Under normal market conditions, the Fund will invest at least 65% of
its total assets in common stocks. The Fund may invest a substantial portion of
its assets in securities issued by small- and mid-cap companies. See "Small and
Medium Capitalization Companies" below for further information. While the
emphasis of the Fund is on common stocks, the Fund may invest its remaining
assets in preferred stocks, convertible securities, and warrants, and in debt
obligations when the Adviser believes that they are more attractive than stocks
on a long-term basis. The debt obligations in which it invests will be primarily
investment grade debt securities, U.S. Government securities, or short-term debt
securities. However, the Fund may invest up to 5% of its total assets in
lower-rated fixed income securities. When the Adviser determines that market
conditions warrant a temporary defensive position, the Fund may invest without
limitation in cash and short-term debt securities.
The Fund may invest up to 25% of its total assets in equity and debt
securities of foreign issuers. The Fund presently intends to invest in foreign
securities only through depositary receipts. See "Foreign Securities" below for
more information.
To maximize potential return, the Adviser may utilize a variety of
investment techniques and strategies, including but not limited to: writing
listed "covered" call and "secured" put options, including options on stock
indices, and purchasing options; purchasing and selling, for hedging purposes,
stock index, interest rate, and other futures contracts, and purchasing options
on such futures contracts; entering into foreign currency futures contracts,
forward contracts and options on foreign currencies; borrowing from banks to
purchase securities; purchasing securities of other investment companies;
entering into repurchase agreements and reverse repurchase agreements; investing
in when-issued or delayed delivery securities; and selling securities short. See
"Description of Securities and Investment Techniques" in the SAI for further
information.
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES
References in this section to "a Fund," "the Funds" or "the Conseco
International Fund" include the International Portfolio, unless the context
otherwise requires.
SMALL AND MEDIUM CAPITALIZATION COMPANIES
The Conseco 20 Fund may invest a substantial portion of its assets in
securities issued by small- and mid-cap companies. The Conseco Equity Fund and
Conseco Asset Allocation Fund also may invest in small- and mid-cap companies.
While these companies generally have potential for rapid growth, investments in
such companies often involve greater risks than investments in larger, more
established companies because small- and mid-cap companies may lack the
management experience, financial resources, product diversification, and
competitive strengths of companies with larger market capitalizations. In
addition, in many instances the securities of small- and mid-cap companies are
traded only over-the-counter or on a regional securities exchange, and the
frequency and volume of their trading is substantially less than is typical of
larger companies. Therefore, these securities may be subject to greater and more
abrupt price fluctuations. When making large sales, a Fund may have to sell
portfolio holdings at discounts from quoted prices or may have to make a series
of small sales over an extended period of time due to the trading volume of
small- and mid-cap company securities. As a result, an investment in any of
these Funds may be subject to greater price fluctuations than an investment in a
fund that invests primarily in larger, more established companies. The Adviser's
research efforts may also play a greater role in selecting securities for these
Funds than in a fund that invests in larger, more established companies.
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PREFERRED STOCK
The Funds may invest in preferred stock. Preferred stock pays dividends
at a specified rate and generally has preference over common stock in the
payment of dividends and the liquidation of the issuer's assets but is junior to
the debt securities of the issuer in those same respects. Unlike interest
payments on debt securities, dividends on preferred stock are generally payable
at the discretion of the issuer's board of directors, and shareholders may
suffer a loss of value if dividends are not paid. Preferred shareholders
generally have no legal recourse against the issuer if dividends are not paid.
The market prices of preferred stocks are subject to changes in interest rates
and are more sensitive to changes in the issuer's creditworthiness than are the
prices of debt securities. Under ordinary circumstances, preferred stock does
not carry voting rights.
DEBT SECURITIES
The Funds (except the Conseco International Fund and the International
Portfolio) may invest in U.S. dollar-denominated corporate debt securities of
domestic issuers, and all of the Funds except the Conseco Equity 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.
Corporate debt securities may pay fixed or variable rates of interest,
or interest at a rate contingent upon some other factor, such as the price of
some commodity. These securities may be convertible into preferred or common
stock (see "Convertible Securities" below), or may be bought as part of a unit
containing common stock. A debt security may be subject to redemption at the
option of the issuer at a price set in the security's governing instrument.
In selecting corporate debt securities for the Funds (except the
Conseco International Fund and the International Portfolio), the Adviser reviews
and monitors the creditworthiness of each issuer and issue. The Adviser also
analyzes interest rate trends and specific developments which it believes may
affect individual issuers.
RISKS ASSOCIATED WITH HIGH YIELD DEBT SECURITIES. The Funds (except the
Conseco International Fund and the International Portfolio) may invest in high
yield, high risk, lower-rated fixed income securities. Lower-rated fixed income
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 lower-rated fixed income securities.
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Lower-rated fixed income securities generally offer a higher yield than
that available from higher-rated issues with similar maturities, as compensation
for holding a security that is subject to greater risk. Lower-rated fixed income
securities are deemed by rating agencies to be predominately speculative with
respect to the issuer's capacity to pay interest and repay principal and may
involve major risk or exposure to adverse conditions. Lower-rated securities
involve higher risks in that they are especially subject to (1) adverse changes
in general economic conditions and in the industries in which the issuers are
engaged, (2) adverse changes in the financial condition of the issuers, (3)
price fluctuation in response to changes in interest rates and (4) limited
liquidity and secondary market support.
An economic downturn affecting the issuer may result in a weakened
capacity to make principal and interest payments and an increased incidence of
default. In addition, a fund that invests in lower-rated securities may incur
additional expenses to the extent recovery is sought on defaulted securities.
Because of the many risks involved in investing in high yield fixed income
securities, the success of such investments is dependent upon the credit
analysis of the Adviser. Although the market for lower-rated fixed income
securities is not new, and the market has previously weathered economic
downturns, the past performance of the market for such securities may not be an
accurate indication of its performance during future economic downturns or
periods of rising interest rates. This market may be thinner and less active
than the market for higher quality securities, which may limit the ability to
sell such securities at their fair value in response to changes in the economy
or the financial markets. Adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may also decrease the values and liquidity of
lower-rated securities, especially in a thinly traded market. Differing yields
on debt securities of the same maturity are a function of several factors,
including the relative financial strength of the issuers.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. A convertible security
is a bond, debenture, note, preferred stock or other security that may be
converted into or exchanged for a prescribed amount of common stock of the same
or a different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers, but lower than the yield on non-convertible debt. Convertible
securities are usually subordinated to comparable-tier non-convertible
securities but rank senior to common stock in a corporation's capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
value, if converted into the underlying common stock. Convertible securities are
typically issued by smaller capitalized companies, whose stock prices may be
volatile. The price of a convertible security often reflects such variations in
the price of the underlying common stock in a way that non-convertible debt does
not. A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument, which could have an adverse effect on a Fund's ability to achieve
its investment objective.
ZERO COUPON BONDS
The Conseco 20, Conseco Asset Allocation and Conseco High Yield Funds
may invest in zero coupon securities. Zero coupon bonds are debt obligations
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which make no fixed interest payments but instead are issued at a significant
discount from face value. Like other debt securities, the market price can
reflect a premium or discount, in addition to the original issue discount,
reflecting the market's judgment as to the issuer's creditworthiness, the
interest rate or other similar factors. The original issue discount approximates
the total amount of interest the bonds will accrue and compound over the period
until maturity (or the first interest payment date) at a rate of interest
reflecting the market rate at the time of issuance. Because zero coupon bonds do
not make periodic interest payments, their prices can be very volatile when
market interest rates change.
The original issue discount on zero coupon bonds must be included in a
Fund's income ratably as it accrues. Accordingly, to qualify for tax treatment
as a regulated investment company and to avoid a certain excise tax, a Fund may
be required to distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. These distributions must be made from the
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. Such sales could occur at a time which would be disadvantageous to a
Fund and when the Fund would not otherwise choose to dispose of the assets.
PAY-IN-KIND BONDS
The Conseco High Yield and Conseco Asset Allocation Funds may invest in
pay-in-kind bonds. These bonds pay "interest" through the issuance of additional
bonds, thereby adding debt to the issuer's balance sheet. The market prices of
these securities are likely to respond to changes in interest rates to a greater
degree than the prices of securities paying interest currently. Pay-in-kind
bonds carry additional risk in that, unlike bonds that pay interest throughout
the period to maturity, a Fund will realize no cash until the cash payment date
and the Fund may obtain no return at all on its investment if the issuer
defaults.
The holder of a pay-in-kind bond must accrue income with respect to
these securities prior to the receipt of cash payments thereon. To avoid
liability for federal income and excise taxes, a Fund most likely will be
required to distribute income accrued with respect to these securities, even
though the Fund has not received that income in cash, and may be required to
dispose of portfolio securities under disadvantageous circumstances in order to
generate cash to satisfy these distribution requirements.
MORTGAGE-BACKED SECURITIES
The Funds (except the Conseco International Fund and the International
Portfolio) may invest in mortgage-backed securities. Mortgage-backed securities
are interests in "pools" of mortgage loans made to residential home buyers,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations (see "Mortgage Pass-Through Securities," below). These
Funds may also invest in debt securities which are secured with collateral
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations," below), and in other types of mortgage-related securities. The
Conseco 20 Fund presently does not intend to invest more than 5% of its assets
in mortgage-backed securities.
MORTGAGE PASS-THROUGH SECURITIES. These are securities representing
interests in pools of mortgages in which periodic payments of both interest and
principal on the securities are made by "passing through" periodic payments made
by the individual borrowers on the residential mortgage loans underlying such
securities (net of fees paid to the issuer or guarantor of the securities and
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possibly other costs). Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Fund to a lower rate of return upon reinvestment of
principal. Payment of principal and interest on some mortgage pass-through
securities may be guaranteed by the full faith and credit of the U.S. Government
(in the case of securities guaranteed by the Government National Mortgage
Association ("GNMA")), or guaranteed by agencies or instrumentalities of the
U.S. Government (in the case of securities guaranteed by Fannie Mae ("FNMA") or
Freddie Mac ("FHLMC")). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
secondary market issuers) may be uninsured or may be supported by various forms
of insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers, or the mortgage poolers.
GNMA CERTIFICATES. GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
Government. As a result, GNMA certificates are considered to have a low risk of
default, although they are subject to the same market risk as comparable debt
securities. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Although the mortgage loans in the pool will have maturities of up to
30 years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages may be purchased at any time prior to
maturity, will be subject to normal principal amortization, and may be prepaid
prior to maturity. Reinvestment of prepayments may occur at higher or lower
rates than the original yield on the certificates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS. FNMA, a federally chartered
and privately owned corporation, issues pass-through securities representing
interests in pools of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not backed by the full
faith and credit of the U.S. Government. FNMA also issues REMIC certificates,
which represent interests in a trust funded with FNMA certificates. REMIC
certificates are guaranteed by FNMA and not by the full faith and credit of the
U.S. Government.
FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent interests in pools of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but these securities are not backed by the full faith and
credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and
realized yield on particular FNMA and FHLMC pass-through securities will vary
based on the prepayment experience of the underlying pool of mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MORTGAGE-BACKED BONDS.
Mortgage-backed securities may be issued by financial institutions such as
commercial banks, savings and loan associations, mortgage banks, and securities
broker-dealers (or affiliates of such institutions established to issue these
securities) in the form of either collateralized mortgage obligations ("CMOs")
or mortgage-backed bonds. CMOs are obligations fully collateralized directly or
indirectly by a pool of mortgages on which payments of principal and interest
are dedicated to payment of principal and interest on the CMOs. Payments are
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passed through to the holders on the same schedule as they are received,
although not necessarily on a pro rata basis. Mortgage-backed bonds are general
obligations of the issuer fully collateralized directly or indirectly by a pool
of mortgages. The mortgages serve as collateral for the issuer's payment
obligations on the bonds but interest and principal payments on the mortgages
are not passed through either directly (as with GNMA certificates and FNMA and
FHLMC pass-through securities) or on a modified basis (as with CMOs).
Accordingly, a change in the rate of prepayments on the pool of mortgages could
change the effective maturity of a CMO but not that of a mortgage-backed bond
(although, like many bonds, mortgage-backed bonds may be callable by the issuer
prior to maturity). Although the mortgage-related securities securing these
obligations may be subject to a government guarantee or third-party support, the
obligation itself is not so guaranteed. Therefore, if the collateral securing
the obligation is insufficient to make payment on the obligation, a Fund could
sustain a loss. If new types of mortgage-related securities are developed and
offered to investors, investments in such securities will be considered.
STRIPPED MORTGAGE-BACKED SECURITIES. The Conseco High Yield Fund may
invest in stripped mortgage-backed securities, which are derivative securities
usually structured with two classes that receive different proportions of the
interest and principal distributions from an underlying pool of mortgage assets.
The Fund may purchase securities representing only the interest payment portion
of the underlying mortgage pools (commonly referred to as "IOs") or only the
principal portion of the underlying mortgage pools (commonly referred to as
"POs"). Stripped mortgage-backed securities are more sensitive to changes in
prepayment and interest rates and the market for such securities is less liquid
than is the case for traditional debt securities and mortgage-backed securities.
The yield on IOs is extremely sensitive to the rate of principal payments
(including prepayments) on the underlying mortgage assets, and a rapid rate of
repayment may have a material adverse effect on such securities' yield to
maturity. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund will fail to recoup fully its initial
investment in these securities, even if they are rated high quality. Most IOs
and POs are regarded as illiquid and will be included in the Fund's limit on
illiquid securities.
RISKS OF MORTGAGE-BACKED SECURITIES. Mortgage pass-through securities,
such as GNMA certificates or FNMA and FHLMC mortgage-backed obligations, or
modified pass-through securities, such as CMOs issued by various financial
institutions and IOs and POs, are subject to early repayment of principal
arising from prepayments of principal on the underlying mortgage loans (due to
the sale of the underlying property, the refinancing of the loan, or
foreclosure). Prepayment rates vary widely and may be affected by changes in
market interest rates and other economic trends and factors. In periods of
falling interest rates, the rate of prepayment tends to increase, thereby
shortening the actual average life of the mortgage-backed security. Conversely,
when interest rates are rising, the rate of prepayment tends to decrease,
thereby lengthening the actual average life of the mortgage-backed security.
Accordingly, it is not possible to accurately predict the average life of a
particular pool. Reinvestment of prepayments may occur at higher or lower rates
than the original yield on the securities. Therefore, the actual maturity and
realized yield on pass-through or modified pass-through mortgage-backed
securities will vary based upon the prepayment experience of the underlying pool
of mortgages.
TRUST ORIGINATED PREFERRED SECURITIES
The Conseco High Yield Fund may also invest in trust originated
preferred securities, a relatively new type of security issued by financial
institutions such as banks and insurance companies and other issuers. Trust
originated preferred securities represent interests in a trust formed by the
issuer. The trust sells preferred shares and invests the proceeds in notes
issued by the same entity. These notes may be subordinated and unsecured.
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Distributions on the trust originated preferred securities match the interest
payments on the notes; if no interest is paid on the notes, the trust will not
make current payments on its preferred securities. Issuers of the notes
currently enjoy favorable tax treatment. If the tax characterization of these
securities were to change adversely, they could be redeemed by the issuers,
which could result in a loss to the Fund. In addition, some trust originated
preferred securities are available only to qualified institutional buyers under
Rule 144A.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Conseco High Yield Fund may also invest in loan participations or
assignments. In purchasing a loan participation or assignment, the Fund acquires
some or all of the interest of a bank or other lending institution in a loan to
a corporate borrower. Many such loans are secured and most impose restrictive
covenants which must be met by the borrower and which are generally more
stringent than the covenants available in publicly traded debt securities.
However, interests in some loans may not be secured, and the Fund will be
exposed to a risk of loss if the borrower defaults. Loan participations may also
be purchased by the Fund when the borrowing company is already in default.
In purchasing a loan participation, the Fund may have less protection
under the federal securities laws than it has in purchasing traditional types of
securities. The Fund's ability to assert its rights against the borrower will
also depend on the particular terms of the loan agreement among the parties.
Many of the interests in loans purchased by the Fund will be illiquid and
therefore subject to the Fund's limit on illiquid investments.
COLLATERALIZED BOND OBLIGATIONS
A collateralized bond obligation ("CBO") is a type of asset-backed
security. Specifically, a CBO is an investment grade bond which is backed by a
diversified pool of high risk, high yield fixed income securities. The pool of
high yield securities is separated into "tiers" representing different degrees
of credit quality. The top tier of CBOs is backed by the pooled securities with
the highest degree of credit quality and pays the lowest interest rate.
Lower-tier CBOs represent lower degrees of credit quality and pay higher
interest rates to compensate for the attendant risk. The bottom tier typically
receives the residual interest payments (i.e. money that is left over after the
higher tiers have been paid) rather than a fixed interest rate. The return on
the bottom tier of CBOs is especially sensitive to the rate of defaults in the
collateral pool.
FOREIGN SECURITIES
The Funds may invest in securities of foreign issuers. These securities
may be U.S. dollar denominated or non-U.S. dollar denominated. Foreign
securities include securities issued, assumed or guaranteed by foreign
governments or political subdivisions or instrumentalities thereof.
Investments in foreign securities may offer unique potential benefits
such as substantial growth in industries not yet developed in the particular
country. Such investments also permit a Fund to invest in foreign countries with
economic policies or business cycles different from those of the United States,
or to reduce fluctuations in portfolio value by taking advantage of foreign
securities markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions on foreign investments or repatriation of capital. In addition,
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with respect to certain countries, there is the possibility of nationalization
or expropriation of assets; confiscatory taxation; political, social or
financial instability; and war or other diplomatic developments that could
adversely affect investments in those countries. Since a Fund may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
held by the Fund and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. A Fund generally will incur costs in
connection with conversion between various currencies.
There may be less publicly available information about a foreign
company than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those to which U.S. companies are subject.
Foreign securities markets, while growing in volume, have, for the most part,
substantially less volume than U.S. markets. Securities of many foreign
companies are less liquid and their prices more volatile than securities of
comparable U.S. companies. Transaction costs, custodial fees and management
costs in non-U.S. securities markets are generally higher than in U.S.
securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the United
States. A Fund might have greater difficulty taking appropriate legal action
with respect to foreign investments in non-U.S. courts than with respect to
domestic issuers in U.S. courts. In addition, transactions in foreign securities
may involve longer time from the trade date until settlement than domestic
securities transactions and involve the risk of possible losses through the
holding of securities by custodians and securities depositories in foreign
countries.
All of the foregoing risks may be intensified in emerging markets.
Dividend and interest income from foreign securities may be subject to
withholding taxes by the country in which the issuer is located and may not be
recoverable by a Fund or its investors in all cases.
ADRs are certificates issued by a U.S. bank or trust company
representing an interest in securities of a foreign issuer deposited in a
foreign subsidiary or branch or a correspondent of that bank. Generally, ADRs
are designed for use in U.S. securities markets and may offer U.S. investors
more liquidity than the underlying securities. The Funds may invest in
unsponsored ADRs. The issuers of unsponsored ADRs are not obligated to disclose
material information in the United States and, therefore, there may not be a
correlation between such information and the market value of such ADRs. European
Depositary Receipts ("EDRs") are certificates issued by a European bank or trust
company evidencing its ownership of the underlying foreign securities. EDRs are
designed for use in European securities markets.
RESTRICTED SECURITIES, RULE 144A SECURITIES AND ILLIQUID SECURITIES
The Funds (except the Conseco International Fund and the International
Portfolio) may invest in restricted securities, such as private placements, and
in Rule 144A securities. Once acquired, restricted securities may be sold by a
Fund only in privately negotiated transactions or in a public offering with
respect to which a registration statement is in effect under the 1933 Act. If
sold in a privately negotiated transaction, a Fund may have difficulty finding a
buyer and may be required to sell at a price that is less than it had
anticipated. Where registration is required, a Fund may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
are generally considered illiquid.
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Rule 144A securities, although not registered, may be resold to
qualified institutional buyers in accordance with Rule 144A under the 1933 Act.
The Adviser, acting pursuant to guidelines established by the Board, may
determine that some Rule 144A securities are liquid.
A Fund may not invest in any security if, as a result, more than 15% of
the Fund's net assets would be invested in illiquid securities, which are
securities that cannot be expected to be sold within seven days at approximately
the price at which they are valued.
PRIVATE PLACEMENT OFFERINGS (CONSECO INTERNATIONAL FUND AND INTERNATIONAL
PORTFOLIO)
Investments in private placement offerings are made in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
1933 Act, and resold to qualified institutional buyers under Rule 144A under the
1933 Act ("Section 4(2) securities"). Section 4(2) securities are restricted as
to disposition under the federal securities laws, and generally are sold to
institutional investors such as the Portfolio that agree they are purchasing the
securities for investment and not with an intention to distribute to the public.
Any resale by the purchaser must be pursuant to an exempt transaction and may be
accomplished in accordance with Rule 144A. Section 4(2) securities normally are
resold to other institutional investors such as the Portfolio through or with
the assistance of the issuer or dealers that make a market in the Section 4(2)
securities, thus providing liquidity. The Portfolio will not invest more than
15% of its net assets in Section 4(2) securities and illiquid securities unless
the applicable investment adviser determines, by continuous reference to the
appropriate trading markets and pursuant to guidelines approved by the AMR Trust
Board, that any Section 4(2) securities held by the Portfolio in excess of this
level are at all times liquid.
The AMR Trust Board and the applicable investment adviser, pursuant to
the guidelines approved by the AMR Trust Board, will carefully monitor the
Portfolio's investments in Section 4(2) securities offered and sold under Rule
144A, focusing on such important factors, among others, as: valuation,
liquidity, and availability of information. Investments in Section 4(2)
securities could have the effect of reducing the Portfolio's liquidity to the
extent that qualified institutional buyers no longer wish to purchase these
restricted securities.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements. A repurchase agreement
is an agreement under which securities are acquired from a securities dealer or
bank subject to resale at an agreed upon price on a later date. The acquiring
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, to
minimize the risk, the Funds will enter into repurchase agreements only with
financial institutions which are deemed to be of good financial standing and
which have been approved by the Board or the AMR Trust Board. No more than 15%
of a Fund's assets may be subject to repurchase agreements maturing in more than
seven days.
SECURITIES LENDING
The Funds may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, U.S. Government securities, and approved
bank letters of credit that at all times equal at least 100% of the market value
of the loaned securities. The Conseco 20 Fund, the Conseco High Yield Fund, and
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the Conseco International Fund will not make such loans if, as a result, the
aggregate amount of all outstanding securities loans would exceed 33 1/3% of the
Fund's total assets. As a fundamental policy of Conseco Equity Fund, the Conseco
Asset Allocation Fund, and the Conseco Fixed Income Fund, such loans will not be
made if, as a result, the aggregate amount of all outstanding securities loans
would exceed 15% of each Fund's total assets. A Fund continues to receive
interest on the securities loaned and simultaneously earns either interest on
the investment of the cash collateral or fee income if the loan is otherwise
collateralized. Should the borrower of the securities fail financially, there is
a risk of delay in recovery of the securities loaned or loss of rights in the
collateral. However, the Funds seek to minimize this risk by making loans only
to borrowers which are deemed by the Adviser or AMR, as appropriate, to be of
good financial standing and that have been approved by the Board or the AMR
Trust Board, respectively.
AMR will receive compensation for administrative and oversight
functions with respect to securities lending by the International Portfolio. The
amount of such compensation will depend on the income generated by the loan of
the Portfolio's securities. The SEC has granted exemptive relief that permits
the Portfolio to invest cash collateral received from securities lending
transactions in shares of one or more private investment companies managed by
AMR.
Subject to receipt of exemptive relief from the SEC, the Portfolio also
may invest cash collateral received from securities lending transactions in
shares of one or more registered investment companies managed by AMR.
BORROWING
The Funds (except the Conseco International Fund and the International
Portfolio) may borrow money to purchase securities, which is a form of leverage.
This leverage may exaggerate the gains and losses on a Fund's investments and
changes in the net asset value of that Fund's shares. Leverage also creates
interest expenses; if those expenses exceed the return on the transactions that
the borrowings facilitate, a Fund will be in a worse position than if it had not
borrowed. The use of derivatives in connection with leverage may create the
potential for significant losses. The Funds may pledge assets in connection with
permitted borrowings. Each Fund may borrow an amount up to 33 1/3 % of its
assets.
PORTFOLIO TURNOVER
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 Conseco High Yield Fund and Conseco 20 Fund normally will not exceed 400%.
In the last fiscal year, the portfolio turnover rate was 368% for the Conseco
Fixed Income Fund, 507% for the Conseco Asset Allocation Fund, and 199% for the
Conseco Equity Fund, and 15% for the International Portfolio. Turnover rates in
excess of 100% generally result in higher transaction costs and a possible
increase in realized short-term capital gains or losses. See "Dividends, Other
Distributions and Taxes."
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE
The Conseco International Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in the
International Portfolio of the AMR Trust, which is a separate investment company
managed by AMR. The AMR Trust is registered under the 1940 Act as an open-end
diversified management investment company and was organized as a New York common
law trust on June 27, 1995. The predecessor of the International Portfolio
commenced operations on August 7, 1991 and transferred all of its investable
assets to the Portfolio on November 1, 1995. The AMR Trust currently issues
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eight separate series of shares. The assets of the Portfolio belong only to, and
the liabilities of the Portfolio are borne solely by, the Portfolio and no other
series of the AMR Trust.
The Board believes that the Conseco International Fund will achieve
economies of scale by investing in the Portfolio, which could reduce the Fund's
expenses. In addition to selling its interests to the Conseco International
Fund, the Portfolio currently sells its interests to other investment companies
and/or other institutional investors. All institutional investors in the
Portfolio pay a proportionate share of the Portfolio's expenses and invest in
the Portfolio on the same terms and conditions. However, other investment
companies investing all of their assets in the Portfolio are not required to
sell their shares at the same public offering price as the Conseco International
Fund and are allowed to charge different sales commissions and to have different
fees and expenses. Therefore, investors in the Conseco International Fund may
experience different returns than investors in another investment company that
invests exclusively in the Portfolio. Information regarding other investment
companies that invest in the Portfolio is available by calling (800) 967-9009.
The Conseco International Fund's investment in the Portfolio may be
materially affected by the actions of large investors in the Portfolio. For
example, as with all open-end investment companies, if a large investor were to
redeem its interest in the Portfolio, the Portfolio's remaining investors could
experience higher pro rata operating expenses, thereby producing lower returns.
As a result, the Portfolio's security holdings also could become less diverse,
resulting in increased risk. Investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio could have effective voting control
over its operation.
The Conseco International Fund may withdraw its entire investment from
the Portfolio at any time if the Board determines that it is in the best
interests of the Conseco International Fund and its shareholders to do so. The
Conseco International Fund might withdraw, for example, if there were other
investors in the Portfolio with power to, and who did by a vote of the
shareholders of all investors (including the Conseco International Fund), change
the investment objective or policies of the Portfolio in a manner not acceptable
to the Board. A withdrawal could result in a distribution in kind of portfolio
securities (as opposed to a cash distribution) by the Portfolio. That
distribution could result in a less diversified portfolio of investments for the
Conseco International Fund and could affect adversely the liquidity of the
Conseco International Fund's portfolio. If the Conseco International Fund
decided to convert those securities to cash, it usually would incur brokerage
fees or other transaction costs. If the Conseco International Fund withdrew its
investment from the Portfolio, the Board would consider what action might be
taken, including the management of the Conseco International Fund's assets by
the Adviser in accordance with the Fund's investment objective and policies or
the investment of all of the Conseco International Fund's investable assets in
another pooled investment entity having substantially the same investment
objective as the Fund. In the event the Board determines not to have the Adviser
manage the Conseco International Fund's assets, the inability of the Fund to
find a suitable replacement investment could have a significant impact on
shareholders of the Conseco International Fund.
Each investor in the Portfolio, including the Conseco International
Fund, will be liable for all obligations of the Portfolio, but not of any other
series of the AMR Trust. The risk to an investor in the Portfolio of incurring
financial loss beyond the amount of its investment on account of such liability,
however, would be limited to the unlikely circumstance in which the Portfolio
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was unable to meet its obligations. Upon liquidation of the Portfolio, investors
would be entitled to share pro rata in the net assets of the Portfolio available
for distribution to investors. For additional information regarding liability of
shareholders of the Conseco International Fund, see "General" in the SAI.
MANAGEMENT
The Trustees of the Trust decide upon matters of general policy for the
Trust. In addition, the Trustees review the actions of the Adviser, as set forth
below. The Trust's officers supervise the daily business operations of the
Trust. For information about the Trust's Board of Trustees and the Trust's
officers, see "Management" in the SAI. The AMR Trust Board has general
supervisory responsibility over the AMR Trust's affairs.
THE ADVISER
Conseco Capital Management, Inc., 11825 N. Pennsylvania Street, Carmel,
Indiana 46032, has been retained under 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 manages
and serves as sub-adviser to other registered investment companies and manages
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 also
manages foundations, endowments, public and corporate pension plans, and private
client accounts. As of December 31, 1997, the Adviser managed in excess of $38
billion in assets.
The Adviser generally manages the affairs of the Trust, subject to the
supervision of the Board. While the Conseco International Fund operates in a
"master-feeder" structure, the Adviser is responsible for selecting the
investment company in which that Fund invests. If the Adviser is not satisfied
with the performance of that investment company, the Adviser will recommend to
the Board other investment companies in which the Conseco International Fund may
invest, or recommend that the Adviser manage the Conseco International Fund
itself.
Under the Investment Advisory Agreements, the Adviser has contracted to
receive an investment advisory fee equal to an annual rate of .70% of the
average daily net asset value of the Conseco Equity Fund, Conseco Asset
Allocation Fund, Conseco 20 Fund, and Conseco High Yield Fund, 0.45% of the
average daily net asset value of the Conseco Fixed Income Fund, and 1.00% of the
average daily net asset value of the Conseco International Fund. The Adviser has
voluntarily undertaken to reduce its advisory fee with respect to the Conseco
Fixed Income Fund and the Conseco High Yield Fund until April 30, 1999. See "Fee
Table" for more information. The Adviser has voluntarily agreed to waive all of
its fees under the Conseco International Fund's Investment Advisory Agreement so
long as that Fund invests all of its investable assets in the International
Portfolio or another investment company with substantially the same investment
objective and policies as the Fund. For more information about the Portfolio's
management, see "AMR and the Investment Advisers to the International Equity
Portfolio" below.
The Adviser, the Administrator and the Distributor have voluntarily
agreed to waive their fees and/or reimburse expenses to the extent that the
ratio of expenses to net assets on an annual basis for Class A shares of the
Conseco Equity and Conseco Asset Allocation Funds exceeds 1.50%, the Conseco
Fixed Income Fund exceeds 1.25%, the Conseco 20 Fund exceeds 1.75%, the Conseco
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<PAGE>
High Yield Fund exceeds 1.40%, and the Conseco International Fund exceeds 2.25%;
and to the extent that the ratio of expenses to net assets on an annual basis
for Class B shares and Class C shares of the Conseco Equity and Conseco Asset
Allocation Funds exceeds 2.00%, the Conseco Fixed Income Fund exceeds 1.60%, the
Conseco High Yield Fund exceeds 1.90%, the Conseco 20 Fund exceeds 2.25% and the
Conseco International Fund exceeds 2.75%. These voluntary limits may be
discontinued at any time after April 30, 1999.
The investment professionals primarily responsible for the management
of the Funds (except the Conseco International Fund and the International
Portfolio) with the respective responsibilities and business experience for the
past five years are as follows:
CONSECO FIXED INCOME FUND: Gregory J. Hahn, CFA, 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.
CONSECO HIGH YIELD FUND: Michael C. Buchanan, CFA, Second Vice
President of the Adviser, William F. Ficca, Vice President and Director of
Research of the Adviser, and Peter C. Andersen, CFA, Second Vice President,
Portfolio Analytics for the Adviser. Mr. Buchanan is responsible for the
Adviser's high yield, emerging markets and distressed debt trading, as well as
overseeing its investment grade bond trading and Canadian research. Previously,
he worked at the Adviser in convertible securities trading and industrial fixed
income research. Mr. Buchanan joined the Adviser in 1990.
Mr. Andersen is co-manager of the Conseco High Yield Focus Fund, and is
responsible for fixed income management of institutional client accounts. Mr.
Andersen joined the Adviser in 1997. Prior to joining the Adviser, he was a
portfolio manager for Colonial Management Associates in Boston, where he managed
over $650 million in high yield, tax-free mutual funds.
Mr. Ficca oversees the Adviser's research efforts. In addition, he is
the portfolio manager of certain other investment products managed by the
Adviser. Mr. Ficca joined the Adviser in 1991. Previously, Mr. Ficca worked in
investment banking and traded corporate and government bonds.
CONSECO ASSET ALLOCATION FUND: Gregory J. Hahn, CFA, 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 below.
CONSECO EQUITY FUND: Thomas J. Pence, CFA, 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.
CONSECO 20 FUND: Thomas J. Pence, Vice President for the Adviser, and
Erik J. Voss, Senior Securities Analyst for the Adviser. See Mr. Pence's
business experience above.
Mr. Voss assists in research and portfolio management for all of the
Adviser's equity portfolios. Mr. Voss joined the Adviser in 1996. Previously, he
worked as an equity analyst for another investment adviser.
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<PAGE>
Like other financial and business organizations, the Funds could be
adversely affected if computer systems they rely on do not properly process
date-related information and data involving the years 2000 and after. The
Adviser is taking steps that it believes are reasonable to address this problem
in its own computer systems and to obtain assurances that comparable steps are
being taken by the Funds' other major service providers. The Adviser also
attempts to evaluate the potential impact of this problem on the issuers of
investment securities that the Funds purchase. However, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds.
AMR AND THE INVESTMENT ADVISERS TO THE INTERNATIONAL EQUITY PORTFOLIO
AMR has entered into a Management Agreement with the AMR Trust that
obligates AMR to provide or oversee all administrative, investment advisory and
portfolio management services for the AMR Trust, including the International
Portfolio. AMR, located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth,
Texas 76155, is a wholly owned subsidiary of AMR Corporation, the parent company
of American Airlines, Inc., and was organized in 1986 to provide investment
management, advisory, administrative and asset management consulting services.
As of December 31, 1997, AMR had assets under management totaling approximately
$18.4 billion including approximately $6.1 billion under active management and
$12.3 billion as named fiduciary or fiduciary adviser. Of the total,
approximately $14.2 billion of assets are related to AMR Corporation.
AMR develops the investment program for the International Portfolio,
selects and changes investment advisers (subject to approval by the AMR Trust
Board), allocates assets among investment advisers, monitors their investment
programs and results, and coordinates the investment activities of the
investment advisers to ensure compliance with regulatory restrictions. For more
information about these matters, see the SAI. AMR also provides the Portfolio
with office space, office equipment and personnel necessary to manage and
administer its operations.
AMR oversees the Portfolio's participation in securities lending
activities and any action taken by securities lending agents in connection with
those activities to ensure compliance with all applicable regulatory and
investment guidelines.
AMR bears the expense of providing the above services and pays the fees
of the Portfolio's investment advisers. As compensation for doing so, AMR
receives from the Portfolio an annualized advisory fee that is calculated and
accrued daily, equal to the sum of (1) 0.10% of the net assets of the Portfolio,
plus (2) all fees payable by AMR to the Portfolio's investment advisers as
described below. The advisory fee is payable quarterly in arrears. AMR also
receives compensation in connection with securities lending activities. If the
Portfolio lends its portfolio securities and receives cash collateral from the
borrower, AMR may receive up to 25% of the net annual interest income (the gross
interest earned by the investment less the amount paid to the borrower as well
as related expenses) received from the investment of such cash. If a borrower
posts collateral other than cash, the borrower will pay to the Portfolio a loan
fee. AMR may receive up to 25% of the loan fees posted by borrowers. Currently,
AMR receives 10% of the net annual interest income from the investment of cash
collateral or 10% of the loan fees posted by borrowers.
William F. Quinn has served as President of AMR since it was founded in
1986 and Nancy A. Eckl serves as Vice President - Trust Investments of AMR. Ms.
Eckl previously served as Vice President - Finance and Compliance of AMR from
December 1990 to May 1995. In these capacities, Mr. Quinn and Ms. Eckl have
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<PAGE>
primary responsibility for the day-to-day operations of the Portfolio. These
responsibilities include oversight of the investment advisers to the Portfolio,
regular review of each investment adviser's performance and asset allocations
among them.
The Portfolio's investment advisers are listed below. Each investment
adviser has entered into a separate investment advisory agreement with AMR to
provide investment advisory services to the Portfolio. AMR is permitted to enter
into new or modified advisory agreements with existing or new investment
advisers without approval of Conseco International Fund shareholders or
International Portfolio interest holders, but subject to approval of the AMR
Trust Board. The SEC issued an exemptive order which eliminates the need for
shareholder/interest holder approval, subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the Fund send a notice to shareholders containing information
about the change that would be included in a proxy statement. AMR recommends
investment advisers to the AMR Trust Board based upon its continuing
quantitative and qualitative evaluation of the investment advisers' skill in
managing assets using specific investment styles and strategies. The allocation
of assets among investment advisers may be changed at any time by AMR.
Allocations among investment advisers will vary based upon a variety of factors,
including the overall investment performance of each investment adviser, the
Portfolio's cash flow needs and market conditions. AMR need not allocate assets
to each investment adviser designated for the Portfolio. The investment advisers
can be terminated without penalty to the AMR Trust by AMR, the AMR Trust Board
or the interest holders of the Portfolio. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an investment
adviser, and AMR does not expect to recommend frequent changes of investment
advisers. The Prospectus will be supplemented if additional investment advisers
are retained or the contract with any existing investment adviser is terminated.
The investment advisers provide the Portfolio with portfolio investment
management and related recordkeeping services. Each investment adviser has
discretion to purchase and sell securities for its segment of the Portfolio's
assets in accordance with the Portfolio's objective, policies and restrictions
and the more specific strategies provided by AMR. As compensation for its
services, each investment adviser is paid a fee by AMR out of the proceeds of
the management fee received by AMR from the Portfolio.
Hotchkis and Wiley, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley. Hotchkis and Wiley is a division
of the Capital Management Group of Merrill Lynch Asset Management, L.P., a
wholly owned indirect subsidiary of Merrill Lynch & Co., Inc. Assets under
management as of December 31, 1997 were approximately $12.3 billion, which
included approximately $1.1 billion of assets of AMR Corporation and its
subsidiaries and affiliated entities. The advisory contract provides for AMR to
pay Hotchkis and Wiley an annualized fee equal to .60% of the first $10 million
of assets under its discretionary management, .50% of the next $140 million of
assets, .30% of the next $50 million of assets, .20% of the next $800 million of
assets and .15% of all excess assets.
Morgan Stanley Asset Management Inc. ("MSAM"), 25 Cabot Square, London,
United Kingdom E14 4QA, is a wholly owned subsidiary of Morgan Stanley, Dean
Witter & Co. MSAM provides portfolio management and named fiduciary services to
taxable and nontaxable institutions, international organizations and individuals
investing in United States and international equity and debt securities. As of
September 30, 1997, MSAM, together with its other asset management affiliates,
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<PAGE>
had assets under management totaling approximately $142.5 billion, including
approximately $112.3 billion under active management and $20.2 billion as named
fiduciary or fiduciary adviser. As of December 31, 1997, MSAM had investment
authority over approximately $561.9 million of assets of AMR Corporation and its
subsidiaries and affiliated entities. AMR pays MSAM an annual fee equal to .80%
of the first $25 million in assets under its discretionary management, .60% of
the next $25 million in assets, .50% of the next $25 million in assets and .40%
of all excess assets.
Templeton Investment Counsel, Inc. ("Templeton"), 500 East Broward
Blvd., Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional
investment counseling firm which has been providing investment services since
1979. Templeton is indirectly owned by Franklin Resources, Inc. As of December
31, 1997, Templeton had discretionary investment management authority with
respect to approximately $21.7 billion of assets, including approximately $511.6
million of assets of AMR Corporation and its subsidiaries and affiliated
entities. AMR pays Templeton an annualized fee equal to .50% of the first $100
million in assets under its discretionary management, .35% of the next $50
million in assets, .30% of the next $250 million in assets and .25% on assets
over $400 million.
Solely for the purpose of determining the applicable percentage rates
when calculating the fees for each investment adviser other than MSAM, there
shall be included all other assets or trust assets of American Airlines, Inc.
also under management by each respective investment adviser. For the purpose of
determining the applicable percentage rates when calculating MSAM's fees, all
equity account assets managed by MSAM on behalf of American Airlines, Inc. shall
be included. The inclusion of any such assets will result in lower overall fee
rates being applied to the Portfolio.
ADMINISTRATIVE FEES
Pursuant to an administration agreement ("Administration Agreement"),
the Administrator supervises the overall administration of the Funds. These
administrative services include supervising the preparation and filing of all
documents required for compliance by the Funds with applicable laws and
regulations, supervising the maintenance of books and records, and other general
and administrative responsibilities. In addition, while the Conseco
International Fund operates in a "master-feeder" structure, the Administrator
will monitor the performance of the investment company in which the Conseco
International Fund invests, coordinate the Conseco International Fund's
relationship with that investment company and communicate with the Board and
shareholders regarding the performance of that investment company and the Fund's
master-feeder structure.
For providing these services, the Administrator receives a fee from
each of the Funds (except the Conseco International Fund) of .20% per annum of
its average daily net assets. The Administrator receives a fee from the Conseco
International Fund of .75% per annum of its average daily net assets. Pursuant
to the Administration Agreement, the Administrator reserves the right to employ
one or more sub-administrators to perform administrative services for the Funds.
The Bank of New York performs certain administrative services for each of the
Funds, and AMR and State Street Bank and Trust Company ("State Street") perform
services for the Conseco International Fund, pursuant to agreements with the
Administrator.
DISTRIBUTION AND SERVICE PLANS
The Funds have adopted Distribution and Service Plans for Class A,
Class B and Class C shares to compensate the Distributor for distributing the
shares and servicing the accounts of shareholders of each such class. With
respect to Class A shares of each Fund except the Conseco Fixed Income Fund, the
Plans authorize payments to the Distributor of up to 0.50% annually of the
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average daily net assets attributable to Class A shares. The Plan for Class A
shares of the Conseco Fixed Income Fund authorizes payments to the Distributor
of up to 0.65% annually of the average daily net assets attributable to Class A
shares. The Plan for Class B and Class C shares of all the Funds authorizes
payments to the Distributor of up to 1.00% annually of each Fund's average daily
net assets attributable to Class B and Class C shares, respectively. The Plans
further provides for periodic payments by the Distributor to brokers, dealers,
and other financial intermediaries for providing shareholder services and for
promotional and other sales related costs. The portion of payments by Class A,
Class B or Class C of a Fund for shareholder servicing may not exceed an annual
rate of .25% of the average daily net asset value of the Fund's shares of that
class owned by clients of such broker, dealer or financial intermediary.
PURCHASE OF SHARES
HOW TO BUY SHARES
You may purchase Class A, Class B or Class C shares from any broker,
dealer, or other financial intermediary that has a selling agreement with the
Distributor. These firms may charge for their services in connection with your
purchase order. In addition, as discussed below, an account may be opened for
the purchase of shares of a Fund by mailing a completed account application and
a check payable to the appropriate Fund to the Conseco Fund Group, P.O. Box
8017, Boston, Massachusetts 02266-8017. Or you may telephone (800) 986-3384 to
obtain the number of an account to which you can wire or electronically transfer
funds and then send in a completed application. When placing purchase orders,
investors should specify whether the order is for Class A, Class B or Class C
shares.
Purchase orders for all Funds are accepted only on a business day as
defined below. Orders for shares received by the Funds' Transfer Agent on any
business day prior to the close of regular trading on the New York Stock
Exchange (the "NYSE") (normally 4:00 p.m. Eastern Time) will receive that day's
offering price. The offering price is net asset value plus, for shares of Class
A, a varying sales charge depending on the amount invested. For a discussion of
how the price of shares of each class is computed, see "Alternate Pricing
Arrangements." Orders received by the Transfer Agent after such time but prior
to the close of business on the next business day will receive the next business
day's offering price. A "business day" is any day on which the NYSE is open for
business. It is anticipated that the NYSE will be closed Saturdays and Sundays
and on days on which the NYSE observes New Year's Day, Martin Luther King Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Certain brokers, dealers, and other financial intermediaries may be
authorized to accept purchase orders on behalf of the Funds. A Fund will be
deemed to have received a purchase order when an authorized broker, dealer, or
other financial intermediary accepts the order. Orders placed through an
authorized broker, dealer, or other financial intermediary will receive the
offering price next calculated after the order has been accepted by such an
authorized firm. In all other cases, it is the responsibility of the broker,
dealer, or other financial intermediary to forward customer orders received
prior to the close of the NYSE to the Transfer Agent prior to its close of
business that same day (normally 4:00 p.m. Eastern Time).
Brokers, dealers and other financial intermediaries are required to
provide payment within three business days after placing an order. WHEN MAKING
PAYMENT FOR CONFIRMED PURCHASES VIA FEDERAL FUNDS WIRE, SUCH FIRMS MUST
REFERENCE THE CONFIRMATION NUMBER TO ENSURE TIMELY CREDIT.
The minimum initial investment by a shareholder in Class A, Class B or
Class C shares of a Fund is $250 and the minimum subsequent investment is $50.
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In the case of a salary reduction contribution under a retirement plan, both the
minimum initial investment and subsequent investment amount is $10. A purchase
of Class B shares of a Fund may not exceed $500,000; however, purchases of Class
A shares exceeding $500,000 are eligible for a sales load waiver (see "Purchase
of Class A Shares" below). These requirements may be changed or waived at any
time at the discretion of a Fund's officers. Each Fund and the Distributor or
Transfer Agent reserves the right to reject any order for the purchase of shares
in whole or in part. The Trust reserves the right to cancel any purchase order
for which payment has not been received by the third business day following
placement of the order.
The Distributor may provide promotional incentives including cash
compensation to certain brokers, dealers, or financial intermediaries whose
representatives have sold or are expected to sell significant amounts of shares
of one or more of the Funds. Other programs may provide, subject to certain
conditions, additional compensation to brokers, dealers, or financial
intermediaries based on a combination of aggregate shares sold and increases of
assets under management. All of the above payments will be made by the
Distributor or its affiliates out of their own assets. These programs will not
change the price an investor will pay for shares or the amount that a Fund will
receive from such sale.
You will receive a confirmation of each new transaction in your
account, which will also show you the number of Fund shares you own and the
number of shares being held in safekeeping by the Transfer Agent for your
account. You may rely on these confirmations in lieu of certificates as evidence
of your ownership. Certificates representing shares of the Funds will not be
issued.
PURCHASES BY WIRE
Purchases by wire transfer should be directed to the Transfer Agent. To
receive an account number call (800) 986-3384 between the hours of 8:00 a.m. and
4:00 p.m. (Eastern Time) on a business day (as defined above) on which your bank
is open for business. The following information will be requested: your name,
address, tax identification number, dividend distribution election, amount being
wired and the wiring bank. Instructions should then be given by you to your bank
to transfer funds by wire to: ABA # 011000028, State Street Bank, Boston, MA,
Account # 9905-244-1. If you arrange for receipt by the Transfer Agent of
Federal funds prior to the close of regular trading (normally 4:00 p.m. Eastern
Time) of the NYSE on a business day as defined above, you will receive that
day's offering price. Your bank may charge for these services.
PURCHASES BY CHECK
An initial investment made by check must be accompanied by an
application, completed in its entirety. Additional shares of the Funds may also
be purchased by sending a check payable to the applicable Fund, along with
information regarding your account, including the account number, to the
Transfer Agent. All checks should be drawn only on U.S. banks in U.S. funds, in
order to avoid fees and delays. A charge may be imposed if any check submitted
for investment does not clear. Third party checks will not be accepted. When
purchases are made by check, redemptions will not be allowed until the
investment being redeemed has been in the account for 15 business days.
PRE-AUTHORIZED INVESTMENT PLAN
For your convenience, a pre-authorized investment plan may be
established where your personal bank account is automatically debited and your
Fund account is automatically credited with additional full and fractional
shares ($50 minimum monthly investment). For further information on
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pre-authorized investment plans, please contact the Transfer Agent at (800)
986-3384. The minimum investment requirements may be waived by the Funds for
purchases made pursuant to certain programs such as payroll deduction plans and
retirement plans.
DOLLAR COST AVERAGING
The Dollar Cost Averaging ("DCA") program enables a shareholder to
transfer assets from the Federated money market fund 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 Federated money market
fund, 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
Federated money market fund 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.
ALTERNATIVE PRICING ARRANGEMENTS
Investors in the Funds may select Class A, Class B or Class C shares.
The primary difference between the classes lies in their initial sales charge
and contingent deferred sales charge structures and in their ongoing annual
expenses, including 12b-1 distribution and service fees. The decision as to
which class of shares is better suited to your needs depends on a number of
factors that you should discuss with your broker, dealer or other financial
intermediary. Generally, you should consider the amount you plan to invest and
the length of time you plan to hold your investment, the ongoing expenses plus
contingent deferred sales charges for Class B and Class C shares, the initial
sales charge plus ongoing expenses for Class A shares, the possibility that a
sales charge will be reduced or waived, the possibility that the return on Class
A shares - which is anticipated to be higher due to lower ongoing expenses will
offset the initial sales charge paid on such shares, and the automatic
conversion of Class B shares to Class A shares.
PURCHASE OF CLASS A SHARES
The offering price of Class A shares is net asset value plus a varying
sales charge depending on the amount invested. Although investors pay an initial
sales charge when they buy Class A shares, the ongoing expenses of this class
are lower than the ongoing expenses of Class B or Class C shares. The sales
charge applicable to shares of Class A is determined as follows:
<PAGE>
SALES CHARGE - ALL FUNDS EXCEPT CONSECO FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------- ----------------------- ------------------------- ------------------------------
ON PURCHASES OF: AS % OF PUBLIC AS % OF NET DEALER REALLOWANCE
OFFERING PRICE AMOUNT INVESTED AS % OF OFFERING PRICE
- ------------------------------------------- ----------------------- ------------------------- ------------------------------
Less than $50,000 5.75% 6.10% 5.00%
- ------------------------------------------- ----------------------- ------------------------- ------------------------------
$50,000 to $99,999 4.50% 4.71% 3.75%
- ------------------------------------------- ----------------------- ------------------------- ------------------------------
$100,000 to $249,999 3.50% 3.63% 2.75%
- ------------------------------------------- ----------------------- ------------------------- ------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- ------------------------------------------- ----------------------- ------------------------- ------------------------------
$500,000 or over None None 1.00%
- ------------------------------------------- ----------------------- ------------------------- ------------------------------
SALES CHARGE - CONSECO FIXED INCOME FUND
- ------------------------------------------- ----------------------- ------------------------ -------------------------------
ON PURCHASES OF: AS % OF PUBLIC AS % OF NET DEALER REALLOWANCE
OFFERING PRICE AMOUNT INVESTED AS % OF OFFERING PRICE
- ------------------------------------------- ----------------------- ------------------------ -------------------------------
Less than $50,000 5.00% 5.56% 4.50%
- ------------------------------------------- ----------------------- ------------------------ -------------------------------
$50,000 to $99,999 4.50% 4.71% 3.75%
- ------------------------------------------- ----------------------- ------------------------ -------------------------------
$100,000 to $249,999 3.50% 3.63% 2.75%
- ------------------------------------------- ----------------------- ------------------------ -------------------------------
$250,000 to $499,999 2.50% 2.56% 2.00%
- ------------------------------------------- ----------------------- ------------------------ -------------------------------
$500,000 or over None None 1.00%
- ------------------------------------------- ----------------------- ------------------------ -------------------------------
</TABLE>
The sales charge assessed upon the purchase of shares of Class A is not
an expense of Class A and has no effect on the net asset value of shares of
Class A. The Distributor may allow the selling broker, dealer or financial
intermediary to retain 100% of the sales charge. This may result in the selling
firm being considered an underwriter under the 1933 Act.
REDUCED SALES CHARGES FOR CLASS A SHARE PURCHASE
You may be eligible to buy Class A shares at reduced sales charge rates
in one or more of the following ways:
RIGHTS OF ACCUMULATION
The sales charge for new purchases of Class A shares of a Fund will be
determined by aggregating the net asset value of all shares of the Funds and
shares of the Federated money market fund owned by the shareholder at the time
of the new purchase. You must identify on the application all accounts to be
linked for Rights of Accumulation.
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COMBINED PURCHASES
You may aggregate your purchases of shares of the Funds with the
purchases of the other persons listed below to achieve discounts in the
applicable sales charges. The sales charge applicable to a current purchase of
Class A shares of a Fund by a person listed below is determined by adding the
value of Class A shares to be purchased to the aggregate value (at current net
asset value) of all shares of any of the Funds in the Trust and shares of the
Federated money market fund previously purchased and then owned. In addition, if
you own a Great American Reserve Insurance Company variable annuity contract,
the current cash value of such contract will be aggregated with your shares to
determine your sales charge. The Transfer Agent must be notified by you or your
broker, dealer or financial intermediary each time a qualifying purchase is
made.
Qualifying investments include those by you, your spouse and your
children under the age of 21, if all parties are purchasing Class A shares for
their own account(s), which may include tax qualified plans, such as an
Individual Retirement Account ("IRA," including a Roth IRA or Education IRA), or
by a company solely controlled (as defined in the 1940 Act) by such individuals.
Reduced sales charges also apply to purchases by a trustee or other fiduciary if
the investment is for a single trust, estate or fiduciary account, including
pension, profit-sharing or other employee benefit trust created pursuant to a
plan qualified under the Code. Reduced sales charges apply to combined purchases
by qualified employee benefit plans of a single corporation or of corporations
affiliated with each other in accordance with the 1940 Act. Purchases made for
nominee or street name accounts (securities held in the name of a broker or
another nominee such as a bank trust department instead of the customer) may not
be aggregated with those made for other accounts and may not be aggregated with
other nominee or street name accounts unless otherwise qualified as described
above.
LETTER OF INTENT
You may reduce your sales charge on all investments by meeting the
terms of a letter of intent, a non-binding commitment to invest a certain amount
within a 13-month period. Your existing holdings in the Trust may also be
combined with the investment commitment set forth in the letter of intent to
further reduce your sales charge. Up to 5% of the letter amount will be held in
escrow to cover additional sales charges which may be due if your total
investments over the letter period are not sufficient to qualify for a sales
charge reduction. See the SAI and the application for further details.
WAIVER OF CLASS A INITIAL SALES CHARGE
No sales charge is imposed on sales of Class A shares to certain
investors. However, in order for the following sales charge waivers to be
effective, the Transfer Agent must be notified of the waiver when the purchase
order is placed. The Transfer Agent may require evidence of your qualification
for the waiver. No sales charge is imposed on the following investments:
o by current or retired officers, directors and employees (and their
parents, grandparents, spouse, and minor children) of the Trust, Conseco
and its affiliates and the Transfer Agent;
o by any participant in (i) a tax qualified retirement plan provided that
the initial amount invested by the plan totals $500,000 or more, the plan
has 50 or more employees eligible to participate at the time of purchase,
or the plan certifies that it will have projected annual contributions of
$200,000 or more; or (ii) by one of a group of tax qualified employee
benefit plans that purchase through an omnibus account relationship with
the Funds maintained by a single service provider, provided that such plans
make an aggregated initial investment of $500,000 or more;
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o by brokers, dealers, and other financial intermediaries that have a
selling agreement with the Distributor, if they purchase shares for their
own accounts or for retirement plans for their employees;
o by employees and registered representatives (and their parents,
grandparents, spouses and minor children) of brokers, dealers, and other
financial intermediaries described above; the purchaser must certify to the
Distributor at the time of the purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's parents,
grandparents, spouse or minor children);
o by any charitable organization, state, county, city, or any
instrumentality, department, authority or agency thereof which has
determined that Class A is a legally permissible investment and which is
prohibited by applicable investment law from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company;
o by one or more members of a group of at least 100 persons (and persons who
are retirees from such group) engaged in a common business, profession,
civic or charitable endeavor or other activity, and the spouses and minor
children of such persons, pursuant to a marketing program between the
Distributor and such group;
o (i) through an investment adviser who makes such purchases through a
broker, dealer, or other financial intermediary (each of which may impose
transaction fees on the purchase), or (ii) by an investment adviser for its
own account or for a bona fide advisory account over which the investment
adviser has investment discretion;
o through a broker, dealer or other financial intermediary which maintains a
net asset value purchase program that enables the Funds to realize certain
economies of scale;
o through bank trust departments or trust companies on behalf of bona fide
trust or fiduciary accounts by notifying the Distributor in advance of
purchase; a bona fide advisory, trust or fiduciary account is one which is
charged an asset-based fee and whose purpose is other than purchase of Fund
shares at net asset value;
o by purchasers in connection with investments related to a bona fide medical
savings account; or
o by an account established under a wrap fee or asset allocation program
where the accountholder pays the sponsor an asset-based fee.
Additionally, no sales charge is imposed on shares that are (a) issued
in plans of reorganization, such as mergers, asset acquisitions and exchange
offers, to which a Fund is a party, (b) purchased by the reinvestment of loan
repayments by participants in retirement plans, (c) purchased by the
reinvestment of dividends or other distributions from a Fund, or (d) purchased
and paid for with the proceeds of shares redeemed in the prior 60 days from a
mutual fund on which an initial sales charge or contingent deferred sales charge
was paid (other than a fund managed by the Adviser or any of its affiliates that
is subject to the exchange privilege described below); the purchaser must
certify to the Distributor at the time of purchase that the purchaser is a prior
load investor.
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PURCHASE OF CLASS B SHARES
The offering price of Class B shares is net asset value without any
initial sales charge. As a result, the entire purchase amount is immediately
invested. However, the ongoing expenses of Class B shares are higher than those
of Class A shares. A purchase of Class B shares of a Fund may not exceed
$500,000; however, purchases of Class A shares exceeding $500,000 are eligible
for a sales load waiver (see "Purchase of Class A Shares" above). A contingent
deferred sales charge is imposed upon redemptions of Class B shares within six
years of their purchase. The contingent deferred sales charge is a percentage of
(1) the net asset value of the shares at the time of purchase or (2) the net
asset value of the shares at the time of redemption, whichever is less. The
contingent deferred sales charge is determined as follows:
- --------------------------------------------------------------------------------
REDEMPTION DURING CONTINGENT DEFERRED SALES CHARGE
- --------------------------------------------------------------------------------
1st year since purchase 5%
- --------------------------------------------------------------------------------
2nd year since purchase 4%
- --------------------------------------------------------------------------------
3rd year since purchase 3%
- --------------------------------------------------------------------------------
4th year since purchase 3%
- --------------------------------------------------------------------------------
5th year since purchase 2%
- --------------------------------------------------------------------------------
6th year since purchase 1%
- --------------------------------------------------------------------------------
7th year since purchase 0%
- --------------------------------------------------------------------------------
8th year since purchase 0%
- --------------------------------------------------------------------------------
The contingent deferred sales charge will not apply to shares acquired by the
reinvestment of dividends or capital gains distributions.
In determining the applicability and rate of any contingent deferred
sales charge, Class B shares acquired through reinvestment of dividends and
capital gains distributions will be redeemed first, followed by the Class B
shares held by the shareholder for the longest period of time. The contingent
deferred sales charge, if any, upon redemption of Class B shares acquired
through an exchange will be calculated based on the original purchase date of
the Class B shares exchanged.
The Distributor compensates brokers, dealers, and other financial
intermediaries who sell Class B shares. At the time a shareholder purchases
Class B shares, the Distributor pays the broker, dealer, or other financial
intermediary 4% of the purchase amount from the Distributor's own assets. The
proceeds of the contingent deferred sales charge and the 12b-1 fee, in part, are
used to defray these expenses.
AUTOMATIC CONVERSION OF CLASS B SHARES
Class B shares will automatically convert to a number of Class A shares
of equal dollar value eight years after purchase. This conversion feature
benefits shareholders because Class A shares have lower ongoing expenses than
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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.
PURCHASE OF CLASS C SHARES
The offering price of Class C shares is net asset value without any
initial sales charge. As a result, the entire purchase amount is immediately
invested. However, the ongoing expenses of Class C shares are higher than those
of Class A shares. Class C shares never convert to any other class of shares.
Class C shares held for less than one year are subject to a contingent
deferred sales charge on redemptions in an amount equal to 1% of the lower of
(1) the net asset value of the shares at the time of purchase or (2) the net
asset value of the shares at the time of redemption. Class C shares held one
year or longer are not subject to this contingent deferred sales charge. The
contingent deferred sales charge also will not apply to shares acquired by the
reinvestment of dividends or capital gains distributions. The order in which
Class C shares are redeemed will be determined as described for Class B shares
(see "Purchase of Class B Shares").
The contingent deferred sales charge, if any, upon redemption of Class
C shares acquired through an exchange and held less than one year will be
calculated based on the original purchase date of the Class C shares exchanged.
The Distributor compensates brokers, dealers, and other financial
intermediaries who sell Class C shares. At the time a shareholder purchases
Class C shares, the Distributor pays the broker, dealer, or other financial
intermediary 1% of the purchase amount from the Distributor's own assets. The
proceeds of the contingent deferred sales charge and the 12b-1 fee, in part, are
used to defray these expenses.
WAIVERS OF THE CONTINGENT DEFERRED SALES CHARGE FOR CLASS B AND CLASS C
To obtain a waiver of the contingent deferred sales charge, you must
notify the Transfer Agent, who may require evidence of your qualification. The
contingent deferred sales charge will not apply to:
o any partial or complete redemption in connection with a distribution
without federal tax income penalty under a tax-qualified retirement plan,
upon separation from service and attaining age 55;
o 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;
o 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;
o 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;
o mandated minimum distributions from a tax-qualified retirement plan, IRA,
SIMPLE plan, eligible 457 plan, or 403(b) plan;
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o substantially equal periodic payments as defined in Section 72(t) of the
Code;
o 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);
o 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);
o redemptions in connection with distributions from a Roth IRA or Roth
Conversion IRA that are qualified distributions under the Code;
o redemptions in connection with distributions from an Education IRA that
are used for qualified higher education expenses under the Code or which
are required by the Code to be distributed;
o redemptions in connection with investments related to a bona fide medical
savings account; and
o redemptions from an account established under a wrap fee or asset
allocation program where the accountholder pays the sponsor an asset-based
fee.
REDEMPTION OF SHARES
HOW TO REDEEM SHARES OF THE FUNDS
Shares are redeemed at net asset value next determined after receipt of
a redemption request in good form on any business day, reduced, for shares of
Class B and Class C, by any applicable contingent deferred sales charge.
REDEMPTIONS BY MAIL
A written request for redemption must be received by the Transfer Agent
to constitute a valid tender for redemption. It will also be necessary for
corporate investors and other associations to have an appropriate certification
authorizing redemptions by a corporation or an association on file before a
redemption request will be considered in proper form. A suggested form of such
certification is provided on the application accompanying this Prospectus. A
signature guarantee is required for redemptions of $50,000 or more. A signature
guarantee may be obtained from most banks, brokers and dealers, credit unions,
savings associations and financial institutions, but not from a notary public.
REDEMPTIONS BY WIRE OR TELEPHONE
Brokers, dealers, or other financial intermediaries may communicate
redemption orders by wire or telephone. These firms may charge for their
services in connection with your redemption request but neither the Funds nor
the Distributor imposes any such charges.
The Funds and the Transfer Agent will not be responsible for the
authenticity of telephone instructions or losses, if any, resulting from
unauthorized shareholder transactions if the Funds or the Transfer Agent
reasonably believe that such instructions are genuine. The Funds and the
Transfer Agent have established procedures that the Funds believe are reasonably
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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.
REDEMPTIONS THROUGH BROKERS, DEALERS AND OTHER FINANCIAL INTERMEDIARIES
Certain brokers, dealers, and other financial intermediaries may be
authorized to accept redemption orders on behalf of the Funds. A Fund will be
deemed to have received a redemption order when an authorized broker, dealer, or
other financial intermediary accepts the order. Orders placed through an
authorized broker, dealer, or other financial intermediary will receive the net
asset value next calculated after the order has been accepted by such an
authorized firm, minus any applicable contingent deferred sales charge. In all
other cases, it is the responsibility of the broker, dealer, or other financial
intermediary to forward customer redemption orders received prior to the close
of the NYSE to the Transfer Agent prior to its close of business that same day
(normally 4:00 p.m. Eastern Time).
EXPEDITED REDEMPTIONS
You may have the payment of redemption requests (of $250 or more) wired
or mailed directly to a domestic commercial bank account that you have
previously designated. Normally, such payments will be transmitted on the second
business day following receipt of the request (provided redemptions may be
made). You may request a wire redemption by telephone or written request sent to
the Transfer Agent. For telephone redemptions, call the Transfer Agent at (800)
986-3384. You must complete the "Expedited Redemptions" section of the
application for this privilege to be applicable.
SYSTEMATIC WITHDRAWAL PLAN
You may elect to have regular monthly or quarterly payments in any
fixed amount in excess of $50 made to you, or to anyone else properly
designated, as long as the account has a value of at least $5,000 at the time of
election. You must determine the fixed payment amount for the systematic
withdrawal plan.
There are no separate charges under this plan. A number of full and
fractional shares equal in value to the amount of the requested payment will be
redeemed. Such redemptions are normally processed on or about the 25th day of
each month or quarter. Checks are then mailed on or about the first of the
following month. If you elect to have a Systematic Withdrawal Plan, you must
have all dividends and capital gains reinvested. To establish systematic cash
withdrawals, please complete the systematic cash withdrawal section on the
application.
You may change the amount, frequency, and payee, or terminate this
plan, by giving written notice to the Transfer Agent. As shares of a Fund are
redeemed under the plan, you may realize a capital gain or loss to be reported
for income tax purposes. A Systematic Withdrawal Plan may be terminated or
modified at any time upon written notice by you or a Fund.
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GENERAL
Payment to shareholders for shares redeemed or repurchased will be made
within seven days after receipt by the Transfer Agent. A Fund may delay the
payment of redemption proceeds until the check used to purchase the shares being
redeemed has cleared, which may take up to 15 days or longer. To reduce such
delay, the Funds recommend that all purchases be made by bank wire Federal
funds. A Fund may suspend the right of redemption under certain extraordinary
circumstances in accordance with the rules of the SEC.
EXCHANGE PRIVILEGE
Class A, Class B or Class C shares of a Fund may be exchanged for
shares of the same class of another Fund or for shares of the Federated money
market fund at the relative net asset values per share at the time of the
exchange. Shares of the Federated money market fund may be exchanged for any
Class A shares at relative net asset values per share at the time of the
exchange to the extent that the money market fund shares are attributable to
Class A shares on which an initial sales charge was previously payable and
dividend reinvestments on such Class A shares. An initial sales charge will be
imposed on other exchanges of shares of the Federated money market fund for
Class A shares of the Funds.
No contingent deferred sales charge applies at the time Class B or
Class C shares of a Fund are exchanged for shares of the same class of another
Fund or series of the Trust, or for shares of the Federated money market fund.
However, upon redemption of shares acquired through such an exchange, a
contingent deferred sales charge may be deducted from the redemption proceeds
based on the original purchase date of the Class B or Class C shares exchanged.
Shares of the Federated money market fund that are attributable to an
exchange from Class B or Class C shares of a Fund may later be exchanged for
Fund shares of the same class without the imposition of a contingent deferred
sales charge. However, upon redemption of the Fund shares acquired through such
an exchange, a contingent deferred sales charge may be deducted from the
redemption proceeds based on the original purchase date of the Class B or Class
C shares.
The total value of shares of a fund purchased by exchange must at least
equal the fund's minimum investment requirement. Before exchanging shares, you
should consider the differences in investment objectives and expenses of the
fund into which the exchange would be made. Shares are normally redeemed from
one fund and purchased from the other fund in the exchange transaction on the
same business day on which the Transfer Agent receives an exchange request that
is in proper form by the close of the NYSE that day.
REINSTATEMENT PRIVILEGE
If you redeem any or all of your Class A shares of a Fund, you may
reinvest all or any portion of the redemption proceeds in Class A shares of any
Fund at net asset value without any initial sales charge, provided that you make
such reinvestment within 180 calendar days after the redemption date. If you
redeem any or all of your Class B or Class C shares of a Fund, and pay a
contingent deferred sales charge on those shares, you may reinvest all or any
portion of the redemption proceeds in Class B or Class C shares, respectively,
of any Fund and be reimbursed for the amount of the contingent deferred sales
charge, provided that you make such reinvestment within 180 calendar days of the
redemption date. The original purchase date of the Class B or Class C shares
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redeemed will be used for purposes of calculating the contingent deferred sales
charge, if any, upon redemption of the shares acquired with this privilege.
The reinstatement privilege may be utilized by a shareholder only once
with respect to a Fund and may be subject to other restrictions.
ELECTRONIC TRANSFERS THROUGH AUTOMATED CLEARING HOUSE
Electronic transfers through Automated Clearing House ("ACH") allow you
to initiate a purchase or redemption for as little as $50 or as much as $50,000
between your bank account and Fund account using the ACH network. Initial
purchase minimums apply. You must complete the "ACH" section of the application
for this privilege to be applicable.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined for each class of shares
for each Fund as of the close of regular trading on the NYSE (normally 4:00 p.m.
Eastern Time) on each business day (as previously defined) by dividing the value
of the Fund's net assets attributable to a class (the class' pro rata share of
the value of the Fund's assets minus the class' pro rata share of the value of
the Fund's liabilities) by the number of shares of that class outstanding.
For each of the Funds except the Conseco International Fund and the
International Portfolio, the assets of the Fund are valued as follows:
Securities that 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.
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. Debt securities with maturities of sixty
(60) days or less are valued at amortized cost.
For the Conseco International Fund and the International Portfolio,
equity securities listed on securities exchanges, including all but United
Kingdom securities, are valued at the last quoted sales price on a designated
exchange prior to the close of trading on the NYSE or, lacking any sales, on the
basis of the last current bid price prior to the close of trading on the NYSE.
Securities of the United Kingdom held in the Portfolio are priced at the last
jobber price (mid of the bid and offer prices quoted by the leading stock jobber
in the security) prior to close of trading on the NYSE. Trading in foreign
markets is usually completed each day prior to the close of the NYSE. However,
events may occur which affect the values of such securities and the exchange
rates between the time of valuation and the close of the NYSE. Should events
materially affect the value of such securities during this period, the
securities are priced at fair value, as determined in good faith and pursuant to
procedures approved by the AMR Trust Board. Over-the-counter equity securities
are valued on the basis of the last bid price on that date prior to the close of
trading. Debt securities (other than short-term securities) will normally be
valued on the basis of prices provided by a pricing service and may take into
account appropriate factors such as institution-size trading in similar groups
of securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. In some cases, the prices of debt
securities may be determined using quotes obtained from brokers. Securities for
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which market quotations are not readily available are valued at fair value, as
determined in good faith and pursuant to procedures approved by the AMR Trust
Board. Assets and liabilities denominated in foreign currencies and forward
contracts are translated into U.S. dollar equivalents based on prevailing market
rates. Investment grade short-term obligations with 60 days or less to maturity
are valued using the amortized cost method.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are declared and distributed
quarterly by the Conseco Equity Fund, the Conseco Asset Allocation Fund and the
Conseco 20 Fund, monthly by the Conseco Fixed Income Fund and the Conseco High
Yield Fund, and annually by the Conseco International Fund; however, the
Trustees may decide to declare dividends at other intervals. For dividend
purposes, (1) net investment income of each of the Funds except the Conseco
International Fund consists of all dividends and interest it receives, less its
expenses (including fees payable to the Adviser and its affiliates), and (2) the
Conseco International Fund's net investment income consists of its proportionate
share of the Portfolio's dividends and interest, less that Fund's expenses and
its proportionate share of the Portfolio's expenses. Distributions of each
Fund's net capital gain (the excess of net long-term capital gain over net
short-term capital loss), net short-term capital gains, and net realized gains
from foreign currency transactions - in the case of Conseco International Fund,
its proportionate share of the Portfolio's gains -- are declared and distributed
to its shareholders annually after the close of the Fund's fiscal year.
Dividends and other distributions paid on each class of shares of a
Fund are calculated at the same time and in the same manner. Dividends on Class
A, Class B, and Class C shares of a Fund are expected to be lower than those on
its Class Y shares because Class A, Class B, and Class C shares have higher
expenses resulting from their distribution and service fees. Dividends on each
class also might be affected differently by the allocation of other
class-specific expenses.
DISTRIBUTION OPTIONS. When you open your account, specify on your
application how you want to receive your distributions. For retirement accounts,
all Fund distributions are reinvested. For other accounts, you have the
following options:
REINVEST ALL DISTRIBUTIONS. You can elect to reinvest all dividends and
other 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 other
distributions by check or sent to your bank account.
REINVEST OTHER DISTRIBUTIONS ONLY. You can elect to reinvest other
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 other distributions from a Fund or have them sent to your bank
account.
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TAXES
Each Fund is treated as a separate corporation, and intends to qualify
as a "regulated investment company" ("RIC"), under the Code. As such, and by
complying with the applicable Code provisions regarding the amount and timing of
its distributions, each Fund will be allowed a deduction for amounts distributed
to its shareholders from its investment company taxable income (generally, its
net investment income, net short-term capital gains and net gains from certain
foreign currency transactions) and net capital gain - in the case of the Conseco
International Fund, its share of the Portfolio's income and 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 a 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 a Fund (in the case of the Conseco International Fund, its
share of the dividends received by the Portfolio) from U.S. corporations will be
eligible for the dividends-received deduction allowed to corporations; however,
dividends received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the federal alternative
minimum tax.
Distributions of each Fund's net capital gain (whether paid in cash or
reinvested additional shares), when designated as such, will be taxable to you
as long-term capital gain, regardless of how long you have held your Fund
shares. Under the Taxpayer Relief Act of 1997, different maximum tax rates apply
to a non-corporate taxpayer's net capital gain depending on the taxpayer's
holding period and marginal rate of federal income tax -- generally, 28% for
gain recognized on capital assets held for more than one year but not more than
18 months and 20% (10% for taxpayers in the 15% marginal tax bracket) for gain
recognized on capital assets held for more than 18 months. Each Fund may divide
each net capital gain distribution into a 28% rate gain distribution and a 20%
rate gain distribution (in accordance with the Fund's holding periods for the
securities it sold that generated the distributed gain), in which event its
shareholders must treat those portions accordingly.
Shareholders who are not subject to tax on their income generally will
not be required to pay tax on distributions from the Funds.
Dividends and other distributions declared by a Fund in October,
November, or December, but received by you in January, generally are taxable to
you in the year in which declared. Each Fund will inform you after the end of
each calendar year as to the amount and nature of dividends and other
distributions paid (or deemed paid) to you for that year. The information
regarding capital gain distributions will designate the portions thereof subject
to the different maximum rates of tax applicable to non-corporate taxpayers' net
capital gain indicated above.
When you redeem (sell) shares, it may result in a taxable gain or loss
to you, depending on whether you receive more or less than your adjusted basis
for the shares. An exchange of any Fund's shares, as described under "Purchase
and Redemption of Shares -- Exchange Privilege," generally will have similar tax
consequences. Special rules apply when you dispose of Class A shares of a Fund
through a redemption or exchange within 90 days after your purchase thereof and
subsequently reacquire Class A shares of the same Fund or acquire Class A shares
of another Fund without paying a sales charge. In these cases, any gain on the
disposition of the original Class A shares will be increased, or any loss
decreased, by the amount of the sales charge paid when you acquired those
shares, and that amount will increase the basis of the shares subsequently
acquired. In addition, if you purchase shares of a Fund (whether pursuant to the
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reinstatement privilege or otherwise) within thirty days before or after
redeeming other shares of that Fund (regardless of class) at a loss, all or part
of that loss will not be deductible and will increase the basis of the newly
purchased shares.
No gain or loss will be recognized by a shareholder as a result of a
conversion of Class B shares into Class A shares.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions, and redemption proceeds payable to any individuals and certain
other non-corporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to those shareholders who
otherwise are subject to backup withholding.
Some foreign countries may impose income or withholding taxes on
certain dividends and interest payable to the International Portfolio. The
Conseco International Fund's share of any such withheld taxes may either be
treated by that Fund as a deduction or, if it satisfies certain requirements, it
may elect to flow the tax through to its shareholders, who in turn may either
treat it as a deduction or use it in calculating a credit against their federal
income tax.
The foregoing is only a summary of certain federal income tax
considerations affecting your investment in a Fund. More information is
contained in the SAI. You should consult with your tax adviser about the effect
of an investment in a Fund on your particular tax situation.
PERFORMANCE INFORMATION
CONSECO FIXED INCOME FUND, CONSECO ASSET ALLOCATION FUND, AND CONSECO EQUITY
FUND
The Conseco Fixed Income Fund, Conseco Asset Allocation Fund, and
Conseco Equity Fund commenced operations on January 2, 1997 and initially
offered two classes of shares, including Class A. The average annualized total
returns for Class A of those Funds for the period from January 2, 1997 to
December 31, 1997 assuming the maximum initial sales charge were 3.20%, 10.45%
and 15.83% for Conseco Fixed Income Fund, Conseco Asset Allocation Fund, and
Conseco Equity Fund, respectively. The total returns for Class A of the Funds
for that period with no initial sales charge were 8.66%, 17.19%, and 22.90% for
Conseco Fixed Income Fund, Conseco Asset Allocation Fund, and Conseco Equity
Fund, respectively.
Although no Class B or Class C shares of any Fund had been issued as of
December 31, 1997, 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
December 31, 1997 assuming Class A's expenses and the maximum contingent
deferred sales charge applicable to Class B shares were 3.20%, 11.29% and 16.71%
for Conseco Fixed Income Fund, Conseco Asset Allocation Fund, and Conseco Equity
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 7.59%, 16.03%, and 21.68% for Conseco Fixed Income Fund,
Conseco Asset Allocation Fund, and Conseco Equity 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.
47
<PAGE>
Total returns of all classes would have been lower if the Adviser,
Administrator and/or Distributor had not waived fees and/or reimbursed expenses
of each Fund.
These Funds 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 Conseco Fixed Income Fund, Conseco Asset Allocation Fund and
Conseco Equity Fund 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 of these Funds 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.
These 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.
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 December 31, 1997.
Fund Corresponding CST Fund
---- (Inception Date and Asset Size)
-------------------------------
Fixed Income Fund Corporate Bond Portfolio (May 1, 1993)
$ 20,187,193
Asset Allocation Fund Asset Allocation Portfolio (November 20, 1991)
$ 27,265,057
Equity Fund Common Stock Portfolio (November 20, 1991)
$216,896,715
The following tables show the average annualized total returns for the
CST Funds for the one, three and five year periods ended December 31, 1997 and
for the periods from inception of the CST Funds to December 31, 1997. These
<PAGE>
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. For each class, one table reflects the deduction of
the applicable sales charges, while another 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.
Assuming Class A Share Total Operating Expenses and the Maximum Initial Sales
Charge Applicable to Class A Shares.
CST Fund 1 Year 3 Years 5 Years Since Inception
- -------- ------ ------- ------- ---------------
Corporate Bond
Portfolio 4.37% 9.03% N/A 6.44%
Asset Allocation
Portfolio 10.88% 22.39% 17.91% 15.29%
Common Stock
Portfolio 11.45% 30.13% 19.53% 20.68%
Assuming Class A Share Total Operating Expenses With No Initial Sales Charge.
CST Fund 1 Year 3 Years 5 Years Since Inception
- -------- ------ ------- ------- ---------------
Corporate Bond
Portfolio 9.81% 10.88% N/A 7.65%
Asset Allocation
Portfolio 17.63% 24.84% 18.32% 16.26%
Common Stock
Portfolio 18.23% 32.73% 20.96% 21.69%
Assuming Class B Share Total Operating Expenses and the Sales Charge Applicable
to Class B Shares.
CST Fund 1 Year 3 Years 5 Years Since Inception
- -------- ------ ------- ------- ---------------
Corporate Bond
Portfolio 4.34% 9.76% N/A 7.16%
Asset Allocation
Portfolio 11.62% 23.56% 18.82% 16.25%
49
<PAGE>
CST Fund 1 Year 3 Years 5 Years Since Inception
- -------- ------ ------- ------- ---------------
Common Stock
Portfolio 12.19% 31.33% 20.46% 21.69%
Assuming Class C Share Total Operating Expenses and the Sales Charge Applicable
to Class C Shares.
CST Fund 1 Year 3 Years 5 Years Since Inception
- -------- ------ ------- ------- ---------------
Corporate Bond
Portfolio 8.69% 10.87% N/A 7.64%
Asset Allocation
Portfolio 16.38% 24.81% 19.31% 16.25%
Common Stock
Portfolio 16.91% 32.70% 20.94% 21.69%
Assuming Class B or Class C Share Total Operating Expenses With No Sales Charge.
CST Fund 1 Year 3 Years 5 Years Since Inception
- -------- ------ ------- ------- ---------------
Corporate Bond
Portfolio 9.78% 10.87% N/A 7.64%
Asset Allocation
Portfolio 17.50% 24.81% 19.31% 16.25%
Common Stock
Portfolio 18.09% 32.70% 20.94% 21.69%
CONSECO INTERNATIONAL FUND
The Conseco International Fund commenced operations in January 1998.
However, the Conseco International Fund invests all of its investable assets in
the International Portfolio and, in accordance with SEC staff positions, has
adopted the Portfolio's performance as its own. The following table shows the
Fund's average annual total returns for the one- and five-year periods ended
October 31, 1997 and for the period from the inception of the International
Portfolio's predecessor (August 7, 1991) until October 31, 1997. This total
return information is presented on a class-by-class basis and reflects the
deduction of the maximum sales charge applicable to a class. For periods
following the conversion of the International Portfolio's predecessor into a
master/feeder structure on November 1, 1995, the total returns shown below
represent the actual investment performance of the Portfolio (the master fund)
only and would have been lower if the fees and expenses typically imposed by a
<PAGE>
feeder fund (such as the Conseco International Fund) also had been reflected.
Past results do not guarantee future performance.
Average Annual Total Returns for Periods Ended October 31, 1997
With Deduction of the Maximum Applicable Sales Charge
Since Inception
1 Year 5 Years (August 7, 1991)
--------- ------- ----------------
Class A Shares 10.08% 16.75% 11.09%
Class B Shares 10.44% 17.58% 11.72%
Class C Shares 15.08% 18.15% 12.15%
GENERAL
Each of the Funds may from time to time advertise certain investment
performance information. Performance information may consist of yield and
average annual total return quotations reflecting the deduction of all
applicable charges over a period of time. A Fund also may use aggregate total
return figures for various periods, representing the cumulative change in value
of an investment in a Fund for the specific period. Performance information may
be shown in schedules, charts or graphs. These figures are based on historical
earnings and are not intended to indicate future performance.
The "yield" of a Fund refers to the annualized net income generated by
an investment in that Fund over a specified 30-day period, calculated by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period.
The "average annual total return" of a Fund refers to the total rate of
return of an investment in the Fund. The figure is computed by calculating
average annual compounded rates of return over the one-, five- and ten-year
periods that would equate to the initial amount invested to the ending
redeemable value, assuming reinvestment of all income dividends and capital gain
distributions. "Total return" quotations reflect the performance of the Fund and
include the effect of capital changes.
Further information about the performance of the Funds is contained in
the SAI and in the Funds' semi-annual and annual reports to shareholders, which
you may obtain without charge by writing the Funds' address or calling the
telephone number set forth on the cover page of this Prospectus.
51
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
Report from the
Conseco Fixed Income Adviser
1997 was characterized by favorable market conditions throughout much of the
year. However, increased volatility brought dramatic changes to the fixed income
markets, especially in the fourth quarter.
The first three quarters of 1997 were distinguished by a strong, healthy
economy, low inflation levels and a general trend toward declining interest
rates. Relative value in the fixed income markets was difficult to distinguish
as spreads to Treasuries remained very narrow in many sectors, including
corporate and mortgage-backed securities. Investors typically demand larger
spreads over U.S. Treasury bonds in order to compensate for perceived higher
risk levels. Federal Reserve policy stayed tight as Alan Greenspan remained the
vigilant watchdog over inflation. The budget deficit continued to narrow as a
result of lower rates and fiscal discipline from Congress. However, the focus of
the financial markets shifted away from domestic economic fundamentals in the
fourth quarter.
In the fourth quarter, currencies in Thailand, Malaysia and Indonesia
deteriorated, throwing their financial markets into turmoil. Because the world's
economies are linked, the impact of this turmoil spread quickly throughout
Southeast Asia. As we move into 1998, we expect the crisis to have a significant
impact on economic growth in other countries, including the United States. This
phenomenon has already caused dramatic changes in the general fundamentals of
our domestic fixed income market, creating significantly larger spreads to
Treasuries in the Yankee sector which have, in turn, spilled over to the
corporate sector.
Because the Asian financial crisis has taken center stage, the fundamental
analysis of certain Yankee securities has less meaning in terms of short term
performance. Because our investment horizon is based on the long term, our plan
is to maintain a small exposure in the Yankee sector investing in securities
such as Hutchison Wampoa (A3/A+), a Hong Kong-based financial conglomerate with
significant operations in the United States. Our Yankee analyst, Upender Rao,
views Korea as having the best opportunity for credit improvement during 1998
given the support of the International Monetary Fund and their willingness to
implement changes in their financial system.
The level of interest rates declined because of the financial crisis: the
ten-year U.S. Treasury yield was 5.74% at year-end and the thirty-year U.S.
Treasury yield was 5.92%. With this dramatic decline in interest rates, we
reduced our exposure to mortgage-backed securities, due to the higher risk of
increased pre-payment activity. With higher pre-payments, the security returns
more principal, forcing the investor to reinvest the proceeds at lower interest
rates.
Nolan Smith, our municipal bond specialist, has recommended the taxable
municipal sector due to consistent spreads over U.S. Treasuries, which have
performed better than the corporate sector. We plan to direct proceeds to this
sector, given its performance relative to the rest of the market. At this point,
we have discovered only a few bonds meeting our investment criteria of offering
good relative value.
Our bank and finance analyst, Rob Cook, feels company fundamentals in the
Broker-Dealer sector are currently strong, making these bonds attractive
investments. Within this sector, we invested in Salomon Smith Barney (A2/A).
With the acquisition of Salomon Brothers by Travelers (A2/A), the credit has
been upgraded by the rating agencies and we expect operating fundamentals to
continue to improve.
<PAGE>
Our fixed income investment strategy continues to emphasize investing in those
securities we believe are undervalued. Most importantly, we conduct thorough
research before investing in any security. Our long-term strategies coupled with
our extensive knowledge of each investment we select enable us to look forward
with confidence as we continue to invest for the future.
Gregory J. Hahn, CFA
Senior Vice President
Portfolio Manager
Conseco Capital Management, Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CONSECO FIXED INCOME
FUND AND THE LEHMAN BROTHERS AGGREGATE BOND INDEX
----------------------
AVERAGE ANNUAL
TOTAL RETURN
----------------------
1 YEAR
----------------------
3.20%
----------------------
Past performance is not predictive of future performance.
- ------------------------------ -------------- --------------
1/2/97 12/31/97
- ------------------------------ -------------- --------------
Conseco Fixed Income Fund $9,497 $10,320
- ------------------------------ -------------- --------------
LB Aggregate Bond Index $10,000 $10,965
- ------------------------------ -------------- --------------
<PAGE>
================================================================================
Report from the
Conseco Asset Allocation Fund Adviser
The Asset Allocation Fund is a balanced portfolio which invests in a combination
of equity, fixed income and cash. The strategy of the Asset Allocation Fund
through 1997 continued to highlight our growth equity style, which represented
roughly 60% of the portfolio's assets.
The fourth quarter began with much anxiety about the strength in the market over
the summer, the sustainability of corporate profits and the increasing
volatility of Asian currency markets. All fears reached a fever pitch on October
27th when the Dow dropped 554 points (7.2%), recording the largest single point
decline ever on fears of asset deflation in Asian markets. The performance of
the market following the sell-off was typical of what we saw earlier in the
year, with the index stocks outperforming the broader market as hoards of
capital previously invested in Asia-Pacific markets sought safe haven in the
U.S. market. The result of all this was that the S&P 500 Index gained while
virtually everything else stayed at October 27th levels or drifted even lower.
In fact, because of its strong fourth quarter move relative to the broader
market, the S&P 500 finished the year up 33.36%, outstripping the returns of 90%
of all actively managed funds and the Russell 2000 Small Stock Index which
returned 22.36%. This is the fourth straight year that we have seen this kind of
divergence.
In terms of sector performance on the stock side, the strong returns were
realized in interest rate-sensitive areas (financial and utilities) and in
defensive stocks (food retailers and consumer staples). These sectors benefited
from the strong rally in the bond market and from the influx of invested dollars
coming from technology and energy sectors, which turned in some of the fourth
quarter's worst returns. Our underweighting in financials, utilities and staples
and our larger weightings in technology and energy explain why the fourth
quarter was a difficult one for us.
Going forward, we remain hopeful that 1998 will be rewarding to investors such
as us who utilize a bottom-up approach in finding good growth stories in stocks
that still trade at reasonable valuations. In fact, if 1998 earnings on S&P 500
companies ultimately grow in line with current expectations of 7 to 9%, then we
would expect to see an increase in multiples for stocks which can generate
earnings growth in the 18 to 20% range.
The balance of the portfolio, approximately 40%, consists of bonds and cash. At
year end, roughly 38.3% of this 40% was invested in securities with investment
grade ratings and 61.7% was invested in high yield. Our fixed income discipline
of investing in those securities which, through our own fundamental research, we
consider to be undervalued, resulted in several investment ideas. In the
industrial sector, our energy analyst, Upender Rao, recommended investing in
several oil drilling companies including Parker Drilling (B1/B+), the fourth
largest drilling company in the United States, and Pride Petroleum (Ba3/BB-),
the third largest. As rig rates doubled in 1997, earnings accelerated,
substantially improving the financial statements of both companies. Upender
expects to see an upgrade over a twelve to eighteen month time frame.
<PAGE>
Depending on valuation in the equity market, we may take the opportunity to
reallocate a portion of the portfolio to fixed income if we see pressure on
earnings or negative earnings surprises. Until the financial crisis in Asia
subsides, we expect to see sustained low levels of interest rates. Eventually,
as investors return their focus to economic fundamentals, we still expect to see
interest rates remain low, which should bode well for the valuation of financial
assets.
Thomas J. Pence, CFA Gregory J. Hahn, CFA
Vice President Senior Vice President
Portfolio Manager Portfolio Manager
Conseco Capital Management, Inc. Conseco Capital Management, Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CONSECO ASSET
ALLOCATION FUND, THE S&P MIDCAP 400 INDEX, AND THE LEHMAN BROTHERS AGGREGATE
BOND INDEX
----------------------
AVERAGE ANNUAL
TOTAL RETURN
----------------------
1 YEAR
----------------------
10.45%
----------------------
Past performance is not predictive of future performance.
- ------------------------------ -------------- --------------
1/2/97 12/31/97
- ------------------------------ -------------- --------------
Conseco Asset Allocation Fund $9,426 $11,045
- ------------------------------ -------------- --------------
S&P MidCap 400 Index $10,000 $13,225
- ------------------------------ -------------- --------------
LB Aggregate Bond Index $10,000 $10,965
- ------------------------------ -------------- --------------
<PAGE>
================================================================================
Report from the
Conseco Equity Fund Adviser
As we look back at 1997, we are able to draw a few insights on what is in store
for 1998. While the first three quarters exhibited strong growth and favorable
market conditions, the fourth quarter proved to be most eventful in terms of
future effects on market performance.
The fourth quarter began with much anxiety related to market strength,
sustainability of corporate profits, and increasing volatility in Asian currency
markets. Anxieties peaked on October 27th when the Dow Jones Industrial Average
dropped 554 points (7.2%), the largest single point decline ever, surrounding
fears of asset deflation in Asian markets. Despite a relatively good series of
earnings reports and economic releases throughout the balance of the quarter,
including low inflation and 25-year-low unemployment levels, concerns about the
Asian influence prevailed.
Following the market plunge, much of the capital previously invested in
Asia-Pacific markets sought safety in the U.S. market through purchases of S&P
500 futures contracts. As a result, the S&P 500 Index gained ground, with stocks
of the largest 20 companies in the marketplace outperforming nearly everything
in sight. However, virtually all other stocks remained at October 27th levels or
drifted even lower. Due to the strong fourth quarter move of the largest company
stocks, the S&P 500 finished the year up 33.36%, outperforming the returns of
90% of all actively managed funds, as well as the Russell 2000 Small Stock
Index, which returned 22.36%. This is the fourth straight year that the market
has seen this kind of divergence.
In terms of sector performance, strong returns were realized in interest
rate-sensitive areas (financial and utilities) and in defensive stocks (food
retailers and consumer staples). These sectors benefited from the strong rally
in the bond market and from the influx of invested dollars coming from
technology and energy sectors, which turned in some of the fourth quarter's
worst returns. Our underweighting in financial, utilities and staples and our
larger weightings in technology and energy explain why the fourth quarter was a
difficult one for us.
Despite these problems, many of our stocks enjoyed good earnings reports and
persevered during a time of high market volatility. Perhaps most rewarding was
the announcement that IBM/Tivoli bought Software Artistry for $24.50 per share
in cash. After establishing our position as Software Artistry's largest
shareholder, we were prematurely rewarded with a 200% return for our
shareholders over the holding period.
We expect a cautionary tone to prevail over the market in 1998; as such, we
intend to increase our focus on earnings stories with strong balance sheets and
cashflow generation. We will also look for yield as a component of total return
whenever possible. In addition, we will watch for opportunities in technology
and energy given the aggressive sell-off in these sectors in late 1997.
<PAGE>
Our investment strategy continues to rely on a bottom-up approach to stock
selection. Through extensive research of the companies in which we invest, our
goal is to discover good growth stories in stocks that still trade at reasonable
valuations. We are committed to a long-term reliance on this strategy, and
remain hopeful that it will serve our shareholders well in the upcoming year.
Thomas J. Pence, CFA
Vice President
Portfolio Manager
Conseco Capital Management, Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CONSECO EQUITY FUND,
THE S&P MIDCAP 400 INDEX AND THE S&P 500 INDEX
----------------------
AVERAGE ANNUAL TOTAL
RETURN
----------------------
1 YEAR
----------------------
15.83%
----------------------
Past performance is not predictive of future performance.
- ------------------------------ -------------- --------------
1/2/97 12/31/97
- ------------------------------ -------------- --------------
Conseco Equity Fund $9,426 $11,583
- ------------------------------ -------------- --------------
S&P MidCap 400 Index $10,000 $13,225
- ------------------------------ -------------- --------------
S&P 500 Index $10,000 $13,336
- ------------------------------ -------------- --------------
52
<PAGE>
OTHER INFORMATION
BROKERAGE COMMISSIONS
Subject to the Conduct Rules of the NASD and to obtaining best prices
and executions, the Adviser may select brokers who provide research or other
services or who sell shares of the Funds to effect portfolio transactions. The
Adviser may also select an affiliated broker to execute transactions for the
Funds, provided that the commissions, fees or other remuneration paid to such
affiliated broker are reasonable and fair as compared to that paid to
non-affiliated brokers for comparable transactions.
Each of the International Portfolio's investment advisers will place
its own orders to execute securities transactions. In placing such orders, each
investment adviser will seek the best available price and most favorable
execution. The full range and quality of services offered by the executing
broker or dealer is considered when making these determinations. Pursuant to
written guidelines approved by the AMR Trust Board, an investment adviser of the
Portfolio, or its affiliated broker-dealer, may execute portfolio transactions
and receive usual and customary brokerage commissions (within the meaning of
Rule 17e-1 under the 1940 Act) for doing so.
SHARES OF BENEFICIAL INTEREST
All shares of beneficial interest of the Trust are entitled to one
vote, and votes are generally on an aggregate basis. However, on matters where
the interests of the Funds (or classes of a Fund) differ (such as approval of an
investment advisory agreement or a change in fundamental investment policies),
the voting is on a Fund-by-Fund (or class-by-class) basis. The Trust does not
hold routine annual shareholders' meetings. The shares of each Fund issued are
fully paid and non-assessable, have no preference or similar rights, and are
freely transferable. In addition, each issued and outstanding share in a class
of a Fund is entitled to participate equally in dividends and distributions
declared by that class.
On most issues subjected to a vote of the Portfolio's interest holders,
as required by the 1940 Act, the Conseco International Fund will solicit proxies
from its shareholders and will vote its interest in the Portfolio in proportion
to the votes cast by the Fund's shareholders. The Fund will vote shares for
which it receives no voting instructions in the same proportion as the shares
for which it does receive voting instructions. Because each interest holder in
the Portfolio would vote in proportion to its relative beneficial interest in
the Portfolio, one or more other Portfolio investors could, in certain
instances, approve an action although a majority of the outstanding voting
securities of the Conseco International Fund had voted against it. This could
result in the Conseco International Fund's redeeming its investment in the
Portfolio, which could result in increased expenses for the Fund.
REPORTS TO SHAREHOLDERS
Investors in the Funds will be informed of their progress through
periodic reports. Financial statements certified by independent public
accountants will be submitted to shareholders at least annually.
53
<PAGE>
RETIREMENT PLANS AND MEDICAL SAVINGS ACCOUNTS
Class A, Class B and Class C shares are available for purchase by
qualified retirement plans of both corporations and self-employed individuals.
The Trust has available prototype IRA plans (for both individuals and
employers), Simplified Employee Pension ("SEP") plans, and savings incentive
match plans for employees ("SIMPLE" plans) as well as Section 403(b)(7)
Tax-Sheltered Retirement Plans which are designed for employees of public
educational institutions and certain non-profit, tax-exempt organizations. The
Trust also has information concerning prototype Medical Savings Accounts. For
information, call or write the Distributor.
CLASS Y SHARES
In order to buy Class Y shares you must be an institutional investor or
a qualifying individual investor. Institutional investors may include, but are
not limited to, the following: (i) tax qualified retirement plans which have (a)
at least $10 million in plan assets, or (b) 250 or more employees eligible to
participate at the time of purchase, (ii) banks and insurance companies
purchasing shares for their own account, (iii) investment companies not
affiliated with the Adviser, (iv) tax-qualified retirement plans of the Adviser
or brokers, dealers, and other financial intermediaries that have a selling
agreement with the Distributor and their affiliates, (v) endowments, foundations
and other charitable organizations or (vi) accounts established under wrap fee
or asset allocation programs where the accountholder pays the sponsor an
asset-based fee. A qualifying individual investor is an investor who is a client
of the Adviser and is making a purchase of over $500,000 or whose purchase
together with his current holdings of Class Y shares exceeds $500,000 or any
other individual who meets the minimum investment requirement.
Class Y shares are available to eligible institutional investors and
qualifying individual investors at net asset value without the imposition of an
initial or deferred sales charge and are not subject to ongoing distribution or
service fees imposed under a plan adopted pursuant to Rule 12b-1 under the 1940
Act. The minimum initial investment in Class Y shares is $500,000, but this
requirement may be waived at the discretion of the Trust's officers.
The Systematic Withdrawal Plan and Pre-Authorized Investment Plan are
not available for Class Y shares.
If you are considering a purchase of Class Y shares of a Fund, please
call the Distributor at (800) 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.
54
<PAGE>
CUSTODIAN
The Bank of New York, 90 Washington Street, 22nd Floor, New York, New
York 10826, serves as custodian of the assets of each Fund (except the Conseco
International Fund). State Street serves as custodian of the assets of the
Conseco International Fund and of the International Portfolio.
INDEPENDENT PUBLIC ACCOUNTANTS/AUDITORS
The Trust's independent accountants are Coopers & Lybrand L.L.P., 2900
One American Square, Box 82002, Indianapolis, Indiana 46282-0002. The
independent auditors of the International Portfolio are Ernst & Young LLP,
Dallas, Texas.
LEGAL COUNSEL
Certain legal matters for the Funds are passed upon by Kirkpatrick &
Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED
IN ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO SALESMAN,
DEALER OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE SAI.
55
<PAGE>
If you would like a free copy of the Statement of Additional Information for
this Prospectus, please complete this form, detach, and mail to:
Conseco Fund Group
Attn: 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)
56
<PAGE>
APPENDIX A SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa - Bonds which are rated Aaa by Moody's Investors Service, Inc. ("Moody's")
are judged to be the best quality and carry the smallest degree of investment
risk. Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds. Such issues can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
A-1
<PAGE>
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.
A-2
<PAGE>
CONSECO FUND GROUP
ADMINISTRATIVE OFFICE: 11815 N. PENNSYLVANIA STREET, CARMEL, INDIANA 46032
800-825-1530
================================================================================
CONSECO FIXED INCOME FUND
CONSECO HIGH YIELD FUND
CONSECO ASSET ALLOCATION FUND
CONSECO EQUITY FUND
CONSECO INTERNATIONAL FUND
CONSECO 20 FUND
The Conseco Fund Group (the "Trust") is an open-end diversified management
investment company registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("1940 Act"). The Trust was
organized as a Massachusetts business trust on September 24, 1996. The Trust is
a "series" type of mutual fund which issues separate series of shares, each of
which represents a separate portfolio of investments. This Prospectus offers
shares of six series ("Funds") of the Trust, each with its own investment
objective and investment policies. Each Fund offers four classes of shares. This
Prospectus relates solely to Class Y shares of the Funds. Class A, B and C
shares are offered to individual investors through a separate prospectus. Each
class may have different expenses, which may affect performance.
Conseco Capital Management, Inc. (the "Adviser") serves as the Trust's
investment adviser. The Adviser supervises the Trust's management and investment
program, performs a variety of administrative services on behalf of the Trust,
and pays all compensation of officers and Trustees of the Trust who are
affiliated persons of the Adviser or the Trust. The Trust pays all other
expenses incurred in its operations, including fees and expenses of Trustees who
are not affiliated persons of the Adviser or the Trust.
The Conseco International Fund invests all of its investable assets in the
International Equity Portfolio (the "Portfolio" or the "International
Portfolio") of AMR Investment Services Trust (the "AMR Trust"), which invests
primarily in equity securities of issuers based outside the United States. The
Portfolio invests in securities in accordance with an investment objective,
policies and limitations substantially similar to those of the Fund. The
investment experience of the Fund will correspond directly with the investment
experience of the Portfolio. Whenever the phrase "all of the Fund's investable
assets" is used, it means that the only investment securities that will be held
by the Conseco International Fund will be the Fund's interest in the Portfolio.
This "master-feeder" structure is different from that of many other investment
<PAGE>
companies which directly acquire and manage their own portfolios of securities.
Accordingly, investors should carefully consider this investment approach. See
"Additional Information About the Master-Feeder Structure." AMR Investment
Services, Inc. ("AMR") provides investment management and administrative
services to the Portfolio.
The Conseco High Yield Fund may invest all of its assets in lower-rated
fixed income securities, commonly known as "junk bonds" or "high yield
securities." THESE SECURITIES ARE SUBJECT TO GREATER FLUCTUATIONS IN VALUE AND
GREATER RISK OF LOSS OF INCOME AND PRINCIPAL DUE TO DEFAULT BY THE ISSUER THAN
ARE HIGHER-RATED SECURITIES; THEREFORE, INVESTORS SHOULD CAREFULLY ASSESS THE
RISKS ASSOCIATED WITH AN INVESTMENT IN THIS FUND.
* * * * *
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
Management ("Federated money market fund") through a separate prospectus. That
prospectus is available upon request by calling 800-986-3384.
This Prospectus sets forth concisely the information about the Trust and
the Funds that an investor should know before investing. A Statement of
Additional Information ("SAI") dated May 1, 1998, containing additional
information about the Trust and the Funds, has been filed with the SEC and is
incorporated by reference in this Prospectus in its entirety. You may obtain a
copy of the SAI without charge by calling or writing the Trust at the address
and telephone number above.
INVESTORS SHOULD READ AND RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 1, 1998.
TABLE OF CONTENTS
OVERVIEW OF THE CONSECO FUND GROUP FUNDS............................3
FEE TABLE...........................................................4
FINANCIAL HIGHLIGHTS................................................6
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS.....................6
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES................14
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE...........24
MANAGEMENT.........................................................25
PURCHASE AND REDEMPTION OF SHARES..................................30
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES...........................34
PERFORMANCE INFORMATION............................................36
MANAGEMENT DISCUSSION AND ANALYSIS.................................39
OTHER INFORMATION..................................................39
APPENDIX A SECURITIES RATINGS......................................43
2
<PAGE>
<TABLE>
<CAPTION>
OVERVIEW OF THE CONSECO FUND GROUP FUNDS
==========================================================================================================
CONSECO FUND GROUP FUND INVESTMENT OBJECTIVE PRINCIPAL INVESTMENTS
- ----------------------------------- --------------------------------- -----------------------------------
<S> <C> <C>
CONSECO FIXED INCOME FUND Seeks the highest level The Fund invests
of income as is primarily in investment
consistent with grade fixed income
preservation of capital. securities.
- ----------------------------------- --------------------------------- -----------------------------------
CONSECO HIGH YIELD FUND Seeks a high level of The Fund invests
current income, with a primarily in lower-rated
secondary objective of fixed income securities,
capital appreciation. commonly known as "junk
bonds" or "high yield
securities."
- ----------------------------------- --------------------------------- -----------------------------------
CONSECO ASSET ALLOCATION FUND Seeks a high total The Fund pursues an
investment return, active asset allocation
consistent with the strategy whereby
preservation of capital investments are
and prudent investment allocated, based upon
risk. 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.
- ----------------------------------- --------------------------------- -----------------------------------
CONSECO EQUITY FUND Seeks to provide a high The Fund seeks to
equity total return achieve its objective
consistent with primarily by investing
preservation of capital in selected equity
and a prudent level of securities and other
risk. securities having the
investment
characteristics of
common stocks.
- ------------------------------------------------------------------------------------------------------
CONSECO INTERNATIONAL FUND Seeks long-term capital The Fund invests all of
appreciation. its investable assets in
the International Equity
Portfolio (the
"Portfolio" or the
"International
Portfolio") of AMR
Investment Services
Trust (the "AMR Trust"),
which invests primarily
in equity securities of
issuers based outside
the United States.
- ------------------------------------------------------------------------------------------------------
CONSECO 20 FUND Seeks capital appreciation. The Fund is
"non-diversified" under
the 1940 Act and
normally concentrates
its investments in a
core position of
approximately 20 common
stocks believed to have
above-average growth
prospects.
- ------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
FEE TABLE
The following fee tables are provided to assist investors in understanding
the various fees and expenses which may be borne directly or indirectly by an
investment in Class Y shares of the Funds.
SHAREHOLDER TRANSACTION EXPENSES
- ---------------------------------------------------------- ----------
CLASS Y
- ---------------------------------------------------------- ----------
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price)
CONSECO FIXED INCOME FUND None
CONSECO HIGH YIELD FUND None
CONSECO ASSET ALLOCATION FUND None
4
<PAGE>
CONSECO EQUITY FUND None
CONSECO INTERNATIONAL FUND None
CONSECO 20 FUND None
- ---------------------------------------------------------- ----------
Maximum Sales Charge Imposed on Reinvested Dividends None
(as a percentage of offering price)
- ---------------------------------------------------------- ----------
Maximum Contingent Deferred Sales Charge None
(as a percentage of offering price or
net asset value at the time of sale,
whichever is less)
- ---------------------------------------------------------- ----------
Redemption Fees None
========================================================== ==========
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
<TABLE>
<CAPTION>
CLASS Y SHARES
- --------------------------------------- ------------------- ------------------ ----------- ----------------------------------
FUND MANAGEMENT FEES ADMINISTRATIVE 12B-1 FEES OTHER TOTAL
AFTER FEE FEES EXPENSES 2/ OPERATING
RATE EXPENSES 3/
REDUCTION 1/
AFTER FEE WAIVERS AND EXPENSE
REIMBURSEMENTS
- --------------------------------------- ------------------- ------------------ ----------- ----------------------------------
<S> <C> <C> <C> <C> <C>
CONSECO FIXED INCOME FUND 0.40% 0.20% None 0.00% 0.60%
- --------------------------------------- ------------------- ------------------ ----------- ----------------- ---------------
CONSECO HIGH YIELD FUND 0.60% 0.20% None 0.10% 0.90%
- --------------------------------------- ------------------- ------------------ ----------- ----------------- ---------------
CONSECO ASSET ALLOCATION FUND 0.70% 0.20% None 0.10% 1.00%
- --------------------------------------- ------------------- ------------------ ----------- ----------------- ---------------
CONSECO EQUITY FUND 0.70% 0.20% None 0.10% 1.00%
- --------------------------------------- ------------------- ------------------ ----------- ----------------- ---------------
CONSECO INTERNATIONAL FUND 0.48% 0.75% None 0.52% 1.75%
- --------------------------------------- ------------------- ------------------ ----------- ----------------- ---------------
CONSECO 20 FUND 0.70% 0.20% None 0.35% 1.25%
- --------------------------------------- ------------------- ------------------ ----------- ----------------- ---------------
</TABLE>
1/ The Adviser has voluntarily undertaken to reduce its advisory fee with
respect to the Conseco Fixed Income Fund to 0.40% of the Fund's average daily
net assets until April 30, 1999. Absent such undertaking the advisory fee would
be 0.45% of the Fund's average daily net assets. The Adviser has voluntarily
undertaken to reduce its advisory fee with respect to the Conseco High Yield
Fund to 0.60% of the Fund's average daily net assets until April 30, 1999.
Absent such undertaking the advisory fee would be 0.70% of the Fund's average
daily net assets.
The Adviser has voluntarily agreed to waive all of its fees under the
Conseco International Fund's Investment Advisory Agreement so long as that Fund
invests all of its investable assets in the International Portfolio. Absent such
undertaking the advisory fee would be 1.00% of the Fund's average daily net
assets. Accordingly, Management Fees in the fee table reflect only the Conseco
International Fund's pro rata portion of the Portfolio's management fees.
Similarly, because of the master-feeder structure, Other Expenses in the fee
table combine the Conseco International Fund's expenses and that Fund's pro rata
portion of the Portfolio's expenses.
5
<PAGE>
2/ Other Expenses in the Fee Table for all Funds EXCEPT the Conseco Equity Fund,
Conseco Asset Allocation Fund and Conseco Fixed Income Fund are based on
estimated amounts for the current fiscal year. Other Expenses 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 and Conseco Services, LLC (the "Administrator") to waive a portion of
their fees under each Fund's Investment Advisory Agreement and Administration
Agreement, respectively, and/or to reimburse a portion of the Fund's expenses
through April 30, 1999. The voluntary commitments provide that the Total
Operating Expenses for the Funds, on an annual basis, will not exceed the
amounts set forth above.
In the absence of such waivers and reimbursements (as well as the Adviser's
undertaking with respect to the Conseco Fixed Income Fund, as noted above),
Other Expenses for Class Y shares of the Conseco Fixed Income Fund, Conseco
Asset Allocation Fund, and Conseco Equity Fund would have been 0.79%, 1.24% and
0.34%, respectively, and Total Operating Expenses would have been 1.44%, 2.14%
and 1.24%, respectively, of each Fund's average daily net assets.
In the absence of such waivers and reimbursements (as well as the Adviser's
undertakings with respect to the Conseco High Yield and International Funds as
noted above) it is estimated that Other Expenses for Class Y shares of the
Conseco High Yield Fund, Conseco International Fund and Conseco 20 Fund would be
1.14%, 0.99%, and 0.86%, and Total Operating Expenses would be 2.04%, 2.22%, and
1.76%, respectively, of each Fund's average daily net assets.
EXAMPLE
Assuming a hypothetical investment of $1,000 and a 5% annual return, an
investor in Class Y shares of each of the Funds would pay transaction and
operating expenses at the end of each year as follows:
CLASS Y SHARES
- -------------------------------- ---------- ---------- --------- ---------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------- ---------- ---------- --------- ---------
Conseco Fixed Income Fund $6 $19 $33 $73
- -------------------------------- ---------- ---------- --------- ---------
Conseco High Yield Fund $9 $28 N/A N/A
- -------------------------------- ---------- ---------- --------- ---------
Conseco Asset Allocation Fund $10 $31 $54 $120
- -------------------------------- ---------- ---------- --------- ---------
Conseco Equity Fund $10 $31 $54 $120
- -------------------------------- ---------- ---------- --------- ---------
Conseco International Fund $18 $54 N/A N/A
- -------------------------------- ---------- ---------- --------- ---------
Conseco 20 Fund $13 $39 N/A N/A
- -------------------------------- ---------- ---------- --------- ---------
THESE EXAMPLES ILLUSTRATE THE EFFECT OF EXPENSES, BUT ARE NOT MEANT TO
SUGGEST ACTUAL OR EXPECTED COSTS OR RETURNS, ALL OF WHICH MAY VARY.
6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights set forth on the following pages present certain
financial information and ratios as well as performance information for Class Y
of the Conseco Equity Fund, Conseco Asset Allocation Fund and Conseco Fixed
Income Fund. This information is derived from the December 31, 1997 Conseco Fund
Group Annual Report and has been audited by Coopers & Lybrand LLP, independent
accountants, whose report thereon is also included in the Annual Report. The
Annual Report is incorporated by reference in the Statement of Additional
Information and may be obtained without charge by calling (800) 984-3384.
<PAGE>
FOR THE YEAR ENDED
DECEMBER 31, 1997
--------------------------------
ASSET FIXED
EQUITY ALLOCATION INCOME
CLASS Y SHARES FUND FUND FUND
------ ---------- ------
Net asset value per share,
beginning of period..................... $10.00 $10.00 $10.00
Income from investment operations (a):
Net investment income.................. -- .19 .68
Net realized gains and change in
unrealized appreciation on investments 2.35 1.58 .21
- --------------------------------------------------------------------------------
Total from investment operations .... 2.35 1.77 .89
- --------------------------------------------------------------------------------
Distributions:
Dividends from net investment income .. -- (.28) (.61)
Distributions of net capital gains .... (1.22) (.71) (.13)
- --------------------------------------------------------------------------------
Total distributions...................... (1.22) (.99) (.74)
- --------------------------------------------------------------------------------
Net asset value per share, end of period $11.13 $10.78 $10.15
================================================================================
Total return (b)......................... 23.50% 17.87% 9.18%
================================================================================
Ratios/supplemental data:
Net assets, end of period................ $60,334,274 $12,037,150 $21,875,782
Ratio of expenses to average net assets (b) 1.00% 1.00% .60%
Ratio of net investment income to
average net assets (b).................. .03% 2.76% 6.28%
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding during the year ended December 31, 1997.
(b) The Adviser and Administrator have voluntarily agreed to waive their fees
and/or reimburse Fund expense to the extent that the ratio of expenses to
average net assets would exceed on an annual basis 1.00 percent for the
Equity and Asset Allocation Funds and .60 percent for the Fixed Income Fund.
These voluntary limits may be discontinued by the Advisor and Administrator
at any time after April 30, 1998. If the aforementioned agreements had not
been in effect during the period, the annualized ratio of expenses to
average net assets would have been 1.24 percent for the Equity Fund, 2.14
percent for the Asset Allocation Fund and 1.44 percent for the Fixed Income
Fund.
ASSET FIXED
EQUITY ALLOCATION INCOME
FUND FUND FUND
------ ---------- ------
Supplemental data for all classes:
Net assets, end of period....... $65,210,629 $13,112,655 $22,029,226
Portfolio turnover rate......... 199.12% 506.64% 367.82%
Average commission rate paid (a) $.0584 $.0584 --
- ----------
(a) Computed by dividing the total amount of commissions paid by the total
number of shares purchased and sold during the period for which there was a
commission.
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each of the Funds has a different investment objective as described below.
There can be no assurance that any of the Funds will achieve its investment
objective. Each Fund is subject to the risk of changing economic conditions, as
well as the risk inherent in the ability of its investment adviser to make
changes in investments in anticipation of changes in economic, business, and
financial conditions. The investment objectives of the Funds are not
fundamental, as defined below; the investment objective of the International
Portfolio is fundamental.
The different types of securities and investment techniques common to one
or more Funds all have attendant risks of varying degrees. For example, with
respect to equity securities, there can be no assurance of capital appreciation
and there is a substantial risk of decline. With respect to debt securities,
there can be no assurance that the issuer of such securities will be able to
meet its obligations on interest or principal payments in a timely manner. In
addition, the value of debt instruments generally rises and falls inversely with
interest rates. The investments and investment techniques common to one or more
Funds and their risks are described in greater detail in "Description of
Securities and Investment Techniques" in the SAI.
The Funds and the International Portfolio are subject to investment
restrictions that are described under "Investment Restrictions" in the SAI.
Those investment restrictions that are "fundamental policies" may not be changed
without a majority vote of the outstanding shares of the affected Fund or the
outstanding interests of the International Portfolio. Except as otherwise noted,
all investment policies and practices described in this Prospectus and in the
SAI are not fundamental, meaning that the Trust's Board of Trustees ("Board") or
the AMR Trust's Board of Trustees ("AMR Trust Board") may change them without
shareholder approval. See "Description of Securities and Investment Techniques"
and "Investment Restrictions" in the SAI for further information.
CONSECO FIXED INCOME FUND
In seeking its investment objective of providing the highest level of
income as is consistent with the preservation of capital, the Conseco Fixed
Income Fund invests primarily in 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, if unrated, is determined by the Adviser to
be of comparable quality. 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
7
<PAGE>
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 Conseco 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 Conseco 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 Fund's assets may be invested
in lower-rated fixed income securities, commonly known as "junk bonds" or "high
yield securities." Lower-rated fixed income securities are securities rated BB
or lower by Standard & Poor's ("S&P") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), securities comparably rated by another NRSRO, or
unrated securities of equivalent quality. For information about the risks
associated with lower-rated fixed income securities, see "Risks Associated With
High Yield Debt Securities" below and "Description of Securities and Investment
Techniques" in the SAI.
8
<PAGE>
Debt securities purchased by the Conseco 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 Conseco Fixed Income Fund intends to
invest in debt securities in order to achieve its investment objective of
obtaining the highest level of income as is consistent with preservation of
capital, it may from time to time invest in debt 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 Conseco
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. For more information, see "Portfolio Turnover" below.
The Conseco 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 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 and reverse
repurchase agreements; investing in when-issued or delayed delivery securities;
and selling securities short. See "Description of Securities and Investment
Techniques" in the SAI for further information.
CONSECO HIGH YIELD FUND
The investment objective of the Conseco High Yield Fund is to provide
investors with a high level of current income, with a secondary objective of
capital appreciation. In seeking to achieve the Fund's objectives, the Adviser,
under normal circumstances, invests at least 65% of the Fund's total assets in
high yield, high risk lower-rated fixed income securities (as defined above in
the investment program of the Conseco Fixed Income Fund). The lower-rated fixed
income securities in which the Fund invests include corporate debt securities
and preferred stock, convertible securities, zero coupon securities, other
9
<PAGE>
deferred interest securities, mortgage-backed securities and asset-backed
securities. The Fund may invest in securities rated as low as C by Moody's or D
by S&P, securities comparably rated by another NRSRO, or unrated securities of
equivalent quality. Such obligations are highly speculative and may be in
default or in danger of default as to principal and interest. For information
about the risks associated with lower-rated fixed income securities, see "Risks
Associated With High Yield Debt Securities" below and "Description of Securities
and Investment Techniques" in the SAI. The Appendix to this Prospectus describes
Moody's and S&P's rating categories.
The Fund may invest in high yield municipal securities. The interest on the
municipal securities in which the Fund invests typically is not exempt from
federal income tax. The Fund's remaining assets may be held in cash, money
market instruments, or securities issued or guaranteed by the U.S. Government,
its agencies, authorities or instrumentalities ("U.S. Government securities"),
or may be invested in common stocks and other equity securities when these types
of investments are consistent with the objectives of the Fund or are acquired as
part of a unit consisting of a combination of fixed income securities and equity
investments. Such remaining assets may also be invested in investment grade debt
securities (as defined above in the investment program of the Conseco Fixed
Income Fund, and including municipal securities). Moreover, the Fund may hold
cash or money market instruments without limit for temporary defensive purposes
or pending investment.
The Fund may invest in zero coupon securities and payment-in-kind
securities. A zero coupon security pays no interest to its holders prior to
maturity, and a payment-in-kind security pays interest in the form of additional
securities. These securities will be subject to greater fluctuation in market
value in response to changing interest rates than securities of comparable
maturities that make periodic cash distributions of interest.
The Fund may also invest in equity and debt securities of foreign issuers,
including issuers based in emerging markets. As a non-fundamental policy, the
Fund may invest up to 50% of its total assets (measured at the time of
investment) in foreign securities; however, the Fund presently does not intend
to invest more than 25% of its total assets in such securities. In addition, the
10
<PAGE>
Fund presently intends to invest in foreign securities only through depositary
receipts. See "Foreign Securities" below for further information.
The Fund may invest in private placements, securities traded pursuant to
Rule 144A under the Securities Act of 1933 ("1933 Act") (Rule 144A permits
qualified institutional buyers to trade certain securities even though they are
not registered under the 1933 Act), or securities which, though not registered
at the time of their initial sale, are issued with registration rights. Some of
these securities may be deemed by the Adviser to be liquid under guidelines
adopted by the Board. As a matter of fundamental policy, the Fund will not (1)
invest more than 5% of its total assets in any one issuer, except for U.S.
Government securities or (2) invest 25% or more of its total assets in
securities of issuers having their principal business activities in the same
industry.
The Adviser does not rely solely on the ratings of rated securities in
making investment decisions but also evaluates other economic and business
factors affecting the issuer. Ratings are only the opinions of the agencies
issuing them and are not absolute standards as to quality. The Adviser seeks to
enhance total return specifically through purchasing securities which it
believes are undervalued and selling, when appropriate, those securities it
believes are overvalued. In order to determine value, the Adviser utilizes
independent fundamental analysis of the issuer as well as an analysis of the
specific structure of the security.
The Fund may use various investment strategies and techniques when the
Adviser determines that such use is appropriate in an effort to meet the Fund's
investment objectives. Such strategies and techniques include, but are not
limited to, writing listed "covered" call and "secured" put options and
purchasing options; purchasing and selling, for hedging purposes, interest rate
and other futures contracts, and purchasing options on such futures contracts;
entering into foreign currency futures contracts, forward foreign currency
contracts ("forward contracts") and options on foreign currencies; borrowing
from banks to purchase securities; investing in securities of other investment
companies; entering into repurchase agreements, reverse repurchase agreements
and dollar rolls; investing in when-issued or delayed delivery securities;
selling securities short; and entering into swaps and other interest rate
transactions. See "Description of Securities and Investment Techniques" in the
SAI for further information.
CONSECO ASSET ALLOCATION FUND
The investment objective of the Conseco 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 fixed income 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 Conseco Asset Allocation Fund follows an asset
allocation strategy contemplating shifts (which may be frequent) among a wide
range of investments and market sectors. These shifts may result in high
portfolio turnover. See "Portfolio Turnover" below for more information. 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.
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The Conseco Asset Allocation Fund may 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 Conseco Asset Allocation Fund may make temporary defensive
investments (i.e., money market instruments) without limit if it is believed
that market conditions warrant a more conservative investment strategy.
The Conseco 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 futures contracts, forward contracts and options on foreign
currencies; borrowing from banks to purchase securities; purchasing securities
of other investment companies; entering into repurchase agreements and reverse
repurchase agreements; purchasing restricted securities; investing in
when-issued or delayed delivery securities; and selling securities short. See
"Description of Securities and Investment Techniques" in the SAI for further
information.
The maturities of the debt securities in the Conseco 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 issued by
companies with small and medium capitalizations ("small- and mid-cap companies")
may also be selected. See "Small and Medium Capitalization Companies" below for
further information.
The Conseco Asset Allocation Fund may invest in high yield, high risk
lower-rated fixed income securities (as defined above in the investment program
of the Conseco Fixed Income Fund). which are not believed to involve undue risk
to income or principal. The Conseco Asset Allocation Fund does not intend to
invest more than 25% of its total assets (measured at the time of investment) in
lower-rated fixed income 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. For information about the
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risks associated with lower-rated fixed income securities, see "Risks Associated
With High Yield Debt Securities" below and "Description of Securities and
Investment Techniques" in the SAI. The Fund may also invest in investment grade
debt securities (as defined above in the investment program of the Conseco Fixed
Income Fund). 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 Conseco Asset Allocation Fund may also invest in zero coupon securities
and payment-in-kind securities. (see the discussion with respect to the Conseco
High Yield Fund, above).
The Conseco 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 Conseco 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.
CONSECO 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 Conseco Equity
Fund attempts 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 Conseco Equity Fund in
money market instruments.
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 small- and mid-cap companies. See "Small and Medium
Capitalization Companies" below for further information. Securities issued by
larger, established companies may also be selected.
By investing in securities that are subject to market risk, the Conseco
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 variety of investment techniques and strategies including
but not limited to: writing listed "covered" call and "secured" put options,
including options on stock indices, and purchasing options; purchasing and
selling, for hedging purposes, stock index, interest rate, and other futures
contracts, and purchasing options on such futures contracts; purchasing warrants
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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 and reverse repurchase agreements; purchasing
restricted securities; investing in when-issued or delayed delivery securities;
and selling securities short. See "Description of Securities and Investment
Techniques" in the SAI for further information. The Conseco Equity Fund may also
invest up to 5% of its assets in lower-rated fixed income securities. The Fund
will not invest in rated fixed income securities which are rated below CCC/Caa.
See "Appendix A" to this Prospectus for further discussion regarding securities
ratings. For information about the risks associated with lower-rated fixed
income securities, see "Risks Associated With High Yield Debt Securities" below
and "Description of Securities and Investment Techniques" in the SAI.
CONSECO INTERNATIONAL FUND
The investment objectives of the Conseco International Fund and the
International Portfolio are to realize long-term capital appreciation. The Fund
has a fundamental investment policy which allows, but does not require, it to
invest all of its investable assets in another investment company having
substantially the same investment objective and policies. All other fundamental
investment policies and the non-fundamental investment policies of the Fund and
the Portfolio are substantially similar (except with respect to borrowing, as
discussed in the SAI). The Fund invests only in the Portfolio. Therefore,
although the following discusses the investment policies of the Portfolio, it
applies equally to the Fund.
The Portfolio invests primarily in a diversified portfolio of equity
securities of issuers based outside the United States. AMR allocates the assets
of the Portfolio among one or more investment advisers designated for the
Portfolio. Hotchkis and Wiley, Morgan Stanley Asset Management Inc. and
Templeton Investment Counsel, Inc. currently serve as investment advisers to the
Portfolio. See "Management - AMR and the Investment Advisers to the
International Equity Portfolio."
Ordinarily the Portfolio will invest at least 65% of its assets in common
stocks and securities convertible into common stocks of issuers in at least
three different countries located outside the United States. However, excluding
collateral for securities loaned, the Portfolio generally invests in excess of
80% of its assets in such securities. The remainder of the Portfolio's assets
will be invested in non-U.S. debt securities which, at the time of purchase, are
rated in one of the three highest rating categories by any NRSRO or, if unrated,
are deemed to be of comparable quality by the applicable investment adviser and
traded publicly on a world market, or in cash or cash equivalents, including
investment grade short-term obligations, or in other investment companies.
However, when its investment advisers deem that market conditions warrant, the
Portfolio may, for temporary defensive purposes, invest up to 100% of its assets
in cash, cash equivalents, other investment companies and investment grade
short-term obligations.
The investment advisers select securities based upon a country's economic
outlook, market valuation and potential changes in currency exchange rates. When
purchasing equity securities, primary emphasis will be placed on undervalued
securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. These risks are often greater for investments in emerging or
developing countries. See "Investment Techniques and Other Investment Policies -
Foreign Securities" below.
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The Portfolio will limit its investments to those in countries which have
been recommended by AMR and which have been approved by the AMR Trust Board.
Countries may be added or deleted with AMR Trust Board approval. In determining
which countries will be approved, the AMR Trust Board will evaluate the risks of
investing in a country and will particularly focus on the ability to repatriate
funds, the size and liquidity aspects of the country's market and the investment
climate for foreign investors. The current countries in which the Portfolio may
invest are Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Mexico, Netherlands, New
Zealand, Norway, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland
and the United Kingdom.
The Portfolio may trade forward contracts, which are derivatives, to hedge
currency fluctuations of underlying stock or bond positions or in other
circumstances permitted by the Commodity Futures Trading Commission. Forward
contracts to sell foreign currency may be used when the management of the
Portfolio believes that the currency of a particular foreign country may suffer
a decline against the U.S. dollar. Forward contracts are also entered into to
set the exchange rate for a future transaction. In this manner, the Portfolio
may protect itself against a possible loss resulting from an adverse change in
the relationship between the U.S. dollar or other currency which is being used
for the security purchase and the foreign currency in which the security is
denominated during the period between the date on which the security is
purchased or sold and the date on which payment is made or received. Forward
contracts involve certain risks which include, but are not limited to: (1)
imperfect correlation between the securities hedged and the contracts
themselves; and (2) possible decrease in the total return of the Portfolio.
Forward contracts are discussed in greater detail in the SAI.
The Portfolio also may trade currency futures for the same reasons as for
entering into forward contracts as set forth above. Currency futures are traded
on U.S. and foreign currency exchanges. The use of currency futures also entails
certain risks which include, but are not limited to: (1) less liquidity due to
daily limits on price fluctuation; (2) imperfect correlation between the
securities hedged and the contracts themselves; (3) possible decrease in the
total return of the Portfolio due to hedging; (4) possible reduction in value
for both the contracts and the securities being hedged; and (5) potential losses
in excess of the amounts invested in the currency futures contracts themselves.
The Portfolio may not enter into currency futures contracts if the purchase or
sale of such contract would cause the sum of the Portfolio's initial and any
variation margin deposits to exceed 5% of its total assets. Currency futures
contracts, which are derivatives, are discussed in greater detail in the SAI.
As a matter of fundamental policy, the Portfolio may not (1) invest more
than 5% of its total assets (taken at market value) in securities of any one
issuer, other than U.S. Government securities, or purchase more than 10% of the
voting securities of any one issuer, with respect to 75% of the Portfolio's
total assets, or (2) invest more than 25% of its total assets in the obligations
of companies primarily engaged in any one industry, provided that: (i) this
limitation does not apply to U.S. Government securities; (ii) municipalities and
their agencies and authorities are not deemed to be industries; and (iii)
financial service companies are classified according to the end users of their
services (for example, automobile finance, bank finance, and diversified finance
will be considered separate industries). In addition, as a non-fundamental
investment restriction, the Portfolio may not invest more than 15% of its net
assets in illiquid securities, including time deposits and repurchase agreements
that mature in more than seven days.
The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
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not affect a transaction which was in compliance with the investment
restrictions at the time such transaction was effected. See the SAI for other
investment limitations.
CONSECO 20 FUND
The investment objective of the Conseco 20 Fund is to seek capital
appreciation. The Fund invests primarily in common stocks of companies that the
Adviser believes have above average growth prospects. The Fund is
"non-diversified" (meaning that it is not limited under the 1940 Act in the
percentage of assets that it may invest in any one issuer) and normally
concentrates its investments in a core position of approximately 20 common
stocks. Because the Fund may invest a larger portion of its assets in the
securities of a single issuer than a "diversified" fund, an investment in the
Fund may be subject to greater fluctuations in value than an investment in a
"diversified" fund. However, the Fund intends to comply with the standards under
the Code, that limit a regulated investment company's investments in any one
issuer's securities or in the securities (other than U. S. Government
securities) of a limited number of issuers. See "Taxes" in the SAI.
The Fund generally will invest in companies whose earnings are believed to
be in a relatively strong growth trend and, to a lesser extent, in companies in
which significant further growth is not anticipated but whose stocks are thought
to be undervalued by the market. In identifying companies with favorable growth
prospects, the Adviser ordinarily looks to certain characteristics, such as the
following:
. prospects for above-average sales and earnings growth
. high return on invested capital
. overall financial strength, including sound financial and
accounting policies and a strong balance sheet
. competitive advantages, including innovative products and service
. effective research, product development, and marketing
. stable, capable management.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in common stocks. The Fund may invest a substantial portion of its
assets in securities issued by small- and mid-cap companies. See "Small and
Medium Capitalization Companies" below for further information. While the
emphasis of the Fund is on common stocks, the Fund may invest its remaining
assets in preferred stocks, convertible securities, and warrants, and in debt
obligations when the Adviser believes that they are more attractive than stocks
on a long-term basis. The debt obligations in which it invests will be primarily
investment grade debt securities, U.S. Government securities, or short-term debt
securities. However, the Fund may invest up to 5% of its total assets in
lower-rated fixed income securities. When the Adviser determines that market
conditions warrant a temporary defensive position, the Fund may invest without
limitation in cash and short-term debt securities.
The Fund may invest up to 25% of its total assets in equity and debt
securities of foreign issuers. The Fund presently intends to invest in foreign
securities only through depositary receipts. See "Foreign Securities" below for
more information.
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To maximize potential return, the Adviser may utilize a variety of
investment techniques and strategies, including but not limited to: writing
listed "covered" call and "secured" put options, including options on stock
indices, and purchasing options; purchasing and selling, for hedging purposes,
stock index, interest rate, and other futures contracts, and purchasing options
on such futures contracts; entering into foreign currency futures contracts,
forward contracts and options on foreign currencies; borrowing from banks to
purchase securities; purchasing securities of other investment companies;
entering into repurchase agreements and reverse repurchase agreements; investing
in when-issued or delayed delivery securities; and selling securities short. See
"Description of Securities and Investment Techniques" in the SAI for further
information.
INVESTMENT TECHNIQUES AND OTHER INVESTMENT POLICIES
References in this section to "a Fund," "the Funds" or "the Conseco
International Fund" include the International Portfolio, unless the context
otherwise requires.
SMALL AND MEDIUM CAPITALIZATION COMPANIES
The Conseco 20 Fund may invest a substantial portion of its assets in
securities issued by small- and mid-cap companies. The Conseco Equity Fund and
Conseco Asset Allocation Fund also may invest in small- and mid-cap companies.
While these companies generally have potential for rapid growth, investments in
such companies often involve greater risks than investments in larger, more
established companies because small- and mid-cap companies may lack the
management experience, financial resources, product diversification, and
competitive strengths of companies with larger market capitalizations. In
addition, in many instances the securities of small- and mid-cap companies are
traded only over-the-counter or on a regional securities exchange, and the
frequency and volume of their trading is substantially less than is typical of
larger companies. Therefore, these securities may be subject to greater and more
abrupt price fluctuations. When making large sales, a Fund may have to sell
portfolio holdings at discounts from quoted prices or may have to make a series
of small sales over an extended period of time due to the trading volume of
small- and mid-cap company securities. As a result, an investment in any of
these Funds may be subject to greater price fluctuations than an investment in a
fund that invests primarily in larger, more established companies. The Adviser's
research efforts may also play a greater role in selecting securities for these
Funds than in a fund that invests in larger, more established companies.
PREFERRED STOCK
The Funds may invest in preferred stock. Preferred stock pays dividends at
a specified rate and generally has preference over common stock in the payment
of dividends and the liquidation of the issuer's assets but is junior to the
debt securities of the issuer in those same respects. Unlike interest payments
on debt securities, dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors, and shareholders may suffer a
loss of value if dividends are not paid. Preferred shareholders generally have
no legal recourse against the issuer if dividends are not paid. The market
prices of preferred stocks are subject to changes in interest rates and are more
sensitive to changes in the issuer's creditworthiness than are the prices of
debt securities. Under ordinary circumstances, preferred stock does not carry
voting rights.
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DEBT SECURITIES
The Funds (except the Conseco International Fund and the International
Portfolio) may invest in U.S. dollar-denominated corporate debt securities of
domestic issuers, and all of the Funds except the Conseco Equity 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.
Corporate debt securities may pay fixed or variable rates of interest, or
interest at a rate contingent upon some other factor, such as the price of some
commodity. These securities may be convertible into preferred or common stock
(see "Convertible Securities" below), or may be bought as part of a unit
containing common stock. A debt security may be subject to redemption at the
option of the issuer at a price set in the security's governing instrument.
In selecting corporate debt securities for the Funds (except the Conseco
International Fund and the International Portfolio), the Adviser reviews and
monitors the creditworthiness of each issuer and issue. The Adviser also
analyzes interest rate trends and specific developments which it believes may
affect individual issuers.
RISKS ASSOCIATED WITH HIGH YIELD DEBT SECURITIES. The Funds (except the
Conseco International Fund and the International Portfolio) may invest in high
yield, high risk, lower-rated fixed income securities. Lower-rated fixed income
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 lower-rated fixed income securities.
Lower-rated fixed income securities generally offer a higher yield than
that available from higher-rated issues with similar maturities, as compensation
for holding a security that is subject to greater risk. Lower-rated fixed income
securities are deemed by rating agencies to be predominately speculative with
respect to the issuer's capacity to pay interest and repay principal and may
involve major risk or exposure to adverse conditions. Lower-rated securities
involve higher risks in that they are especially subject to (1) adverse changes
in general economic conditions and in the industries in which the issuers are
engaged, (2) adverse changes in the financial condition of the issuers, (3)
price fluctuation in response to changes in interest rates and (4) limited
liquidity and secondary market support.
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An economic downturn affecting the issuer may result in a weakened capacity
to make principal and interest payments and an increased incidence of default.
In addition, a fund that invests in lower-rated securities may incur additional
expenses to the extent recovery is sought on defaulted securities. Because of
the many risks involved in investing in high yield fixed income securities, the
success of such investments is dependent upon the credit analysis of the
Adviser. Although the market for lower-rated fixed income securities is not new,
and the market has previously weathered economic downturns, the past performance
of the market for such securities may not be an accurate indication of its
performance during future economic downturns or periods of rising interest
rates. This market may be thinner and less active than the market for higher
quality securities, which may limit the ability to sell such securities at their
fair value in response to changes in the economy or the financial markets.
Adverse publicity and investor perceptions, whether or not based on fundamental
analysis, may also decrease the values and liquidity of lower-rated securities,
especially in a thinly traded market. Differing yields on debt securities of the
same maturity are a function of several factors, including the relative
financial strength of the issuers.
CONVERTIBLE SECURITIES
The Funds may invest in convertible securities. A convertible security is a
bond, debenture, note, preferred stock or other security that may be converted
into or exchanged for a prescribed amount of common stock of the same or a
different issuer within a particular period of time at a specified price or
formula. A convertible security entitles the holder to receive interest paid or
accrued on debt or the dividend paid on preferred stock until the convertible
security matures or is redeemed, converted or exchanged. Before conversion,
convertible securities ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar
issuers, but lower than the yield on non-convertible debt. Convertible
securities are usually subordinated to comparable-tier non-convertible
securities but rank senior to common stock in a corporation's capital structure.
The value of a convertible security is a function of (1) its yield in
comparison with the yields of other securities of comparable maturity and
quality that do not have a conversion privilege and (2) its worth, at market
value, if converted into the underlying common stock. Convertible securities are
typically issued by smaller capitalized companies, whose stock prices may be
volatile. The price of a convertible security often reflects such variations in
the price of the underlying common stock in a way that non-convertible debt does
not. A convertible security may be subject to redemption at the option of the
issuer at a price established in the convertible security's governing
instrument, which could have an adverse effect on a Fund's ability to achieve
its investment objective.
ZERO COUPON BONDS
The Conseco 20, Conseco Asset Allocation and Conseco High Yield Funds may
invest in zero coupon securities. Zero coupon bonds are debt obligations which
make no fixed interest payments but instead are issued at a significant discount
from face value. Like other debt securities, the market price can reflect a
premium or discount, in addition to the original issue discount, reflecting the
market's judgment as to the issuer's creditworthiness, the interest rate or
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other similar factors. The original issue discount approximates the total amount
of interest the bonds will accrue and compound over the period until maturity
(or the first interest payment date) at a rate of interest reflecting the market
rate at the time of issuance. Because zero coupon bonds do not make periodic
interest payments, their prices can be very volatile when market interest rates
change.
The original issue discount on zero coupon bonds must be included in a
Fund's income ratably as it accrues. Accordingly, to qualify for tax treatment
as a regulated investment company and to avoid a certain excise tax, a Fund may
be required to distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. These distributions must be made from the
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. Such sales could occur at a time which would be disadvantageous to a
Fund and when the Fund would not otherwise choose to dispose of the assets.
PAY-IN-KIND BONDS
The Conseco High Yield and Conseco Asset Allocation Funds may invest in
pay-in-kind bonds. These bonds pay "interest" through the issuance of additional
bonds, thereby adding debt to the issuer's balance sheet. The market prices of
these securities are likely to respond to changes in interest rates to a greater
degree than the prices of securities paying interest currently. Pay-in-kind
bonds carry additional risk in that, unlike bonds that pay interest throughout
the period to maturity, a Fund will realize no cash until the cash payment date
and the Fund may obtain no return at all on its investment if the issuer
defaults.
The holder of a pay-in-kind bond must accrue income with respect to these
securities prior to the receipt of cash payments thereon. To avoid liability for
federal income and excise taxes, a Fund most likely will be required to
distribute income accrued with respect to these securities, even though the Fund
has not received that income in cash, and may be required to dispose of
portfolio securities under disadvantageous circumstances in order to generate
cash to satisfy these distribution requirements.
MORTGAGE-BACKED SECURITIES
The Funds (except the Conseco International Fund and the International
Portfolio) may invest in mortgage-backed securities. Mortgage-backed securities
are interests in "pools" of mortgage loans made to residential home buyers,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations (see "Mortgage Pass-Through Securities," below). These
Funds may also invest in debt securities which are secured with collateral
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations," below), and in other types of mortgage-related securities. The
Conseco 20 Fund presently does not intend to invest more than 5% of its assets
in mortgage-backed securities.
MORTGAGE PASS-THROUGH SECURITIES. These are securities representing
interests in pools of mortgages in which periodic payments of both interest and
principal on the securities are made by "passing through" periodic payments made
by the individual borrowers on the residential mortgage loans underlying such
securities (net of fees paid to the issuer or guarantor of the securities and
possibly other costs). Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
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incurred) may expose a Fund to a lower rate of return upon reinvestment of
principal. Payment of principal and interest on some mortgage pass-through
securities may be guaranteed by the full faith and credit of the U.S. Government
(in the case of securities guaranteed by the Government National Mortgage
Association ("GNMA")), or guaranteed by agencies or instrumentalities of the
U.S. Government (in the case of securities guaranteed by Fannie Mae ("FNMA") or
Freddie Mac ("FHLMC")). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
secondary market issuers) may be uninsured or may be supported by various forms
of insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers, or the mortgage poolers.
GNMA CERTIFICATES. GNMA certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans on which timely payment
of interest and principal is guaranteed by the full faith and credit of the U.S.
Government. As a result, GNMA certificates are considered to have a low risk of
default, although they are subject to the same market risk as comparable debt
securities. GNMA certificates differ from typical bonds because principal is
repaid monthly over the term of the loan rather than returned in a lump sum at
maturity. Although the mortgage loans in the pool will have maturities of up to
30 years, the actual average life of the GNMA certificates typically will be
substantially less because the mortgages may be purchased at any time prior to
maturity, will be subject to normal principal amortization, and may be prepaid
prior to maturity. Reinvestment of prepayments may occur at higher or lower
rates than the original yield on the certificates.
FNMA AND FHLMC MORTGAGE-BACKED OBLIGATIONS. FNMA, a federally chartered and
privately owned corporation, issues pass-through securities representing
interests in pools of conventional mortgage loans. FNMA guarantees the timely
payment of principal and interest, but this guarantee is not backed by the full
faith and credit of the U.S. Government. FNMA also issues REMIC certificates,
which represent interests in a trust funded with FNMA certificates. REMIC
certificates are guaranteed by FNMA and not by the full faith and credit of the
U.S. Government.
FHLMC, a corporate instrumentality of the U.S. Government, issues
participation certificates which represent interests in pools of conventional
mortgage loans. FHLMC guarantees the timely payment of interest and the ultimate
collection of principal, and maintains reserves to protect holders against
losses due to default, but these securities are not backed by the full faith and
credit of the U.S. Government.
As is the case with GNMA certificates, the actual maturity of and realized
yield on particular FNMA and FHLMC pass-through securities will vary based on
the prepayment experience of the underlying pool of mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MORTGAGE-BACKED BONDS.
Mortgage-backed securities may be issued by financial institutions such as
commercial banks, savings and loan associations, mortgage banks, and securities
broker-dealers (or affiliates of such institutions established to issue these
securities) in the form of either collateralized mortgage obligations ("CMOs")
or mortgage-backed bonds. CMOs are obligations fully collateralized directly or
indirectly by a pool of mortgages on which payments of principal and interest
are dedicated to payment of principal and interest on the CMOs. Payments are
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
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obligations on the bonds but interest and principal payments on the mortgages
are not passed through either directly (as with GNMA certificates and FNMA and
FHLMC pass-through securities) or on a modified basis (as with CMOs).
Accordingly, a change in the rate of prepayments on the pool of mortgages could
change the effective maturity of a CMO but not that of a mortgage-backed bond
(although, like many bonds, mortgage-backed bonds may be callable by the issuer
prior to maturity). Although the mortgage-related securities securing these
obligations may be subject to a government guarantee or third-party support, the
obligation itself is not so guaranteed. Therefore, if the collateral securing
the obligation is insufficient to make payment on the obligation, a Fund could
sustain a loss. If new types of mortgage-related securities are developed and
offered to investors, investments in such securities will be considered.
STRIPPED MORTGAGE-BACKED SECURITIES. The Conseco High Yield Fund may invest
in stripped mortgage-backed securities, which are derivative securities usually
structured with two classes that receive different proportions of the interest
and principal distributions from an underlying pool of mortgage assets. The Fund
may purchase securities representing only the interest payment portion of the
underlying mortgage pools (commonly referred to as "IOs") or only the principal
portion of the underlying mortgage pools (commonly referred to as "POs").
Stripped mortgage-backed securities are more sensitive to changes in prepayment
and interest rates and the market for such securities is less liquid than is the
case for traditional debt securities and mortgage-backed securities. The yield
on IOs is extremely sensitive to the rate of principal payments (including
prepayments) on the underlying mortgage assets, and a rapid rate of repayment
may have a material adverse effect on such securities' yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund will fail to recoup fully its initial investment in these
securities, even if they are rated high quality. Most IOs and POs are regarded
as illiquid and will be included in the Fund's limit on illiquid securities.
RISKS OF MORTGAGE-BACKED SECURITIES. Mortgage pass-through securities, such
as GNMA certificates or FNMA and FHLMC mortgage-backed obligations, or modified
pass-through securities, such as CMOs issued by various financial institutions
and IOs and POs, are subject to early repayment of principal arising from
prepayments of principal on the underlying mortgage loans (due to the sale of
the underlying property, the refinancing of the loan, or foreclosure).
Prepayment rates vary widely and may be affected by changes in market interest
rates and other economic trends and factors. In periods of falling interest
rates, the rate of prepayment tends to increase, thereby shortening the actual
average life of the mortgage-backed security. Conversely, when interest rates
are rising, the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the mortgage-backed security. Accordingly, it is not
possible to accurately predict the average life of a particular pool.
Reinvestment of prepayments may occur at higher or lower rates than the original
yield on the securities. Therefore, the actual maturity and realized yield on
pass-through or modified pass-through mortgage-backed securities will vary based
upon the prepayment experience of the underlying pool of mortgages.
TRUST ORIGINATED PREFERRED SECURITIES
The Conseco High Yield Fund may also invest in trust originated preferred
securities, a relatively new type of security issued by financial institutions
such as banks and insurance companies and other issuers. Trust originated
preferred securities represent interests in a trust formed by the issuer. The
trust sells preferred shares and invests the proceeds in notes issued by the
same entity. These notes may be subordinated and unsecured. Distributions on the
trust originated preferred securities match the interest payments on the notes;
if no interest is paid on the notes, the trust will not make current payments on
its preferred securities. Issuers of the notes currently enjoy favorable tax
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treatment. If the tax characterization of these securities were to change
adversely, they could be redeemed by the issuers, which could result in a loss
to the Fund. In addition, some trust originated preferred securities are
available only to qualified institutional buyers under Rule 144A.
LOAN PARTICIPATIONS AND ASSIGNMENTS
The Conseco High Yield Fund may also invest in loan participations or
assignments. In purchasing a loan participation or assignment, the Fund acquires
some or all of the interest of a bank or other lending institution in a loan to
a corporate borrower. Many such loans are secured and most impose restrictive
covenants which must be met by the borrower and which are generally more
stringent than the covenants available in publicly traded debt securities.
However, interests in some loans may not be secured, and the Fund will be
exposed to a risk of loss if the borrower defaults. Loan participations may also
be purchased by the Fund when the borrowing company is already in default.
In purchasing a loan participation, the Fund may have less protection under
the federal securities laws than it has in purchasing traditional types of
securities. The Fund's ability to assert its rights against the borrower will
also depend on the particular terms of the loan agreement among the parties.
Many of the interests in loans purchased by the Fund will be illiquid and
therefore subject to the Fund's limit on illiquid investments.
COLLATERALIZED BOND OBLIGATIONS
A collateralized bond obligation ("CBO") is a type of asset-backed
security. Specifically, a CBO is an investment grade bond which is backed by a
diversified pool of high risk, high yield fixed income securities. The pool of
high yield securities is separated into "tiers" representing different degrees
of credit quality. The top tier of CBOs is backed by the pooled securities with
the highest degree of credit quality and pays the lowest interest rate.
Lower-tier CBOs represent lower degrees of credit quality and pay higher
interest rates to compensate for the attendant risk. The bottom tier typically
receives the residual interest payments (I.E. money that is left over after the
higher tiers have been paid) rather than a fixed interest rate. The return on
the bottom tier of CBOs is especially sensitive to the rate of defaults in the
collateral pool.
FOREIGN SECURITIES
The Funds may invest in securities of foreign issuers. These securities may
be U.S. dollar denominated or non-U.S. dollar denominated. Foreign securities
include securities issued, assumed or guaranteed by foreign governments or
political subdivisions or instrumentalities thereof.
Investments in foreign securities may offer unique potential benefits such
as substantial growth in industries not yet developed in the particular country.
Such investments also permit a Fund to invest in foreign countries with economic
policies or business cycles different from those of the United States, or to
reduce fluctuations in portfolio value by taking advantage of foreign securities
markets that may not move in a manner parallel to U.S. markets.
Investments in securities of foreign issuers involve certain risks not
ordinarily associated with investments in securities of domestic issuers. Such
risks include fluctuations in foreign exchange rates, and the possible
imposition of exchange controls or other foreign governmental laws or
restrictions on foreign investments or repatriation of capital. In addition,
with respect to certain countries, there is the possibility of nationalization
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or expropriation of assets; confiscatory taxation; political, social or
financial instability; and war or other diplomatic developments that could
adversely affect investments in those countries. Since a Fund may invest in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
held by the Fund and the unrealized appreciation or depreciation of investments
so far as U.S. investors are concerned. A Fund generally will incur costs in
connection with conversion between various currencies.
There may be less publicly available information about a foreign company
than about a U.S. company, and foreign companies may not be subject to
accounting, auditing, and financial reporting standards and requirements
comparable to or as uniform as those to which U.S. companies are subject.
Foreign securities markets, while growing in volume, have, for the most part,
substantially less volume than U.S. markets. Securities of many foreign
companies are less liquid and their prices more volatile than securities of
comparable U.S. companies. Transaction costs, custodial fees and management
costs in non-U.S. securities markets are generally higher than in U.S.
securities markets. There is generally less government supervision and
regulation of exchanges, brokers, and issuers than there is in the United
States. A Fund might have greater difficulty taking appropriate legal action
with respect to foreign investments in non-U.S. courts than with respect to
domestic issuers in U.S. courts. In addition, transactions in foreign securities
may involve longer time from the trade date until settlement than domestic
securities transactions and involve the risk of possible losses through the
holding of securities by custodians and securities depositories in foreign
countries.
All of the foregoing risks may be intensified in emerging markets.
Dividend and interest income from foreign securities may be subject to
withholding taxes by the country in which the issuer is located and may not be
recoverable by a Fund or its investors in all cases.
ADRs are certificates issued by a U.S. bank or trust company representing
an interest in securities of a foreign issuer deposited in a foreign subsidiary
or branch or a correspondent of that bank. Generally, ADRs are designed for use
in U.S. securities markets and may offer U.S. investors more liquidity than the
underlying securities. The Funds may invest in unsponsored ADRs. The issuers of
unsponsored ADRs are not obligated to disclose material information in the
United States and, therefore, there may not be a correlation between such
information and the market value of such ADRs. European Depositary Receipts
("EDRs") are certificates issued by a European bank or trust company evidencing
its ownership of the underlying foreign securities. EDRs are designed for use in
European securities markets.
RESTRICTED SECURITIES, RULE 144A SECURITIES AND ILLIQUID SECURITIES
The Funds (except the Conseco International Fund and the International
Portfolio) may invest in restricted securities, such as private placements, and
in Rule 144A securities. Once acquired, restricted securities may be sold by a
Fund only in privately negotiated transactions or in a public offering with
respect to which a registration statement is in effect under the 1933 Act. If
sold in a privately negotiated transaction, a Fund may have difficulty finding a
buyer and may be required to sell at a price that is less than it had
anticipated. Where registration is required, a Fund may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
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period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
are generally considered illiquid.
Rule 144A securities, although not registered, may be resold to qualified
institutional buyers in accordance with Rule 144A under the 1933 Act. The
Adviser, acting pursuant to guidelines established by the Board, may determine
that some Rule 144A securities are liquid.
A Fund may not invest in any security if, as a result, more than 15% of the
Fund's net assets would be invested in illiquid securities, which are securities
that cannot be expected to be sold within seven days at approximately the price
at which they are valued.
PRIVATE PLACEMENT OFFERINGS (CONSECO INTERNATIONAL FUND AND INTERNATIONAL
PORTFOLIO)
Investments in private placement offerings are made in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
1933 Act, and resold to qualified institutional buyers under Rule 144A under the
1933 Act ("Section 4(2) securities"). Section 4(2) securities are restricted as
to disposition under the federal securities laws, and generally are sold to
institutional investors such as the Portfolio that agree they are purchasing the
securities for investment and not with an intention to distribute to the public.
Any resale by the purchaser must be pursuant to an exempt transaction and may be
accomplished in accordance with Rule 144A. Section 4(2) securities normally are
resold to other institutional investors such as the Portfolio through or with
the assistance of the issuer or dealers that make a market in the Section 4(2)
securities, thus providing liquidity. The Portfolio will not invest more than
15% of its net assets in Section 4(2) securities and illiquid securities unless
the applicable investment adviser determines, by continuous reference to the
appropriate trading markets and pursuant to guidelines approved by the AMR Trust
Board, that any Section 4(2) securities held by the Portfolio in excess of this
level are at all times liquid.
The AMR Trust Board and the applicable investment adviser, pursuant to the
guidelines approved by the AMR Trust Board, will carefully monitor the
Portfolio's investments in Section 4(2) securities offered and sold under Rule
144A, focusing on such important factors, among others, as: valuation,
liquidity, and availability of information. Investments in Section 4(2)
securities could have the effect of reducing the Portfolio's liquidity to the
extent that qualified institutional buyers no longer wish to purchase these
restricted securities.
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements. A repurchase agreement is
an agreement under which securities are acquired from a securities dealer or
bank subject to resale at an agreed upon price on a later date. The acquiring
Fund bears a risk of loss in the event that the other party to a repurchase
agreement defaults on its obligations and the Fund is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, to
minimize the risk, the Funds will enter into repurchase agreements only with
financial institutions which are deemed to be of good financial standing and
which have been approved by the Board or the AMR Trust Board. No more than 15%
of a Fund's assets may be subject to repurchase agreements maturing in more than
seven days.
SECURITIES LENDING
The Funds may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, U.S. Government securities, and approved
bank letters of credit that at all times equal at least 100% of the market value
of the loaned securities. The Conseco 20 Fund, the Conseco High Yield Fund, and
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the Conseco International Fund will not make such loans if, as a result, the
aggregate amount of all outstanding securities loans would exceed 33 1/3% of the
Fund's total assets. As a fundamental policy of Conseco Equity Fund, the Conseco
Asset Allocation Fund, and the Conseco Fixed Income Fund, such loans will not be
made if, as a result, the aggregate amount of all outstanding securities loans
would exceed 15% of each Fund's total assets. A Fund continues to receive
interest on the securities loaned and simultaneously earns either interest on
the investment of the cash collateral or fee income if the loan is otherwise
collateralized. Should the borrower of the securities fail financially, there is
a risk of delay in recovery of the securities loaned or loss of rights in the
collateral. However, the Funds seek to minimize this risk by making loans only
to borrowers which are deemed by the Adviser or AMR, as appropriate, to be of
good financial standing and that have been approved by the Board or the AMR
Trust Board, respectively.
AMR will receive compensation for administrative and oversight functions
with respect to securities lending by the International Portfolio. The amount of
such compensation will depend on the income generated by the loan of the
Portfolio's securities. The SEC has granted exemptive relief that permits the
Portfolio to invest cash collateral received from securities lending
transactions in shares of one or more private investment companies managed by
AMR.
Subject to receipt of exemptive relief from the SEC, the Portfolio also may
invest cash collateral received from securities lending transactions in shares
of one or more registered investment companies managed by AMR.
BORROWING
The Funds (except the Conseco International Fund and the International
Portfolio) may borrow money to purchase securities, which is a form of leverage.
This leverage may exaggerate the gains and losses on a Fund's investments and
changes in the net asset value of that Fund's shares. Leverage also creates
interest expenses; if those expenses exceed the return on the transactions that
the borrowings facilitate, a Fund will be in a worse position than if it had not
borrowed. The use of derivatives in connection with leverage may create the
potential for significant losses. The Funds may pledge assets in connection with
permitted borrowings. Each Fund may borrow an amount up to 33 1/3 % of its
assets.
PORTFOLIO TURNOVER
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
Conseco High Yield Fund and Conseco 20 Fund normally will not exceed 400%. In
the last fiscal year, the portfolio turnover rate was 368% for the Conseco Fixed
Income Fund, 507% for the Conseco Asset Allocation Fund, and 199% for the
Conseco Equity Fund, and 15% for the International Portfolio. Turnover rates in
excess of 100% generally result in higher transaction costs and a possible
increase in realized short-term capital gains or losses. See "Dividends, Other
Distributions and Taxes."
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE
The Conseco International Fund, unlike mutual funds that directly acquire
and manage their own portfolios of securities, seeks to achieve its investment
objective by investing all of its investable assets in the International
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Portfolio of the AMR Trust, which is a separate investment company managed by
AMR. The AMR Trust is registered under the 1940 Act as an open-end diversified
management investment company and was organized as a New York common law trust
on June 27, 1995. The predecessor of the International Portfolio commenced
operations on August 7, 1991 and transferred all of its investable assets to the
Portfolio on November 1, 1995. The AMR Trust currently issues eight separate
series of shares. The assets of the Portfolio belong only to, and the
liabilities of the Portfolio are borne solely by, the Portfolio and no other
series of the AMR Trust.
The Board believes that the Conseco International Fund will achieve
economies of scale by investing in the Portfolio, which could reduce the Fund's
expenses. In addition to selling its interests to the Conseco International
Fund, the Portfolio currently sells its interests to other investment companies
and/or other institutional investors. All institutional investors in the
Portfolio pay a proportionate share of the Portfolio's expenses and invest in
the Portfolio on the same terms and conditions. However, other investment
companies investing all of their assets in the Portfolio are not required to
sell their shares at the same public offering price as the Conseco International
Fund and are allowed to charge different sales commissions and to have different
fees and expenses. Therefore, investors in the Conseco International Fund may
experience different returns than investors in another investment company that
invests exclusively in the Portfolio. Information regarding other investment
companies that invest in the Portfolio is available by calling (800) 967-9009.
The Conseco International Fund's investment in the Portfolio may be
materially affected by the actions of large investors in the Portfolio. For
example, as with all open-end investment companies, if a large investor were to
redeem its interest in the Portfolio, the Portfolio's remaining investors could
experience higher pro rata operating expenses, thereby producing lower returns.
As a result, the Portfolio's security holdings also could become less diverse,
resulting in increased risk. Investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio could have effective voting control
over its operation.
The Conseco International Fund may withdraw its entire investment from the
Portfolio at any time if the Board determines that it is in the best interests
of the Conseco International Fund and its shareholders to do so. The Conseco
International Fund might withdraw, for example, if there were other investors in
the Portfolio with power to, and who did by a vote of the shareholders of all
investors (including the Conseco International Fund), change the investment
objective or policies of the Portfolio in a manner not acceptable to the Board.
A withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution) by the Portfolio. That distribution could result
in a less diversified portfolio of investments for the Conseco International
Fund and could affect adversely the liquidity of the Conseco International
Fund's portfolio. If the Conseco International Fund decided to convert those
securities to cash, it usually would incur brokerage fees or other transaction
costs. If the Conseco International Fund withdrew its investment from the
Portfolio, the Board would consider what action might be taken, including the
management of the Conseco International Fund's assets by the Adviser in
accordance with the Fund's investment objective and policies or the investment
of all of the Conseco International Fund's investable assets in another pooled
investment entity having substantially the same investment objective as the
Fund. In the event the Board determines not to have the Adviser manage the
Conseco International Fund's assets, the inability of the Fund to find a
suitable replacement investment could have a significant impact on shareholders
of the Conseco International Fund.
Each investor in the Portfolio, including the Conseco International Fund,
will be liable for all obligations of the Portfolio, but not of any other series
of the AMR Trust. The risk to an investor in the Portfolio of incurring
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financial loss beyond the amount of its investment on account of such liability,
however, would be limited to the unlikely circumstance in which the Portfolio
was unable to meet its obligations. Upon liquidation of the Portfolio, investors
would be entitled to share pro rata in the net assets of the Portfolio available
for distribution to investors. For additional information regarding liability of
shareholders of the Conseco International Fund, see "General" in the SAI.
MANAGEMENT
The Trustees of the Trust decide upon matters of general policy for the
Trust. In addition, the Trustees review the actions of the Adviser, as set forth
below. The Trust's officers supervise the daily business operations of the
Trust. For information about the Trust's Board of Trustees and the Trust's
officers, see "Management" in the SAI. The AMR Trust Board has general
supervisory responsibility over the AMR Trust's affairs.
THE ADVISER
Conseco Capital Management, Inc., 11825 N. Pennsylvania Street, Carmel,
Indiana 46032, has been retained under 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 manages
and serves as sub-adviser to other registered investment companies and manages
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 also
manages foundations, endowments, public and corporate pension plans, and private
client accounts. As of December 31, 1997, the Adviser managed in excess of $38
billion in assets.
The Adviser generally manages the affairs of the Trust, subject to the
supervision of the Board. While the Conseco International Fund operates in a
"master-feeder" structure, the Adviser is responsible for selecting the
investment company in which that Fund invests. If the Adviser is not satisfied
with the performance of that investment company, the Adviser will recommend to
the Board other investment companies in which the Conseco International Fund may
invest, or recommend that the Adviser manage the Conseco International Fund
itself.
Under the Investment Advisory Agreements, the Adviser has contracted to
receive an investment advisory fee equal to an annual rate of .70% of the
average daily net asset value of the Conseco Equity Fund, Conseco Asset
Allocation Fund, Conseco 20 Fund, and Conseco High Yield Fund, 0.45% of the
average daily net asset value of the Conseco Fixed Income Fund, and 1.00% of the
average daily net asset value of the Conseco International Fund. The Adviser has
voluntarily undertaken to reduce its advisory fee with respect to the Conseco
Fixed Income Fund and the Conseco High Yield Fund until April 30, 1997. See "Fee
Table" for more information. The Adviser has voluntarily agreed to waive all of
its fees under the Conseco International Fund's Investment Advisory Agreement so
long as that Fund invests all of its investable assets in the International
Portfolio or another investment company with substantially the same investment
objective and policies as the Fund. For more information about the Portfolio's
management, see "AMR and the Investment Advisers to the International Equity
Portfolio" below.
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The Adviser and the Administrator have voluntarily agreed to waive their
fees and/or reimburse expenses to the extent that the ratio of expenses to net
assets on an annual basis for Class Y shares of the Conseco Equity and Conseco
Asset Allocation Funds exceeds 1.00%, the Conseco Fixed Income Fund exceeds
0.60%, the Conseco 20 Fund exceeds 1.25%, the Conseco High Yield Fund exceeds
0.90%, and the Conseco International Fund exceeds 1.75%. These voluntary limits
may be discontinued at any time after April 30, 1999.
The investment professionals primarily responsible for the management of
the Funds (except the Conseco International Fund and the International
Portfolio) with the respective responsibilities and business experience for the
past five years are as follows:
CONSECO FIXED INCOME FUND: Gregory J. Hahn, CFA, 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.
CONSECO HIGH YIELD FUND: Michael C. Buchanan, CFA, Second Vice President of
the Adviser, William F. Ficca, Vice President and Director of Research of the
Adviser, and Peter C. Andersen, CFA, Second Vice President, Portfolio Analytics
for the Adviser. Mr. Buchanan is responsible for the Adviser's high yield,
emerging markets and distressed debt trading, as well as overseeing its
investment grade bond trading and Canadian research. Previously, he worked at
the Adviser in convertible securities trading and industrial fixed income
research. Mr. Buchanan joined the Adviser in 1990.
Mr. Andersen is co-manager of the Conseco High Yield Focus Fund, and is
responsible for fixed income management of institutional client accounts. Mr.
Andersen joined the Adviser in 1997. Prior to joining the Adviser, he was a
portfolio manager for Colonial Management Associates in Boston, where he managed
over $650 million in high yield, tax-free mutual funds.
Mr. Ficca oversees the Adviser's research efforts. In addition, he is the
portfolio manager of certain other investment products managed by the Adviser.
Mr. Ficca joined the Adviser in 1991. Previously, Mr. Ficca worked in investment
banking and traded corporate and government bonds.
Like other financial and business organizations, the Funds could be
adversely affected if computer systems they rely on do not properly process
date-related information and data involving the years 2000 and after. The
Adviser is taking steps that it believes are reasonable to address this problem
in its own computer systems and to obtain assurances that comparable steps are
being taken by the Funds' other major service providers. The Adviser also
attempts to evaluate the potential impact of this problem on the issuers of
investment securities that the Funds purchase. However, there can be no
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assurance that these steps will be sufficient to avoid any adverse impact on the
Funds.
CONSECO ASSET ALLOCATION FUND: Gregory J. Hahn, CFA, 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 below.
CONSECO EQUITY FUND: Thomas J. Pence, CFA, 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.
CONSECO 20 FUND: Thomas J. Pence, Vice President for the Adviser, and Erik
J. Voss, Senior Securities Analyst for the Adviser. See Mr. Pence's business
experience above.
Mr. Voss assists in research and portfolio management for all of the
Adviser's equity portfolios. Mr. Voss joined the Adviser in 1996. Previously, he
worked as an equity analyst for another investment adviser.
Like other financial and business organizations, the Funds could be
adversely affected if computer systems they rely on do not properly process
date-related information and data involving the years 2000 and after. The
Adviser is taking steps that it believes are reasonable to address this problem
in its own computer systems and to obtain assurances that comparable steps are
being taken by the Funds' other major service providers. The Adviser also
attempts to evaluate the potential impact of this problem on the issuers of
investment securities that the Funds purchase. However, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds.
AMR AND THE INVESTMENT ADVISERS TO THE INTERNATIONAL EQUITY PORTFOLIO
AMR has entered into a Management Agreement with the AMR Trust that
obligates AMR to provide or oversee all administrative, investment advisory and
portfolio management services for the AMR Trust, including the International
Portfolio. AMR, located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth,
Texas 76155, is a wholly owned subsidiary of AMR Corporation, the parent company
of American Airlines, Inc., and was organized in 1986 to provide investment
management, advisory, administrative and asset management consulting services.
As of December 31, 1997, AMR had assets under management totaling approximately
$18.4 billion including approximately $6.1 billion under active management and
$12.3 billion as named fiduciary or fiduciary adviser. Of the total,
approximately $14.2 billion of assets are related to AMR Corporation.
AMR develops the investment program for the International Portfolio,
selects and changes investment advisers (subject to approval by the AMR Trust
Board), allocates assets among investment advisers, monitors their investment
programs and results, and coordinates the investment activities of the
investment advisers to ensure compliance with regulatory restrictions. For more
information about these matters, see the SAI. AMR also provides the Portfolio
with office space, office equipment and personnel necessary to manage and
administer its operations.
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AMR oversees the Portfolio's participation in securities lending activities
and any action taken by securities lending agents in connection with those
activities to ensure compliance with all applicable regulatory and investment
guidelines.
AMR bears the expense of providing the above services and pays the fees of
the Portfolio's investment advisers. As compensation for doing so, AMR receives
from the Portfolio an annualized advisory fee that is calculated and accrued
daily, equal to the sum of (1) 0.10% of the net assets of the Portfolio, plus
(2) all fees payable by AMR to the Portfolio's investment advisers as described
below. The advisory fee is payable quarterly in arrears. AMR also receives
compensation in connection with securities lending activities. If the Portfolio
lends its portfolio securities and receives cash collateral from the borrower,
AMR may receive up to 25% of the net annual interest income (the gross interest
earned by the investment less the amount paid to the borrower as well as related
expenses) received from the investment of such cash. If a borrower posts
collateral other than cash, the borrower will pay to the Portfolio a loan fee.
AMR may receive up to 25% of the loan fees posted by borrowers. Currently, AMR
receives 10% of the net annual interest income from the investment of cash
collateral or 10% of the loan fees posted by borrowers.
William F. Quinn has served as President of AMR since it was founded in
1986 and Nancy A. Eckl serves as Vice President - Trust Investments of AMR. Ms.
Eckl previously served as Vice President - Finance and Compliance of AMR from
December 1990 to May 1995. In these capacities, Mr. Quinn and Ms. Eckl have
primary responsibility for the day-to-day operations of the Portfolio. These
responsibilities include oversight of the investment advisers to the Portfolio,
regular review of each investment adviser's performance and asset allocations
among them.
The Portfolio's investment advisers are listed below. Each investment
adviser has entered into a separate investment advisory agreement with AMR to
provide investment advisory services to the Portfolio. AMR is permitted to enter
into new or modified advisory agreements with existing or new investment
advisers without approval of Conseco International Fund shareholders or
International Portfolio interest holders, but subject to approval of the AMR
Trust Board. The SEC issued an exemptive order which eliminates the need for
shareholder/interest holder approval, subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the Fund send a notice to shareholders containing information
about the change that would be included in a proxy statement. AMR recommends
investment advisers to the AMR Trust Board based upon its continuing
quantitative and qualitative evaluation of the investment advisers' skill in
managing assets using specific investment styles and strategies. The allocation
of assets among investment advisers may be changed at any time by AMR.
Allocations among investment advisers will vary based upon a variety of factors,
including the overall investment performance of each investment adviser, the
Portfolio's cash flow needs and market conditions. AMR need not allocate assets
to each investment adviser designated for the Portfolio. The investment advisers
can be terminated without penalty to the AMR Trust by AMR, the AMR Trust Board
or the interest holders of the Portfolio. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an investment
adviser, and AMR does not expect to recommend frequent changes of investment
advisers. The Prospectus will be supplemented if additional investment advisers
are retained or the contract with any existing investment adviser is terminated.
The investment advisers provide the Portfolio with portfolio investment
management and related recordkeeping services. Each investment adviser has
discretion to purchase and sell securities for its segment of the Portfolio's
assets in accordance with the Portfolio's objective, policies and restrictions
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and the more specific strategies provided by AMR. As compensation for its
services, each investment adviser is paid a fee by AMR out of the proceeds of
the management fee received by AMR from the Portfolio.
Hotchkis and Wiley, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley. Hotchkis and Wiley is a division
of the Capital Management Group of Merrill Lynch Asset Management, L.P., a
wholly owned indirect subsidiary of Merrill Lynch & Co., Inc. Assets under
management as of December 31, 1997 were approximately $12.3 billion, which
included approximately $1.1 billion of assets of AMR Corporation and its
subsidiaries and affiliated entities. The advisory contract provides for AMR to
pay Hotchkis and Wiley an annualized fee equal to .60% of the first $10 million
of assets under its discretionary management, .50% of the next $140 million of
assets, .30% of the next $50 million of assets, .20% of the next $800 million of
assets and .15% of all excess assets.
Morgan Stanley Asset Management Inc. ("MSAM"), 25 Cabot Square, London,
United Kingdom E14 4QA, is a wholly owned subsidiary of Morgan Stanley, Dean
Witter & Co. MSAM provides portfolio management and named fiduciary services to
taxable and nontaxable institutions, international organizations and individuals
investing in United States and international equity and debt securities. As of
September 30, 1997, MSAM, together with its other asset management affiliates,
had assets under management totaling approximately $142.5 billion, including
approximately $112.3 billion under active management and $20.2 billion as named
fiduciary or fiduciary adviser. As of December 31, 1997, MSAM had investment
authority over approximately $561.9 million of assets of AMR Corporation and its
subsidiaries and affiliated entities. AMR pays MSAM an annual fee equal to .80%
of the first $25 million in assets under its discretionary management, .60% of
the next $25 million in assets, .50% of the next $25 million in assets and .40%
of all excess assets.
Templeton Investment Counsel, Inc. ("Templeton"), 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc. As of December 31,
1997, Templeton had discretionary investment management authority with respect
to approximately $21.7 billion of assets, including approximately $511.6 million
of assets of AMR Corporation and its subsidiaries and affiliated entities. AMR
pays Templeton an annualized fee equal to .50% of the first $100 million in
assets under its discretionary management, .35% of the next $50 million in
assets, .30% of the next $250 million in assets and .25% on assets over $400
million.
Solely for the purpose of determining the applicable percentage rates when
calculating the fees for each investment adviser other than MSAM, there shall be
included all other assets or trust assets of American Airlines, Inc. also under
management by each respective investment adviser. For the purpose of determining
the applicable percentage rates when calculating MSAM's fees, all equity account
assets managed by MSAM on behalf of American Airlines, Inc. shall be included.
The inclusion of any such assets will result in lower overall fee rates being
applied to the Portfolio.
ADMINISTRATIVE FEES
Pursuant to an administration agreement ("Administration Agreement"), the
Administrator supervises the overall administration of the Funds. These
administrative services include supervising the preparation and filing of all
documents required for compliance by the Funds with applicable laws and
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regulations, supervising the maintenance of books and records, and other general
and administrative responsibilities. In addition, while the Conseco
International Fund operates in a "master-feeder" structure, the Administrator
will monitor the performance of the investment company in which the Conseco
International Fund invests, coordinate the Conseco International Fund's
relationship with that investment company and communicate with the Board and
shareholders regarding the performance of that investment company and the Fund's
master-feeder structure.
For providing these services, the Administrator receives a fee from each of
the Funds (except the Conseco International Fund) of .20% per annum of its
average daily net assets. The Administrator receives a fee from the Conseco
International Fund of .75% per annum of its average daily net assets. Pursuant
to the Administration Agreement, the Administrator reserves the right to employ
one or more sub-administrators to perform administrative services for the Funds.
The Bank of New York performs certain administrative services for each of the
Funds, and AMR and State Street Bank and Trust Company ("State Street") perform
services for the Conseco International Fund, pursuant to agreements with the
Administrator.
PURCHASE AND REDEMPTION OF SHARES
HOW TO BUY SHARES
You may purchase shares from any broker, dealer, or other financial
intermediary that has a selling agreement with the Distributor. These firms may
charge for their services in connection with your purchase order. In addition,
as discussed below, an account may be opened for the purchase of shares of a
Fund by mailing a completed account application and a check payable to the
appropriate Fund to the Conseco Fund Group, P.O. Box 8017, Boston, Massachusetts
02266-8017. Or you may telephone (800) 986-3384 to obtain the number of an
account to which you can wire or electronically transfer funds and then send in
a completed application.
In order to buy Class Y shares you must be an institutional investor or a
qualifying individual investor. Institutional investors may include, but are not
limited to, the following: (i) tax qualified retirement plans which have (a) at
least $10 million in plan assets, or (b) 250 or more employees eligible to
participate at the time of purchase, (ii) banks and insurance companies
purchasing shares for their own account, (iii) investment companies not
affiliated with the Adviser, (iv) tax-qualified retirement plans of the Adviser
or brokers, dealers, and other financial intermediaries that have a selling
agreement with the Distributor and their affiliates, (v) endowments, foundations
and other charitable organizations or (vi) accounts established under wrap fee
or asset allocation programs where the accountholder pays the sponsor an
asset-based fee. A qualifying individual investor is an investor who is a client
of the Adviser and is making a purchase of over $500,000 or whose purchase
together with his current holdings of Class Y shares exceeds $500,000 or any
other individual who meets the minimum investment requirement.
Purchase orders for all Funds are accepted only on a business day as
defined below. Orders for shares received by the Funds' Transfer Agent on any
business day prior to the close of regular trading on the New York Stock
Exchange (the "NYSE") (normally 4:00 p.m. Eastern Time) will receive that day's
offering price. The offering price is net asset value. Orders received by the
Transfer Agent after such time but prior to the close of business on the next
business day will receive the next business day's offering price. 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
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observes New Year's Day, Martin Luther King Jr. Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
Certain brokers, dealers, and other financial intermediaries may be
authorized to accept purchase orders on behalf of the Funds. A Fund will be
deemed to have received a purchase order when an authorized broker, dealer, or
other financial intermediary accepts the order. Orders placed through an
authorized broker, dealer, or other financial intermediary will receive the
offering price next calculated after the order has been accepted by such an
authorized firm. In all other cases, it is the responsibility of the broker,
dealer, or other financial intermediary to forward customer orders received
prior to the close of the NYSE to the Transfer Agent prior to its close of
business that same day (normally 4:00 p.m. Eastern Time).
Brokers, dealers and other financial intermediaries are required to provide
payment within three business days after placing an order. WHEN MAKING PAYMENT
FOR CONFIRMED PURCHASES VIA FEDERAL FUNDS WIRE, SUCH FIRMS MUST REFERENCE THE
CONFIRMATION NUMBER TO ENSURE TIMELY CREDIT.
Your initial purchase amount must be at least $500,000. Each Fund and the
Distributor or Transfer Agent reserves the right to reject any order for the
purchase of shares in whole or in part. The Trust reserves the right to cancel
any purchase order for which payment has not been received by the third business
day following placement of the order.
The Distributor may provide promotional incentives including cash
compensation to certain brokers, dealers, or financial intermediaries whose
representatives have sold or are expected to sell significant amounts of shares
of one or more of the Funds. Other programs may provide, subject to certain
conditions, additional compensation to brokers, dealers, or financial
intermediaries based on a combination of aggregate shares sold and increases of
assets under management. All of the above payments will be made by the
Distributor or its affiliates out of their own assets. These programs will not
change the price an investor will pay for shares or the amount that a Fund will
receive from such sale.
You will receive a confirmation of each new transaction in your account,
which will also show you the number of Fund shares you own and the number of
shares being held in safekeeping by the Transfer Agent for your account. You may
rely on these confirmations in lieu of certificates as evidence of your
ownership. Certificates representing shares of the Funds will not be issued.
PURCHASES BY WIRE
Purchases by wire transfer should be directed to the Transfer Agent. To
receive an account number call (800) 986-3384 between the hours of 8:00 a.m. and
4:00 p.m. (Eastern Time) on a business day (as defined above) on which your bank
is open for business. The following information will be requested: your name,
address, tax identification number, dividend distribution election, amount being
wired and the wiring bank. Instructions should then be given by you to your bank
to transfer funds by wire to: ABA # 011000028, State Street Bank, Boston, MA,
Account # 9905-244-1. If you arrange for receipt by the Transfer Agent of
Federal funds prior to the close of regular trading (normally 4:00 p.m. Eastern
Time) of the NYSE on a business day as defined above, you will receive that
day's offering price. Your bank may charge for these services.
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PURCHASES BY CHECK
An initial investment made by check must be accompanied by an application,
completed in its entirety. Additional shares of the Funds may also be purchased
by sending a check payable to the applicable Fund, along with information
regarding your account, including the account number, to the Transfer Agent. All
checks should be drawn only on U.S. banks in U.S. funds, in order to avoid fees
and delays. A charge may be imposed if any check submitted for investment does
not clear. Third party checks will not be accepted. When purchases are made by
check, redemptions will not be allowed until the investment being redeemed has
been in the account for 15 business days.
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 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.
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
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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.
REDEMPTIONS THROUGH BROKERS, DEALERS AND OTHER FINANCIAL INTERMEDIARIES
Certain brokers, dealers, and other financial intermediaries may be
authorized to accept redemption orders on behalf of the Funds. A Fund will be
deemed to have received a redemption order when an authorized broker, dealer, or
other financial intermediary accepts the order. Orders placed through an
authorized broker, dealer, or other financial intermediary will receive the net
asset value next calculated after the order has been accepted by such an
authorized firm, minus any applicable contingent deferred sales charge. In all
other cases, it is the responsibility of the broker, dealer, or other financial
intermediary to forward customer redemption orders received prior to the close
of the NYSE to the Transfer Agent prior to its close of business that same day
(normally 4:00 p.m. Eastern Time).
EXPEDITED REDEMPTIONS
You may have the payment of redemption requests (of $250 or more) wired or
mailed directly to a domestic commercial bank account that you have previously
designated. Normally, such payments will be transmitted on the second business
day following receipt of the request (provided redemptions may be made). You may
request a wire redemption by telephone or written request sent to the Transfer
Agent. For telephone redemptions, call the Transfer Agent at (800) 986-3384. You
must complete the "Expedited Redemptions" section of the application for this
privilege to be applicable.
GENERAL
Payment to shareholders for shares redeemed or repurchased will be made
within seven days after receipt by the Transfer Agent. A Fund may delay the
payment of redemption proceeds until the check used to purchase the shares being
redeemed has cleared, which may take up to 15 days or longer. To reduce such
delay, the Funds recommend that all purchases be made by bank wire Federal
funds. A Fund may suspend the right of redemption under certain extraordinary
circumstances in accordance with the rules of the SEC.
EXCHANGE PRIVILEGE
Class Y shares of a Fund may be exchanged for shares of the same class of
another Fund at the relative net asset values per share at the time of the
exchange. The total value of shares of a fund purchased by exchange must at
least equal the fund's minimum investment requirement. Before exchanging shares,
you should consider the differences in investment objectives and expenses of the
fund into which the exchange would be made. Shares are normally redeemed from
one fund and purchased from the other fund in the exchange transaction on the
same business day on which the Transfer Agent receives an exchange request that
is in proper form by the close of the NYSE that day..
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ELECTRONIC TRANSFERS THROUGH AUTOMATED CLEARING HOUSE
Electronic transfers through Automated Clearing House ("ACH") allow you to
initiate a purchase or redemption for as little as $50 or as much as $50,000
between your bank account and Fund account using the ACH network. Initial
purchase minimums apply. You must complete the "ACH" section of the application
for this privilege to be applicable.
DETERMINATION OF NET ASSET VALUE
The net asset value per share is determined for each class of shares for
each Fund as of the close of regular trading on the NYSE (normally 4:00 p.m.
Eastern Time) on each business day (as previously defined) by dividing the value
of the Fund's net assets attributable to a class (the class' pro rata share of
the value of the Fund's assets minus the class' pro rata share of the value of
the Fund's liabilities) by the number of shares of that class outstanding.
For each of the Funds except the Conseco International Fund and the
International Portfolio, the assets of the Fund are valued as follows:
Securities that 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.
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. Debt securities with maturities of sixty
(60) days or less are valued at amortized cost.
For the Conseco International Fund and the International Portfolio, equity
securities listed on securities exchanges, including all but United Kingdom
securities, are valued at the last quoted sales price on a designated exchange
prior to the close of trading on the NYSE or, lacking any sales, on the basis of
the last current bid price prior to the close of trading on the NYSE. Securities
of the United Kingdom held in the Portfolio are priced at the last jobber price
(mid of the bid and offer prices quoted by the leading stock jobber in the
security) prior to close of trading on the NYSE. Trading in foreign markets is
usually completed each day prior to the close of the NYSE. However, events may
occur which affect the values of such securities and the exchange rates between
the time of valuation and the close of the NYSE. Should events materially affect
the value of such securities during this period, the securities are priced at
fair value, as determined in good faith and pursuant to procedures approved by
the AMR Trust Board. Over-the-counter equity securities are valued on the basis
of the last bid price on that date prior to the close of trading. Debt
securities (other than short-term securities) will normally be valued on the
basis of prices provided by a pricing service and may take into account
appropriate factors such as institution-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. In some cases, the prices of debt
securities may be determined using quotes obtained from brokers. Securities for
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which market quotations are not readily available are valued at fair value, as
determined in good faith and pursuant to procedures approved by the AMR Trust
Board. Assets and liabilities denominated in foreign currencies and forward
contracts are translated into U.S. dollar equivalents based on prevailing market
rates. Investment grade short-term obligations with 60 days or less to maturity
are valued using the amortized cost method.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
DIVIDENDS AND OTHER DISTRIBUTIONS
Dividends from net investment income are declared and distributed quarterly
by the Conseco Equity Fund, the Conseco Asset Allocation Fund and the Conseco 20
Fund, monthly by the Conseco Fixed Income Fund and the Conseco High Yield Fund,
and annually by the Conseco International Fund; however, the Trustees may decide
to declare dividends at other intervals. For dividend purposes, (1) net
investment income of each of the Funds except the Conseco International Fund
consists of all dividends and interest it receives, less its expenses (including
fees payable to the Adviser and its affiliates), and (2) the Conseco
International Fund's net investment income consists of its proportionate share
of the Portfolio's dividends and interest, less that Fund's expenses and its
proportionate share of the Portfolio's expenses. Distributions of each Fund's
net capital gain (the excess of net long-term capital gain over net short-term
capital loss), net short-term capital gains, and net realized gains from foreign
currency transactions -- in the case of the Conseco International Fund, its
proportionate share of the Portfolio's gains -- are declared and distributed to
its shareholders annually after the close of the Fund's fiscal year.
Dividends and other distributions paid on each class of shares of a Fund
are calculated at the same time and in the same manner. Dividends on Class A,
Class B, and Class C shares of a Fund are expected to be lower than those on its
Class Y shares because Class A, Class B, and Class C shares have higher expenses
resulting from their distribution and service fees. Dividends on each class also
might be affected differently by the allocation of other class-specific
expenses.
DISTRIBUTION OPTIONS. When you open your account, specify on your
application how you want to receive your distributions. For retirement accounts,
all Fund distributions are reinvested. For other accounts, you have the
following options:
REINVEST ALL DISTRIBUTIONS. You can elect to reinvest all dividends and
other 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 other
distributions by check or sent to your bank account.
REINVEST OTHER DISTRIBUTIONS ONLY. You can elect to reinvest other
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 other distributions from a Fund or have them sent to your bank
account.
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TAXES
Each Fund is treated as a separate corporation, and intends to qualify as a
"regulated investment company" ("RIC"), under the Code. As such, and by
complying with the applicable Code provisions regarding the amount and timing of
its distributions, each Fund will be allowed a deduction for amounts distributed
to its shareholders from its investment company taxable income (generally, its
net investment income, net short-term capital gains and net gains from certain
foreign currency transactions) and net capital gain - in the case of the Conseco
International Fund, its share of the Portfolio's income and 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 a 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 a Fund (in the case of the Conseco International Fund, its
share of the dividends received by the Portfolio) from U.S. corporations will be
eligible for the dividends-received deduction allowed to corporations; however,
dividends received by a corporate shareholder and deducted by it pursuant to the
dividends-received deduction are subject indirectly to the federal alternative
minimum tax.
Distributions of each Fund's net capital gain (whether paid in cash or
reinvested additional shares), when designated as such, will be taxable to you
as long-term capital gain, regardless of how long you have held your Fund
shares. Under the Taxpayer Relief Act of 1997, different maximum tax rates apply
to a non-corporate taxpayer's net capital gain depending on the taxpayer's
holding period and marginal rate of federal income tax -- generally, 28% for
gain recognized on capital assets held for more than one year but not more than
18 months and 20% (10% for taxpayers in the 15% marginal tax bracket) for gain
recognized on capital assets held for more than 18 months. Each Fund may divide
each net capital gain distribution into a 28% rate gain distribution and a 20%
rate gain distribution (in accordance with the Fund's holding periods for the
securities it sold that generated the distributed gain), in which event its
shareholders must treat those portions accordingly.
Shareholders who are not subject to tax on their income generally will not
be required to pay tax on distributions from the Funds.
Dividends and other distributions declared by a Fund in October, November,
or December, but received by you in January, generally are taxable to you in the
year in which declared. Each Fund will inform you after the end of each calendar
year as to the amount and nature of dividends and other distributions paid (or
deemed paid) to you for that year. The information regarding capital gain
distributions will designate the portions thereof subject to the different
maximum rates of tax applicable to non-corporate taxpayers' net capital gain
indicated above.
When you redeem (sell) shares, it may result in a taxable gain or loss to
you, depending on whether you receive more or less than your adjusted basis for
the shares. An exchange of any Fund's shares, as described under "Purchase and
Redemption of Shares -- Exchange Privilege," generally will have similar tax
consequences. If you purchase shares of a Fund within thirty days before or
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after redeeming other shares of that Fund (regardless of class) at a loss, all
or part of that loss will not be deductible and will increase the basis of the
newly purchased shares.
Each Fund is required to withhold 31% of all dividends, capital gain
distributions, and redemption proceeds payable to any individuals and certain
other non-corporate shareholders who do not furnish the Fund with a correct
taxpayer identification number. Withholding at that rate also is required from
dividends and capital gain distributions payable to those shareholders who
otherwise are subject to backup withholding.
Some foreign countries may impose income or withholding taxes on certain
dividends and interest payable to the International Portfolio. The Conseco
International Fund's share of any such withheld taxes may either be treated by
that Fund as a deduction or, if it satisfies certain requirements, it may elect
to flow the tax through to its shareholders, who in turn may either treat it as
a deduction or use it in calculating a credit against their federal income tax.
The foregoing is only a summary of certain federal income tax
considerations affecting your investment in a Fund. More information is
contained in the SAI. You should consult with your tax adviser about the effect
of an investment in a Fund on your particular tax situation.
PERFORMANCE INFORMATION
CONSECO FIXED INCOME FUND, CONSECO ASSET ALLOCATION FUND, AND CONSECO
EQUITY FUND
The Conseco Fixed Income Fund, Conseco Asset Allocation Fund, and Conseco
Equity Fund commenced operations on January 2, 1997. The average annualized
total returns for Class Y of those Funds for the period from January 2, 1997 to
December 31, 1997 were 9.18%, 17.87% and 23.50% for Conseco Fixed Income Fund,
Conseco Asset Allocation Fund, and Conseco Equity Fund, respectively. Total
returns would have been lower if the Adviser and Administrator had not waived
fees and/or reimbursed expenses of each Fund.
These Funds 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 Conseco Fixed Income Fund, Conseco Asset Allocation Fund and
Conseco Equity Fund 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 of these Funds will closely resemble
the investment characteristics of the corresponding CST Fund. Depending on the
Fund involved, similarity of investment characteristics may involve factors such
40
<PAGE>
as industry diversification, portfolio beta, portfolio quality, average maturity
of fixed-income assets, equity/non-equity mixes, and individual holdings.
These 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.
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 December 31, 1997.
Fund Corresponding CST Fund
(Inception Date and Asset Size)
Fixed Income Fund Corporate Bond Portfolio (May 1, 1993)
$ 20,187,193
Asset Allocation Fund Asset Allocation Portfolio (November 20, 1991)
$ 27,265,057
Equity Fund Common Stock Portfolio (November 20, 1991)
$216,896,715
The following table shows the average annualized total returns for the CST
Funds for the one, three and five year periods ended December 31, 1997 and for
the periods from inception of the CST Funds to December 31, 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. 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.
ASSUMING CLASS Y SHARE TOTAL OPERATING EXPENSES.
Since
CST FUND 1 YEAR 3 YEARS 5 YEARS Inception
- -------- ------ ------- ------- ---------
Corporate Bond Portfolio 9.86% 10.89% N/A 7.66%
Asset Allocation Portfolio 17.77% 24.87% 19.33% 16.27%
Common Stock Portfolio 18.37% 32.76% 20.97% 21.70%
41
<PAGE>
CONSECO INTERNATIONAL FUND
The Conseco International Fund commenced operations in January 1998.
However, the Conseco International Fund invests all of its investable assets in
the International Portfolio and, in accordance with SEC staff positions, has
adopted the Portfolio's performance as its own. The following table shows the
Fund's average annual total returns for the one- and five-year periods ended
October 31, 1997 and for the period from the inception of the International
Portfolio's predecessor (August 7, 1991) until October 31, 1997. For periods
following the conversion of the International Portfolio's predecessor into a
master/feeder structure on November 1, 1995, the total returns shown below
represent the actual investment performance of the Portfolio (the master fund)
only and would have been lower if the fees and expenses typically imposed by a
feeder fund (such as the Conseco International Fund) also had been reflected.
Past results do not guarantee future performance.
Average Annual Total Returns for Periods Ended October 31, 1997
Since Inception
1 Year 5 Years (August 7, 1991)
------ ------- ----------------
19.40% 18.27% 12.33%
GENERAL
Each of the Funds may from time to time advertise certain investment
performance information. Performance information may consist of yield and
average annual total return quotations reflecting the deduction of all
applicable charges over a period of time. A Fund also may use aggregate total
return figures for various periods, representing the cumulative change in value
of an investment in a Fund for the specific period. Performance information may
be shown in schedules, charts or graphs. These figures are based on historical
earnings and are not intended to indicate future performance.
The "yield" of a Fund refers to the annualized net income generated by an
investment in that Fund over a specified 30-day period, calculated by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period.
The "average annual total return" of a Fund refers to the total rate of
return of an investment in the Fund. The figure is computed by calculating
average annual compounded rates of return over the one-, five- and ten-year
periods that would equate to the initial amount invested to the ending
redeemable value, assuming reinvestment of all income dividends and capital gain
distributions. "Total return" quotations reflect the performance of the Fund and
include the effect of capital changes.
Further information about the performance of the Funds is contained in the
SAI and in the Funds' semi-annual and annual reports to shareholders, which you
may obtain without charge by writing the Funds' address or calling the telephone
number set forth on the cover page of this Prospectus.
42
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
================================================================================
Report from the
Conseco Fixed Income Adviser
1997 was characterized by favorable market conditions throughout much of the
year. However, increased volatility brought dramatic changes to the fixed income
markets, especially in the fourth quarter.
The first three quarters of 1997 were distinguished by a strong, healthy
economy, low inflation levels and a general trend toward declining interest
rates. Relative value in the fixed income markets was difficult to distinguish
as spreads to Treasuries remained very narrow in many sectors, including
corporate and mortgage-backed securities. Investors typically demand larger
spreads over U.S. Treasury bonds in order to compensate for perceived higher
risk levels. Federal Reserve policy stayed tight as Alan Greenspan remained the
vigilant watchdog over inflation. The budget deficit continued to narrow as a
result of lower rates and fiscal discipline from Congress. However, the focus of
the financial markets shifted away from domestic economic fundamentals in the
fourth quarter.
In the fourth quarter, currencies in Thailand, Malaysia and Indonesia
deteriorated, throwing their financial markets into turmoil. Because the world's
economies are linked, the impact of this turmoil spread quickly throughout
Southeast Asia. As we move into 1998, we expect the crisis to have a significant
impact on economic growth in other countries, including the United States. This
phenomenon has already caused dramatic changes in the general fundamentals of
our domestic fixed income market, creating significantly larger spreads to
Treasuries in the Yankee sector which have, in turn, spilled over to the
corporate sector.
Because the Asian financial crisis has taken center stage, the fundamental
analysis of certain Yankee securities has less meaning in terms of short term
performance. Because our investment horizon is based on the long term, our plan
is to maintain a small exposure in the Yankee sector investing in securities
such as Hutchison Wampoa (A3/A+), a Hong Kong-based financial conglomerate with
significant operations in the United States. Our Yankee analyst, Upender Rao,
views Korea as having the best opportunity for credit improvement during 1998
given the support of the International Monetary Fund and their willingness to
implement changes in their financial system.
The level of interest rates declined because of the financial crisis: the
ten-year U.S. Treasury yield was 5.74% at year-end and the thirty-year U.S.
Treasury yield was 5.92%. With this dramatic decline in interest rates, we
reduced our exposure to mortgage-backed securities, due to the higher risk of
increased pre-payment activity. With higher pre-payments, the security returns
more principal, forcing the investor to reinvest the proceeds at lower interest
rates.
Nolan Smith, our municipal bond specialist, has recommended the taxable
municipal sector due to consistent spreads over U.S. Treasuries, which have
performed better than the corporate sector. We plan to direct proceeds to this
sector, given its performance relative to the rest of the market. At this point,
we have discovered only a few bonds meeting our investment criteria of offering
good relative value.
Our bank and finance analyst, Rob Cook, feels company fundamentals in the
Broker-Dealer sector are currently strong, making these bonds attractive
investments. Within this sector, we invested in Salomon Smith Barney (A2/A).
With the acquisition of Salomon Brothers by Travelers (A2/A), the credit has
been upgraded by the rating agencies and we expect operating fundamentals to
continue to improve.
<PAGE>
Our fixed income investment strategy continues to emphasize investing in those
securities we believe are undervalued. Most importantly, we conduct thorough
research before investing in any security. Our long-term strategies coupled with
our extensive knowledge of each investment we select enable us to look forward
with confidence as we continue to invest for the future.
Gregory J. Hahn, CFA
Senior Vice President
Portfolio Manager
Conseco Capital Management, Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CONSECO FIXED INCOME
FUND AND THE LEHMAN BROTHERS AGGREGATE BOND INDEX
----------------------
AVERAGE ANNUAL
TOTAL RETURN
----------------------
1 YEAR
----------------------
9.14%
----------------------
Past performance is not predictive of future performance.
- ------------------------------ -------------- --------------
1/2/97 12/31/97
- ------------------------------ -------------- --------------
Conseco Fixed Income Fund $10,000 $10,914
- ------------------------------ -------------- --------------
LB Aggregate Bond Index $10,000 $10,965
- ------------------------------ -------------- --------------
<PAGE>
================================================================================
Report from the
Conseco Asset Allocation Fund Adviser
The Asset Allocation Fund is a balanced portfolio which invests in a combination
of equity, fixed income and cash. The strategy of the Asset Allocation Fund
through 1997 continued to highlight our growth equity style, which represented
roughly 60% of the portfolio's assets.
The fourth quarter began with much anxiety about the strength in the market over
the summer, the sustainability of corporate profits and the increasing
volatility of Asian currency markets. All fears reached a fever pitch on October
27th when the Dow dropped 554 points (7.2%), recording the largest single point
decline ever on fears of asset deflation in Asian markets. The performance of
the market following the sell-off was typical of what we saw earlier in the
year, with the index stocks outperforming the broader market as hoards of
capital previously invested in Asia-Pacific markets sought safe haven in the
U.S. market. The result of all this was that the S&P 500 Index gained while
virtually everything else stayed at October 27th levels or drifted even lower.
In fact, because of its strong fourth quarter move relative to the broader
market, the S&P 500 finished the year up 33.36%, outstripping the returns of 90%
of all actively managed funds and the Russell 2000 Small Stock Index which
returned 22.36%. This is the fourth straight year that we have seen this kind of
divergence.
In terms of sector performance on the stock side, the strong returns were
realized in interest rate-sensitive areas (financial and utilities) and in
defensive stocks (food retailers and consumer staples). These sectors benefited
from the strong rally in the bond market and from the influx of invested dollars
coming from technology and energy sectors, which turned in some of the fourth
quarter's worst returns. Our underweighting in financials, utilities and staples
and our larger weightings in technology and energy explain why the fourth
quarter was a difficult one for us.
Going forward, we remain hopeful that 1998 will be rewarding to investors such
as us who utilize a bottom-up approach in finding good growth stories in stocks
that still trade at reasonable valuations. In fact, if 1998 earnings on S&P 500
companies ultimately grow in line with current expectations of 7 to 9%, then we
would expect to see an increase in multiples for stocks which can generate
earnings growth in the 18 to 20% range.
The balance of the portfolio, approximately 40%, consists of bonds and cash. At
year end, roughly 38.3% of this 40% was invested in securities with investment
grade ratings and 61.7% was invested in high yield. Our fixed income discipline
of investing in those securities which, through our own fundamental research, we
consider to be undervalued, resulted in several investment ideas. In the
industrial sector, our energy analyst, Upender Rao, recommended investing in
several oil drilling companies including Parker Drilling (B1/B+), the fourth
largest drilling company in the United States, and Pride Petroleum (Ba3/BB-),
the third largest. As rig rates doubled in 1997, earnings accelerated,
substantially improving the financial statements of both companies. Upender
expects to see an upgrade over a twelve to eighteen month time frame.
<PAGE>
Depending on valuation in the equity market, we may take the opportunity to
reallocate a portion of the portfolio to fixed income if we see pressure on
earnings or negative earnings surprises. Until the financial crisis in Asia
subsides, we expect to see sustained low levels of interest rates. Eventually,
as investors return their focus to economic fundamentals, we still expect to see
interest rates remain low, which should bode well for the valuation of financial
assets.
Thomas J. Pence, CFA Gregory J. Hahn, CFA
Vice President Senior Vice President
Portfolio Manager Portfolio Manager
Conseco Capital Management, Inc. Conseco Capital Management, Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CONSECO ASSET
ALLOCATION FUND, THE S&P MIDCAP 400 INDEX, AND THE LEHMAN BROTHERS AGGREGATE
BOND INDEX
----------------------
AVERAGE ANNUAL
TOTAL RETURN
----------------------
1 YEAR
----------------------
17.87%
----------------------
Past performance is not predictive of future performance.
- ------------------------------ -------------- --------------
1/2/97 12/31/97
- ------------------------------ -------------- --------------
Conseco Asset Allocation Fund $10,000 $11,787
- ------------------------------ -------------- --------------
S&P MidCap 400 Index $10,000 $13,225
- ------------------------------ -------------- --------------
LB Aggregate Bond Index $10,000 $10,965
- ------------------------------ -------------- --------------
<PAGE>
================================================================================
Report from the
Conseco Equity Fund Adviser
As we look back at 1997, we are able to draw a few insights on what is in store
for 1998. While the first three quarters exhibited strong growth and favorable
market conditions, the fourth quarter proved to be most eventful in terms of
future effects on market performance.
The fourth quarter began with much anxiety related to market strength,
sustainability of corporate profits, and increasing volatility in Asian currency
markets. Anxieties peaked on October 27th when the Dow Jones Industrial Average
dropped 554 points (7.2%), the largest single point decline ever, surrounding
fears of asset deflation in Asian markets. Despite a relatively good series of
earnings reports and economic releases throughout the balance of the quarter,
including low inflation and 25-year-low unemployment levels, concerns about the
Asian influence prevailed.
Following the market plunge, much of the capital previously invested in
Asia-Pacific markets sought safety in the U.S. market through purchases of S&P
500 futures contracts. As a result, the S&P 500 Index gained ground, with stocks
of the largest 20 companies in the marketplace outperforming nearly everything
in sight. However, virtually all other stocks remained at October 27th levels or
drifted even lower. Due to the strong fourth quarter move of the largest company
stocks, the S&P 500 finished the year up 33.36%, outperforming the returns of
90% of all actively managed funds, as well as the Russell 2000 Small Stock
Index, which returned 22.36%. This is the fourth straight year that the market
has seen this kind of divergence.
In terms of sector performance, strong returns were realized in interest
rate-sensitive areas (financial and utilities) and in defensive stocks (food
retailers and consumer staples). These sectors benefited from the strong rally
in the bond market and from the influx of invested dollars coming from
technology and energy sectors, which turned in some of the fourth quarter's
worst returns. Our underweighting in financial, utilities and staples and our
larger weightings in technology and energy explain why the fourth quarter was a
difficult one for us.
Despite these problems, many of our stocks enjoyed good earnings reports and
persevered during a time of high market volatility. Perhaps most rewarding was
the announcement that IBM/Tivoli bought Software Artistry for $24.50 per share
in cash. After establishing our position as Software Artistry's largest
shareholder, we were prematurely rewarded with a 200% return for our
shareholders over the holding period.
We expect a cautionary tone to prevail over the market in 1998; as such, we
intend to increase our focus on earnings stories with strong balance sheets and
cashflow generation. We will also look for yield as a component of total return
whenever possible. In addition, we will watch for opportunities in technology
and energy given the aggressive sell-off in these sectors in late 1997.
<PAGE>
Our investment strategy continues to rely on a bottom-up approach to stock
selection. Through extensive research of the companies in which we invest, our
goal is to discover good growth stories in stocks that still trade at reasonable
valuations. We are committed to a long-term reliance on this strategy, and
remain hopeful that it will serve our shareholders well in the upcoming year.
Thomas J. Pence, CFA
Vice President
Portfolio Manager
Conseco Capital Management, Inc.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CONSECO EQUITY FUND,
THE S&P MIDCAP 400 INDEX AND THE S&P 500 INDEX
----------------------
AVERAGE ANNUAL TOTAL
RETURN
----------------------
1 YEAR
----------------------
23.50%
----------------------
Past performance is not predictive of future performance.
- ------------------------------ -------------- --------------
1/2/97 12/31/97
- ------------------------------ -------------- --------------
Conseco Equity Fund $10,000 $12,350
- ------------------------------ -------------- --------------
S&P MidCap 400 Index $10,000 $13,225
- ------------------------------ -------------- --------------
S&P 500 Index $10,000 $13,336
- ------------------------------ -------------- --------------
<PAGE>
OTHER INFORMATION
BROKERAGE COMMISSIONS
Subject to the Conduct Rules of the NASD and to obtaining best prices and
executions, the Adviser may select brokers who provide research or other
services or who sell shares of the Funds to effect portfolio transactions. The
Adviser may also select an affiliated broker to execute transactions for the
Funds, provided that the commissions, fees or other remuneration paid to such
affiliated broker are reasonable and fair as compared to that paid to
non-affiliated brokers for comparable transactions.
Each of the International Portfolio's investment advisers will place its
own orders to execute securities transactions. In placing such orders, each
investment adviser will seek the best available price and most favorable
execution. The full range and quality of services offered by the executing
broker or dealer is considered when making these determinations. Pursuant to
written guidelines approved by the AMR Trust Board, an investment adviser of the
Portfolio, or its affiliated broker-dealer, may execute portfolio transactions
and receive usual and customary brokerage commissions (within the meaning of
Rule 17e-1 under the 1940 Act) for doing so.
SHARES OF BENEFICIAL INTEREST
All shares of beneficial interest of the Trust are entitled to one vote,
and votes are generally on an aggregate basis. However, on matters where the
interests of the Funds (or classes of a Fund) differ (such as approval of an
investment advisory agreement or a change in fundamental investment policies),
the voting is on a Fund-by-Fund (or class-by-class) basis. The Trust does not
hold routine annual shareholders' meetings. The shares of each Fund issued are
fully paid and non-assessable, have no preference or similar rights, and are
freely transferable. In addition, each issued and outstanding share in a class
of a Fund is entitled to participate equally in dividends and distributions
declared by that class.
On most issues subjected to a vote of the Portfolio's interest holders, as
required by the 1940 Act, the Conseco International Fund will solicit proxies
from its shareholders and will vote its interest in the Portfolio in proportion
to the votes cast by the Fund's shareholders. The Fund will vote shares for
which it receives no voting instructions in the same proportion as the shares
for which it does receive voting instructions. Because each interest holder in
the Portfolio would vote in proportion to its relative beneficial interest in
the Portfolio, one or more other Portfolio investors could, in certain
instances, approve an action although a majority of the outstanding voting
securities of the Conseco International Fund had voted against it. This could
result in the Conseco International Fund's redeeming its investment in the
Portfolio, which could result in increased expenses for the Fund.
REPORTS TO SHAREHOLDERS
Investors in the Funds will be informed of their progress through periodic
reports. Financial statements certified by independent public accountants will
be submitted to shareholders at least annually.
43
<PAGE>
RETIREMENT PLANS AND MEDICAL SAVINGS ACCOUNTS
Class Y shares are available for purchase by qualified retirement plans of
both corporations and self-employed individuals. The Trust has available
prototype IRA plans (for both individuals and employers), Simplified Employee
Pension ("SEP") plans, and savings incentive match plans for employees ("SIMPLE"
plans) as well as Section 403(b)(7) Tax-Sheltered Retirement Plans which are
designed for employees of public educational institutions and certain
non-profit, tax-exempt organizations. The Trust also has information concerning
prototype Medical Savings Accounts. For information, call or write the
Distributor.
CLASS A, CLASS B AND CLASS C SHARES
In addition to Class Y Shares, the Trust also offers Class A, Class B and
Class C shares. These shares are available to individual investors. Class A,
Class B and Class C shares generally have higher operating expenses resulting
from their distribution and service fees and are subject to certain sales
charges. Please call the Distributor at (800) 986-3384 for additional
information on the purchase of Class A, Class B and Class C shares.
DISTRIBUTOR
Conseco Equity Sales, Inc., 11815 N. Pennsylvania Street, Carmel, Indiana
46032, serves as distributor of shares of the Trust.
TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, serves as the Trust's transfer agent.
CUSTODIAN
The Bank of New York, 90 Washington Street, 22nd Floor, New York, New York
10826, serves as custodian of the assets of each Fund (except the Conseco
International Fund). State Street serves as custodian of the assets of the
Conseco International Fund and of the International Portfolio.
INDEPENDENT PUBLIC ACCOUNTANTS/AUDITORS
The Trust's independent accountants are Coopers & Lybrand L.L.P., 2900 One
American Square, Box 82002, Indianapolis, Indiana 46282-0002. The independent
auditors of the International Portfolio are Ernst & Young LLP, Dallas, Texas.
LEGAL COUNSEL
Certain legal matters for the Funds are passed upon by Kirkpatrick &
Lockhart LLP, 1800 Massachusetts Avenue, N.W., Washington, D.C. 20036.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN
ANY STATE IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO SALESMAN, DEALER
OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE SAI.
44
<PAGE>
If you would like a free copy of the Statement of Additional Information for
this Prospectus, please complete this form, detach, and mail to:
Conseco Fund Group
Attn: Administrative Offices
11815 N. Pennsylvania Street, Carmel, Indiana 46032
Gentlemen:
Please send me a free copy of the Statement of Additional Information for
the Conseco Fund Group at the following address:
Name:
Mailing Address:
Sincerely,
(Signature)
45
<PAGE>
APPENDIX A SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa - Bonds which are rated Aaa by Moody's Investors Service, Inc. ("Moody's")
are judged to be the best quality and carry the smallest degree of investment
risk. Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds. Such issues can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
46
<PAGE>
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.
47
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CONSECO FUND GROUP
CONSECO FIXED INCOME FUND
CONSECO HIGH YIELD FUND
CONSECO ASSET ALLOCATION FUND
CONSECO EQUITY FUND
CONSECO INTERNATIONAL FUND
CONSECO 20 FUND
CLASS A, B AND C SHARES
MAY 1, 1998
This Statement of Additional Information ("SAI") is not a prospectus. It
contains additional information about the Conseco Fund Group (the "Trust") and
the six series of the Trust: Conseco Fixed Income Fund, Conseco High Yield Fund,
Conseco Asset Allocation Fund, Conseco Equity Fund, Conseco International Fund,
and Conseco 20 Fund (each a "Fund" and collectively the "Funds"). It should be
read in conjunction with the Funds' Class A, B, and C prospectus (the
"Prospectus"), dated May 1, 1998. You may obtain a copy by contacting the
Trust's Administrative Office, 11815 N. Pennsylvania Street, Carmel, Indiana
46032.
TABLE OF CONTENTS
PAGE
General Information............................................................
Investment Restrictions........................................................
Description of Securities and Investment Techniques............................
Investment Performance.........................................................
Securities Transactions........................................................
Management.....................................................................
Control Persons and Principal Holders of Securities............................
Fund Expenses .................................................................
Distribution Arrangements......................................................
Purchase and Redemption of Shares..............................................
General........................................................................
Taxes..........................................................................
Other Information..............................................................
Financial Statements...........................................................
<PAGE>
GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust on September 24, 1996.
The Trust is an open-end management investment company registered with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940 (the "1940 Act"). The Trust is a "series" type of mutual fund which issues
separate series of shares, each of which represents a separate portfolio of
investments. Each Fund offers four classes of shares. This SAI relates solely to
Class A shares, Class B shares and Class C shares of the Funds. Class Y shares
are offered to certain institutional investors and qualifying individual
investors through a separate prospectus and SAI. Each class may have different
expenses, which may affect performance. Conseco Capital Management, Inc. (the
"Adviser") serves as the Trust's investment adviser. The Conseco International
Fund invests all of its investable assets in the International Equity Portfolio
(the "Portfolio" or the "International Portfolio") of AMR Investment Services
Trust ("AMR Trust"). The Portfolio is a separate investment company managed by
AMR Investment Services, Inc. ("AMR").
INVESTMENT RESTRICTIONS
The Trust and the AMR Trust have adopted the following policies relating to the
investment of assets of the Funds and the Portfolio, respectively, and their
activities. These are fundamental policies and may not be changed without the
approval of the holders of a "majority" of the outstanding shares of the
affected Fund or the outstanding interests of the Portfolio. Under the 1940 Act,
the vote of such a "majority" means the vote of the holders of the lesser of (i)
67 percent of the shares or interests represented at a meeting at which more
than 50 percent of the outstanding shares or interests are represented or (ii)
more than 50 percent of the outstanding shares or interests. A change in policy
affecting only one Fund or the Portfolio may be effected with the approval of
the holders of a majority of the outstanding shares of the Fund or the
Portfolio. Except for the limitation on borrowing, any investment policy or
limitation that involves a maximum percentage of securities or assets will not
be considered to be violated unless the percentage limitation is exceeded
immediately after, and because of, a transaction by a Fund or the Portfolio.
CONSECO EQUITY, CONSECO ASSET ALLOCATION AND CONSECO FIXED INCOME FUNDS
The Conseco Equity, Conseco Asset Allocation and Conseco Fixed Income Funds 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;
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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) Conseco Asset Allocation Fund may engage in futures
contracts on gold;
3. Borrow money or pledge, mortgage, or assign assets, except that a Fund
may: (a) borrow from banks, but only if immediately after each
borrowing and continuing thereafter it will have an asset coverage of
at least 300 percent; (b) enter into reverse repurchase agreements,
options, futures, options on futures contracts, foreign 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 (as defined in the Prospectus);
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 (as defined in the Prospectus), or
repurchase agreements as to these securities, shall not be considered
investments in an industry;
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10. Purchase or sell real estate, except that it may purchase marketable
securities which are issued by companies which invest in real estate or
interests therein;
11. Make loans of its assets, except the Funds may enter into repurchase
agreements and lend portfolio securities in an amount not to exceed 15%
of the value of a Fund's total 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.
CONSECO 20 AND CONSECO HIGH YIELD FUNDS
The Conseco 20 and Conseco High Yield Funds may not (except as noted):
1. Purchase or sell commodities or commodity contracts except that a Fund
may purchase or sell options, futures contracts, and options on futures
contracts and may engage in interest rate and foreign currency
transactions;
2. Borrow money, except that a Fund may: (a) borrow from banks, and (b)
enter into reverse repurchase agreements, provided that (a) and (b) in
combination do not exceed 33-1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than
borrowings); and except that a Fund may borrow from any person up to 5%
of its total assets (not including the amount borrowed) for temporary
purposes (but not for leverage or the purchase of investments);
3. Underwrite securities of other issuers except to the extent that a Fund
may be deemed an underwriter under the Securities Act of 1933 (the
"1933 Act") in connection with the purchase or sale of portfolio
securities;
4. With respect to 75% of the Conseco High Yield Fund's total assets,
purchase the securities of any issuer if (a) more than 5% of Fund's
total assets would be invested in the securities of that issuer or (b)
the Fund would own more than 10% of the outstanding voting securities
of that issuer; this restriction does not apply to U.S. Government
securities (as defined in the Prospectus);
5. Purchase any security if thereafter 25% or more of the total assets of
the Fund would be invested in securities of issuers having their
principal business activities in the same industry; this restriction
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does not apply to U.S. Government securities (as defined in the
Prospectus);
6. Purchase or sell real estate, except that a Fund may purchase
securities which are issued by companies which invest in real estate or
which are secured by real estate or interests therein;
7. Make loans of its assets if, as a result, more than 33-1/3% of the
Fund's total assets would be lent to other parties except through (a)
entering into repurchase agreements and (b) purchasing debt
instruments; or
8. Issue any senior security, except as permitted under the 1940 Act.
CONSECO INTERNATIONAL FUND
The Conseco International Fund has the following fundamental investment policy
that enables it to invest in the Portfolio:
Notwithstanding any other limitation, the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives, policies and limitations
as the Fund. For this purpose, "all of the Fund's investable assets"
means that the only investment securities that will be held by the Fund
will be the Fund's interest in the investment company.
All other fundamental investment policies and the non-fundamental investment
policies of the Conseco International Fund and the Portfolio are identical
(except, as noted below, their policies on borrowing).
In addition to the investment limitations noted in the Prospectus, the following
seven restrictions have been adopted by the Conseco International Fund and the
Portfolio and may be changed only by the majority vote of the outstanding shares
of the Fund or the outstanding interests of the Portfolio. Whenever the Conseco
International Fund is requested to vote on a change in the investment
restrictions of the Portfolio, the Fund will hold a meeting of its shareholders
and will cast its votes as instructed by its shareholders. The percentage of the
Fund's votes representing the Fund's shareholders not voting will be voted by
the Fund in the same proportion as those Fund shareholders who do, in fact,
vote.
The Conseco International Fund may not (although the following discusses the
investment policies of the Fund, except as noted, it applies equally to the
Portfolio):
1. Purchase or sell real estate or real estate limited partnership
interests, provided, however, that the Fund may invest in securities
secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein when consistent with
the other policies and limitations described in its Prospectus;
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2. Purchase or sell commodities (including direct interests and/or leases
in oil, gas or minerals) or commodities contracts, except with respect
to forward foreign currency exchange contracts, foreign currency
futures contracts and when-issued securities when consistent with the
other policies and limitations described in its Prospectus;
3. Engage in the business of underwriting securities issued by others,
except to the extent that, in connection with the disposition of
securities, the Fund may be deemed an underwriter under federal
securities law;
4. Make loans to any person or firm, provided, however, that the making of
a loan shall not be construed to include (i) the acquisition for
investment of bonds, debentures, notes or other evidences of
indebtedness of any corporation or government which are publicly
distributed or (ii) the entry into repurchase agreements and further
provided, however, that the Fund may lend its securities to
broker-dealers or other institutional investors in accordance with the
guidelines stated in its Prospectus;
5. Purchase from or sell securities to its officers, Trustees or other
"interested persons" of the Trust, as defined in the 1940 Act,
including its investment adviser(s) and their affiliates, except as
permitted by the 1940 Act and exemptive rules or orders thereunder;
6. Issue senior securities except that the Fund may engage in when-issued
securities and forward commitment transactions and may engage in
currency futures and forward currency contracts; or
7. Borrow money, except that the Fund may: (a) borrow from banks, and (b)
enter into reverse repurchase agreements, provided that (a) and (b) in
combination do not exceed 33-1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than
borrowings); and except that the Fund may borrow up to 5% of its total
assets (not including the amount borrowed) for temporary purposes (but
not for leverage or the purchase of investments). (This policy does not
apply to the Portfolio.)
As a matter of fundamental policy, the International Portfolio may borrow from
banks or through reverse repurchase agreements for temporary purposes in an
aggregate amount not to exceed 10% of the value of its total assets at the time
of borrowing. Because this policy may only be changed by the majority vote of
the outstanding interests in the Portfolio, before any change could be adopted,
the Fund would seek voting instructions from its shareholders. So long as the
Conseco International Fund invests all of its investable assets in the
Portfolio, the Fund intends to follow the 10% limitation set forth in the
Portfolio's fundamental policy. In addition, although not a fundamental policy,
the Portfolio intends to repay any money borrowed before any additional
portfolio securities are purchased.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS
The following restrictions are designated as nonfundamental with respect to the
Conseco Equity, Conseco Asset Allocation and Conseco Fixed Income Funds and may
be changed by the Trust's Board of Trustees ("Board") without shareholder
approval.
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The Conseco Equity, Conseco Asset Allocation and Conseco Fixed Income Funds 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.
The following restrictions are designated as nonfundamental with respect to the
Conseco 20 and Conseco High Yield Funds and may be changed by the Board without
shareholder approval.
The Conseco 20 and Conseco High Yield Funds may not (except as noted):
1. Sell securities short in an amount exceeding 15% of its assets, except
that a Fund may, without limit, make short sales against the box.
Transactions in options, futures, options on futures and other
derivative instruments shall not constitute selling securities short;
2. Purchase securities on margin, except that a Fund may obtain such
short-term credits as are necessary for the clearance of securities
transactions and except that margin deposits in connection with
transactions in options, futures, options on futures and other
derivative instruments shall not constitute a purchase of securities on
margin; or
3. Make loans of its assets, except that a Fund may enter into repurchase
agreements and purchase debt instruments as set forth in its
fundamental policy on lending and may lend portfolio securities in an
amount not to exceed 33 1/3% of the value of the Fund's total assets.
The following restrictions are designated as nonfundamental with respect to the
Conseco International Fund and the Portfolio and may be changed by the Board or
the AMR Trust's Board of Trustees ("AMR Trust Board") without shareholder
approval.
The Conseco International Fund may not (although the following discusses the
investment policies of the Fund, it applies equally to the Portfolio):
1. Purchase securities on margin;
2. Effect short sales (except that the Fund may obtain such short term
credits as necessary for the clearance of purchases or sales of
securities);
3. Purchase or sell call options or engage in the writing of such options;
or
4. Invest more than 10% of its total assets in the securities of other
investment companies.
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In order to limit the risks associated with entry into repurchase agreements,
the Board has adopted certain criteria (which are not fundamental policies) to
be followed by the Funds. These criteria provide for entering into repurchase
agreement transactions (a) only with banks or broker-dealers meeting certain
guidelines for creditworthiness, (b) that are fully collateralized, (c) on an
approved standard form of agreement and (d) that meet limits on investments in
the repurchase agreements of any one bank, broker or dealer.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes in greater detail different types of
securities and investment techniques used by the Funds, as well as the risks
associated with such securities and techniques. References in this section to "a
Fund" or "the Funds" or the "Conseco International Fund" include the
International Portfolio unless the context otherwise requires.
U.S. GOVERNMENT SECURITIES AND SECURITIES OF INTERNATIONAL ORGANIZATIONS
U.S. Government securities are issued or guaranteed by the U.S. Government or
its agencies, authorities or instrumentalities.
Securities issued by international organizations, such as Inter-American
Development Bank, the Asian-American Development Bank and the International Bank
for Reconstruction and Development (the "World Bank"), are not U.S. Government
securities. These international organizations, while not U.S. Government
agencies or instrumentalities, have the ability to borrow from member countries,
including the United States.
ASSET-BACKED SECURITIES
Asset-backed securities represent fractional interests in pools of leases,
retail installment loans and revolving credit receivables, both secured and
unsecured. These assets are generally held by a trust. Payments of principal and
interest or interest only are passed through to certificate holders and may be
guaranteed up to certain amounts by letters of credit issued by a financial
institution affiliated or unaffiliated with the trustee or originator of the
trust.
Underlying automobile sales contracts or credit card receivables are subject to
prepayment, which may reduce the overall return to certificate holders.
Nevertheless, principal repayment rates tend not to vary much with interest
rates and the short-term nature of the underlying car loans or other receivables
tends to dampen the impact of any change in the prepayment level. Certificate
holders may experience delays in payment on the certificates if the full amounts
due on underlying sales contracts or receivables are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. Other asset-backed
securities may be developed in the future.
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HIGH YIELD (HIGH RISK) SECURITIES (ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND)
IN GENERAL. Lower rated fixed income securities (also referred to as
"high yield securities") are securities rated BB or lower by Standard & Poor's
("S&P") or Ba or lower by Moody's Investors Service, Inc. ("Moody's"),
securities comparably rated by another nationally recognized statistical rating
organization ("NRSRO"), or unrated securities of equivalent quality. Lower rated
fixed income securities are deemed by the rating agencies to be predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal. Lower rated fixed income securities, while generally offering higher
yields than investment grade securities with similar maturities, involve greater
risks, including the possibility of default or bankruptcy. The special risk
considerations in connection with investments in these securities are discussed
below.
Subsequent to purchase by the Conseco Equity Fund, Conseco Asset Allocation
Fund, Conseco Fixed Income Fund or Conseco 20 Fund, an issue of debt securities
may cease to be rated or its rating may be reduced, so that the securities would
no longer be eligible for purchase by that Fund. In such a case, the Fund will
engage in an orderly disposition of the downgraded securities to the extent
necessary to ensure that its holdings do not exceed the permissible amount as
set forth in the Prospectus.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. All interest-bearing
securities typically experience appreciation when interest rates decline and
depreciation when interest rates rise. The market values of lower rated fixed
income securities tend to reflect individual corporate developments to a greater
extent than do higher rated securities, which react primarily to fluctuations in
the general level of interest rates. Lower rated fixed income securities also
tend to be more sensitive to economic conditions than are higher-rated
securities. As a result, they generally involve more credit risks than
securities in the higher-rated categories. During an economic downturn or a
sustained period of rising interest rates, highly leveraged issuers of lower
rated fixed income securities may experience financial stress which may
adversely affect their ability to service their debt obligations, meet projected
business goals, and obtain additional financing. Periods of economic uncertainty
and changes would also generally result in increased volatility in the market
prices of these securities and thus in a Fund's net asset value.
PAYMENT EXPECTATIONS. Lower rated fixed income securities may contain
redemption, call or prepayment provisions which permit the issuer of such
securities to, at its discretion, redeem the securities. During periods of
falling interest rates, issuers of these securities are likely to redeem or
prepay the securities and refinance them with debt securities with a lower
interest rate. To the extent an issuer is able to refinance the securities, or
otherwise redeem them, a Fund may have to replace the securities with a lower
yielding security, which would result in a lower return.
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CREDIT RATINGS. Credit ratings issued by credit-rating agencies are
designed to evaluate the safety of principal and interest payments of rated
securities. They do not, however, evaluate the market value risk of
lower-quality securities and, therefore, may not fully reflect the risks of an
investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of the
issuer that affect the market value of the security. With regard to an
investment in lower rated fixed income securities, the achievement of a Fund's
investment objective may be more dependent on the Adviser's own credit analysis
than is the case for higher rated securities. Although the Adviser considers
security ratings when making investment decisions, it does not rely solely on
the ratings assigned by the rating services. Rather, the Adviser performs
research and independently assesses the value of particular securities relative
to the market. The Adviser's analysis may include consideration of the issuer's
experience and managerial strength, changing financial condition, borrowing
requirements or debt maturity schedules, and the issuer's responsiveness to
changes in business conditions and interest rates. It also considers relative
values based on anticipated cash flow, interest or dividend coverage, asset
coverage and earnings prospects.
The Adviser buys and sells debt securities principally in response to its
evaluation of an issuer's continuing ability to meet its obligations, the
availability of better investment opportunities, and its assessment of changes
in business conditions and interest rates.
LIQUIDITY AND VALUATION. Lower rated fixed income securities may lack
an established retail secondary market, and to the extent a secondary trading
market does exist, it may be less liquid than the secondary market for higher
rated securities. The lack of a liquid secondary market may negatively impact a
Fund's ability to dispose of particular securities. The lack of a liquid
secondary market for certain securities may also make it more difficult for a
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio. In addition, adverse publicity and investor perceptions, whether or
not based on fundamental analysis, may decrease the values and liquidity of
lower rated fixed income securities, especially in a thinly traded market.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
New issues of certain debt securities are often offered on a when-issued or
delayed delivery basis; that is, the payment obligation and the interest rate
are fixed at the time the buyer enters into the commitment, but delivery and
payment for the securities normally take place after the customary settlement
time. The settlement dates of these transactions may be a month or more after
entering into the transaction. A Fund bears the risk that, on the settlement
date, the market value of the securities may be lower than the purchase price.
At the time a Fund makes a commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction and reflect the value of
such securities each day in determining the Fund's net asset value. However, a
Fund will not accrue any income on these securities prior to delivery. There are
no fees or other expenses associated with these types of transactions other than
normal transaction costs. To the extent a Fund engages in when-issued and
delayed delivery transactions, it will do so for the purpose of acquiring
instruments consistent with its investment objective and policies and not for
the purpose of investment leverage or to speculate on interest rate changes.
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When effecting when-issued and delayed delivery transactions, cash or liquid
securities in an amount sufficient to make payment for the obligations to be
purchased will be segregated at the trade date and maintained until the
transaction has been settled. A Fund may dispose of these securities before the
issuance thereof. However, absent extraordinary circumstances not presently
foreseen, it is each Fund's policy not to divest itself of its right to acquire
these securities prior to the settlement date thereof.
VARIABLE AND FLOATING RATE SECURITIES
Variable rate securities provide for automatic establishment of a new interest
rate at fixed intervals (i.e., daily, monthly, semi-annually, etc.). Floating
rate securities provide for automatic adjustment of the interest rate whenever
some specified interest rate index changes. The interest rate on variable or
floating rate securities is ordinarily determined by reference to, or is a
percentage of, a bank's prime rate, the 90-day U.S. Treasury bill rate, the rate
of return on commercial paper or bank certificates of deposit, an index of
short-term interest rates, or some other objective measure.
Variable or floating rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par value. In many
cases, the demand feature can be exercised at any time on seven days' notice; in
other cases, the demand feature is exercisable at any time on 30 days' notice or
on similar notice at intervals of not more than one year.
BANKING AND SAVINGS INDUSTRY OBLIGATIONS
Such obligations include certificates of deposit, time deposits, bankers'
acceptances, and other short-term debt obligations issued by commercial banks
and savings and loan associations ("S&Ls"). Certificates of deposit are receipts
from a bank or an S&L for funds deposited for a specified period of time at a
specified rate of return. Time deposits in banks or S&Ls are generally similar
to certificates of deposit, but are uncertificated. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
international commercial transactions. The Funds may each invest in obligations
of foreign branches of domestic commercial banks and foreign banks; provided,
however, that the Conseco Equity and Conseco Fixed Income Funds may invest in
these types of instruments so long as they are U.S. dollar denominated. See
"Foreign Securities" in the Prospectus for information regarding risks
associated with investments in foreign securities.
The Funds, with the exception of the International Fund, will not invest in
obligations issued by a commercial bank or S&L unless:
1. The bank or S&L has total assets of at least $1 billion, or the equivalent
in other currencies, and the institution has outstanding securities rated A
or better by Moody's or S&P, or, if the institution has no outstanding
securities rated by Moody's or S&P, it has, in the determination of the
Adviser, similar creditworthiness to institutions having outstanding
securities so rated;
2. In the case of a U.S. bank or S&L, its deposits are federally insured; and
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3. In the case of a foreign bank, the security is, in the determination of the
Adviser, of an investment quality comparable with other debt securities
which may be purchased by the Fund. These limitations do not prohibit
investments in securities issued by foreign branches of U.S. banks,
provided such U.S. banks meet the foregoing requirements.
REPURCHASE AGREEMENTS
Repurchase agreements permit a Fund to maintain liquidity and earn income over
periods of time as short as overnight. In these transactions, a Fund purchases
securities (the "underlying securities") from a broker or bank, which agrees to
repurchase the underlying securities on a certain date or on demand and at a
fixed price calculated to produce a previously agreed upon return. If the broker
or bank were to default on its repurchase obligation and the underlying
securities were sold for a lesser amount, the Fund would realize a loss. A
repurchase transaction will be subject to guidelines approved by the Board or
the AMR Trust Board, as appropriate. These guidelines require monitoring the
creditworthiness of counterparties to repurchase transactions, obtaining
collateral at least equal in value to the repurchase obligation, and marking the
collateral to market on a daily basis. Repurchase agreements maturing in more
than seven days may be considered illiquid and may be subject to each Fund's
limitation on investment in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND MORTGAGE DOLLAR ROLLS
A reverse repurchase agreement involves the temporary sale of a security by a
Fund and its agreement to repurchase the instrument at a specified time at a
higher price. Such agreements are short-term in nature. During the period before
repurchase, the Fund continues to receive principal and interest payments on the
securities.
In a mortgage dollar roll, a Fund sells a fixed income security for delivery in
the current month and simultaneously contracts to repurchase a substantially
similar security (same type, coupon and maturity) on a specified future date.
During the roll period, the Fund would forego principal and interest paid on
such securities. The Fund would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well as by
any interest earned on the proceeds of the initial sale.
In accordance with regulatory requirements, a Fund will segregate cash or liquid
securities whenever it enters into reverse repurchase agreements or mortgage
dollar rolls. Such transactions may be considered to be borrowings for purposes
of the Funds' fundamental policies concerning borrowings.
WARRANTS
The holder of a warrant has the right to purchase a given number of shares of a
security of a particular issuer at a specified price until expiration of the
warrant. Such investments provide greater potential for profit than a direct
purchase of the same amount of the securities. Prices of warrants do not
necessarily move in tandem with the prices of the underlying securities, and
warrants are considered speculative investments. They pay no dividends and
confer no rights other than a purchase option. If a warrant is not exercised by
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the date of its expiration, a Fund would lose its entire investment in such
warrant.
INTEREST RATE TRANSACTIONS (ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND)
Each of these Funds 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 rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor. An interest
rate collar combines elements of buying a cap and selling a floor.
A Fund may enter into interest rate swaps, caps, floors, and collars on either
an asset-based or liability-based basis depending on whether it is hedging its
assets or its liabilities, and will only enter into such transactions on a net
basis, i.e., the two payment streams are netted out, with a Fund receiving or
paying, as the case may be, only the net amount of the two payments. The amount
of the excess, if any, of a Fund's obligations over its entitlements with
respect to each interest rate swap, cap, floor, or collar will be accrued on a
daily basis and an amount of cash or liquid securities having an aggregate value
at least equal to the accrued excess will be maintained in a segregated account
by the custodian.
A Fund will not enter into any interest rate transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one NRSRO at the time of entering into
such transaction. If there is a default by the other party to such transaction,
a Fund will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
agents. As a result, the swap market has become well established and provides a
degree of liquidity. Caps, floors and collars are more recent innovations which
tend to be less liquid than swaps.
STEP DOWN PREFERRED SECURITIES
Step down perpetual preferred securities are issued by a real estate investment
trust ("REIT") making a mortgage loan to a single borrower. The dividend rate
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paid by these securities is initially relatively high, but declines yearly. The
securities are subject to call if the REIT suffers an unfavorable tax event, and
to tender by the issuer's equity holder in the 10th year; both events could be
on terms unfavorable to the holder of the preferred securities. The value of
these securities will be affected by changes in the value of the underlying
mortgage loan. The REIT is not diversified, and the value of the mortgaged
property may not cover its obligations. Step down perpetual preferred securities
are considered restricted securities under the 1933 Act.
LOAN PARTICIPATIONS AND ASSIGNMENTS
Loan participations and assignments are interests in loans originated by banks
and other financial institutions. Both the lending bank and the borrower may be
deemed to be "issuers" of a loan participation.
Although some of the loans may be secured, there is no assurance that the
collateral can be liquidated in particular cases, or that its liquidation value
will be equal to the value of the debt. Borrowers that are in bankruptcy may pay
only a small portion of the amount owed, if they are able to pay at all. Where a
Fund purchases a loan through an assignment, there is a possibility that the
Fund will, in the event the borrower is unable to pay the loan, become the owner
of the collateral. This involves certain risks to the Fund as a property owner.
Loans are often administered by a lead bank, which acts as agent for the lenders
in dealing with the borrower. In asserting rights against the borrower, a Fund
may be dependent on the willingness of the lead bank to assert these rights, or
upon a vote of all the lenders to authorize the action. Assets held by the lead
bank for the benefit of the Fund may be subject to claims of the lead bank's
creditors.
FUTURES CONTRACTS (ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND)
Each of these Funds may purchase and sell futures contracts solely for the
purpose of hedging against the effect that changes in general market conditions,
interest rates, and conditions affecting particular industries may have on the
values of securities held by a Fund or which a Fund intends to purchase, and not
for purposes of speculation. For information about foreign currency futures
contracts, see "Foreign Currency Transactions" below.
GENERAL DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides
for the future sale by one party and purchase by another party of a specified
amount of a particular financial instrument (debt security) or commodity for a
specified price at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and payment for the
underlying financial instruments, such contracts are usually closed out before
the delivery date. Closing out an open futures contract position is effected by
entering into an offsetting sale or purchase, respectively, for the same
aggregate amount of the same financial instrument on the same delivery date.
Where a Fund has sold a futures contract, if the offsetting price is more than
the original futures contract purchase price, the Fund realizes a gain; if it is
less, the Fund realizes a loss.
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At the time a Fund enters into a futures contract, an amount of cash or liquid
securities, equal to the fair market value less initial margin of the futures
contract, will be deposited in a segregated account with the Trust's custodian
to collateralize the position and thereby ensure that such futures contract is
covered. A Fund may be required to deposit additional assets in the segregated
account in order to continue covering the contract as market conditions change.
A Fund may also be required to post additional "variation" margin. In addition,
each Fund will comply with certain regulations of the Commodity Futures Trading
Commission to qualify for an exclusion from being a "commodity pool operator."
INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is
an obligation traded on an exchange or board of trade that requires the
purchaser to accept delivery, and the seller to make delivery, of a specified
quantity of the underlying financial instrument, such as U.S. Treasury bills and
bonds, in a stated delivery month at a price fixed in the contract.
The Funds may purchase and sell interest rate futures as a hedge against changes
in interest rates that would adversely impact the value of debt instruments and
other interest rate sensitive securities being held or to be purchased by a
Fund. A Fund might employ a hedging strategy whereby it would purchase an
interest rate futures contract when it intends to invest in long-term debt
securities but wishes to defer their purchase until it can orderly invest in
such securities or because short-term yields are higher than long-term yields.
Such a purchase would enable the Fund to earn the income on a short-term
security while at the same time minimizing the effect of all or part of an
increase in the market price of the long-term debt security which the Fund
intends to purchase in the future. A rise in the price of the long-term debt
security prior to its purchase either would be offset by an increase in the
value of the futures contract purchased by the Fund or avoided by taking
delivery of the debt securities under the futures contract.
A Fund would sell an interest rate futures contract to continue to receive the
income from a long-term debt security, while endeavoring to avoid part or all of
the decline in market value of that security which would accompany an increase
in interest rates. If interest rates rise, a decline in the value of the debt
security held by the Fund would be substantially offset by the ability of the
Fund to repurchase at a lower price the interest rate futures contract
previously sold. While the Fund could sell the long-term debt security and
invest in a short-term security, this would ordinarily cause the Fund to give up
income on its investment since long-term rates normally exceed short-term rates.
STOCK INDEX FUTURES CONTRACTS (CONSECO EQUITY, CONSECO ASSET
ALLOCATION, AND CONSECO 20 FUNDS). 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.
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To the extent that changes in the value of a Fund correspond to changes in a
given stock index, the sale of futures contracts on that index ("short hedge")
would substantially reduce the risk to the Fund of a market decline and, by so
doing, provide an alternative to a liquidation of securities positions, which
may be difficult to accomplish in a rapid and orderly fashion. Stock index
futures contracts might also be sold:
1. When a sale of Fund securities at that time would appear to be
disadvantageous in the long-term because such liquidation would:
a. Forego possible appreciation,
b. Create a situation in which the securities would be difficult to
repurchase, or
c. Create substantial brokerage commission;
2. When a liquidation of part of the investment portfolio has commenced or is
contemplated, but there is, in the Adviser's determination, a substantial
risk of a major price decline before liquidation can be completed; or
3. To close out stock index futures purchase transactions.
Where the Adviser anticipates a significant market or market sector advance, the
purchase of a stock index futures contract ("long hedge") affords a hedge
against the possibility of not participating in such advance at a time when a
Fund is not fully invested. Such purchases would serve as a temporary substitute
for the purchase of individual stocks, which may then be purchased in an orderly
fashion. As purchases of stock are made, an amount of index futures contracts
which is comparable to the amount of stock purchased would be terminated by
offsetting closing sales transactions. Stock index futures might also be
purchased:
1. If the Fund is attempting to purchase equity positions in issues which it
may have or is having difficulty purchasing at prices considered by the
Adviser to be fair value based upon the price of the stock at the time it
qualified for inclusion in the investment portfolio, or
2. To close out stock index futures sales transactions.
GOLD FUTURES CONTRACTS. Conseco 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.
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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.
OPTIONS ON FUTURES CONTRACTS. The Funds may purchase options on futures
contracts, although they will not write options on any such contracts. A futures
option gives a Fund the right, in return for the premium paid, to assume a long
position (in the case of a call) or short position (in the case of a put) in a
futures contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the purchaser acquires a long position
in the futures contract and the writer of the option is assigned the opposite
short position. In the case of a put option, the converse is true. In most
cases, however, a Fund would close out its position before expiration by an
offsetting purchase or sale.
The Funds may enter into options on futures contracts only in connection with
hedging strategies. Generally, these strategies would be employed under the same
market conditions in which a Fund would use put and call options on debt
securities, as described in "Options on Securities" below.
RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS. There are several
risks associated with the use of futures and futures options for hedging
purposes. While hedging transactions may protect a Fund against adverse
movements in the general level of interest rates and economic conditions, such
transactions could also preclude the Fund from the opportunity to benefit from
favorable movements in the underlying securities. There can be no guarantee that
the anticipated correlation between price movements in the hedging vehicle and
in the portfolio securities being hedged will occur. An incorrect correlation
could result in a loss on both the hedged securities and the hedging vehicle so
that the Fund's return might have been better if hedging had not been attempted.
The degree of imperfection of correlation depends on circumstances such as
variations in speculative market demand for futures and futures options,
including technical influences in futures and futures options trading, and
differences between the financial instruments being hedged and the instruments
underlying the standard contracts available for trading in such respects as
interest rate levels, maturities, and creditworthiness of issuers. A decision as
to whether, when, and how to hedge involves the exercise of skill and judgment
and even a well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or interest rate trends.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day. Once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. In addition, certain of these instruments are relatively new
and without a significant trading history. Lack of a liquid market for any
reason may prevent a Fund from liquidating an unfavorable position and the Fund
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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. 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" would exceed 5 percent of the Fund's net assets.
OPTIONS ON SECURITIES AND SECURITIES INDICES (ALL FUNDS EXCEPT CONSECO
INTERNATIONAL FUND)
Each of these Funds may purchase put and call options on securities, and (except
for the Conseco Fixed Income and Conseco High Yield Funds) put and call options
on stock indices, at such times as the Adviser deems appropriate and consistent
with a Fund's investment objective. The Funds may also write listed "covered"
call and "secured" put options. Each Fund may enter into closing transactions in
order to terminate its obligations either as a writer or a purchaser of an
option prior to the expiration of the option.
PURCHASING OPTIONS ON SECURITIES. An option on a security is a contract
that gives the purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the seller
("writer") of the option at a designated price during the term of the option. A
Fund may purchase put options on securities to protect holdings in an underlying
or related security against a substantial decline in market value. Securities
are considered related if their price movements generally correlate to one
another. For example, the purchase of put options on debt securities held by a
Fund would enable a Fund to protect, at least partially, an unrealized gain in
an appreciated security without actually selling the security. In addition, the
Fund would continue to receive interest income on such security.
A Fund may purchase call options on securities to protect against substantial
increases in prices of securities which the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner. A Fund may sell put
or call options it has previously purchased, which could result in a net gain or
loss depending on whether the amount realized on the sale is more or less than
the premium and transactional costs paid on the option which is sold.
WRITING COVERED CALL AND SECURED PUT OPTIONS. In order to earn
additional income on its portfolio securities or to protect partially against
declines in the value of such securities, each Fund may write "covered" call
options. The exercise price of a call option may be below, equal to, or above
the current market value of the underlying security at the time the option is
written. During the option period, a covered call option writer may be assigned
an exercise notice requiring the writer to deliver the underlying security
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against payment of the exercise price. This obligation is terminated upon the
expiration of the option period or at such earlier time in which the writer
effects a closing purchase transaction. Closing purchase transactions will
ordinarily be effected to realize a profit on an outstanding call option, to
prevent an underlying security from being called, to permit the sale of the
underlying security, or to enable a Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both.
In order to earn additional income or to protect partially against increases in
the value of securities to be purchased, the Funds may write "secured" put
options. During the option period, the writer of a put option may be assigned an
exercise notice 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. Call and put options on securities
indices would be purchased or written 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. When such options are
written, the Fund is required to maintain a segregated account consisting of
cash or liquid securities, or the Fund must purchase a like option of greater
value that will expire no earlier than the option written. The purchase of such
options may not enable a Fund to hedge effectively against stock market risk if
they are not highly correlated with the value of its securities. Moreover, the
ability to hedge effectively depends upon the ability to predict movements in
the stock market, which cannot be done accurately in all cases.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, and, as
long as its obligation as a writer continues, has retained the risk of loss if
the price of the underlying security declines. The writer of an option has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or purchase the underlying
securities at the exercise price. If a put or call option purchased by a Fund is
not sold when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price or, in the case of a call, remains less than or equal to the exercise
price, the Fund will lose its entire investment in the option. Also, where a put
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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
over-the-counter ("OTC") option at any time prior to expiration. In contrast to
exchange-traded options where the clearing organization affiliated with the
particular exchange on which the option is listed in effect guarantees
completion of every exchange-traded option, OTC options are contracts between a
Fund and a counter-party, with no clearing organization guarantee. Thus, when a
Fund purchases an OTC option, it generally will be able to close out the option
prior to its expiration only by entering into a closing transaction with the
dealer from whom the Fund originally purchased the option.
Since option premiums paid or received by a Fund are small in relation to the
market value of underlying investments, buying and selling put and call options
offer large amounts of leverage. Thus, trading in options could result in a
Fund's net asset value being more sensitive to changes in the value of the
underlying securities.
FOREIGN CURRENCY TRANSACTIONS (CONSECO ASSET ALLOCATION, CONSECO 20, CONSECO
HIGH YIELD AND CONSECO INTERNATIONAL FUNDS)
A foreign currency futures contract is a standardized contract for the future
delivery of a specified amount of a foreign currency, at a future date at a
price set at the time of the contract. A forward currency contract is an
obligation to purchase or sell a currency against another currency at a future
date at a price agreed upon by the parties. A Fund may either accept or make
delivery of the currency at the maturity of the contract or, prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. A Fund will purchase and sell such contracts for hedging purposes and
not as an investment. A Fund will engage in foreign currency futures contracts
and forward currency transactions in anticipation of or to protect itself
against fluctuations in currency exchange rates. The International Portfolio may
seek to hedge against changes in the value of a particular currency by using
forward contracts on another foreign currency or a basket of currencies with a
value that bears a positive correlation to the value of the currency being
hedged. Except for the International Portfolio, a Fund will not (1) commit more
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than 15 percent of its total assets computed at market value at the time of
commitment to foreign currency futures or forward currency contracts, or (2)
enter into a foreign currency contract with a term of greater than one year.
Forward currency contracts are not traded on regulated commodities exchanges.
When a Fund enters into a forward currency contract, it incurs the risk of
default by the counter-party to the transaction.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out a foreign currency futures or forward currency position. 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 each Fund values its assets daily in U.S. dollars, it does not intend
physically to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. A Fund will do so from time to time, thereby incurring the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange if the Fund desires to resell that
currency to the dealer.
OPTIONS ON FOREIGN CURRENCIES (CONSECO ASSET ALLOCATION, CONSECO 20 AND CONSECO
HIGH YIELD FUNDS)
Each of these Funds may invest in call and put options on foreign currencies. A
Fund may purchase call and put options on foreign currencies as a hedge against
changes in the value of the U.S. dollar (or another currency) in relation to a
foreign currency in which portfolio securities of the Fund may be denominated. A
call option on a foreign currency gives the purchaser the right to buy, and a
put option the right to sell, a certain amount of foreign currency at a
specified price during a fixed period of time. A Fund may enter into closing
sale transactions with respect to such options, exercise them, or permit them to
expire.
A Fund may employ hedging strategies with options on currencies before the Fund
purchases a foreign security denominated in the hedged currency, during the
period the Fund holds a foreign security, or between the day a foreign security
is purchased or sold and the date on which payment therefor is made or received.
Hedging against a change in the value of a foreign currency in the foregoing
manner does not eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Furthermore, such
hedging transactions reduce or preclude the opportunity for gain if the value of
the hedged currency increases relative to the U.S. dollar. The Funds will
purchase options on foreign currencies only for hedging purposes and will not
speculate in options on foreign currencies. The Funds may invest in options on
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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
Funds 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 a 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.
BORROWING
Except for the Conseco International Fund and the Portfolio (as discussed above
under "Investment Restrictions--Conseco International Fund"), a Fund may borrow
money from a bank, but only if immediately after each such borrowing and
continuing thereafter the Fund would have asset coverage of 300 percent.
Leveraging by means of borrowing will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Fund's net asset value; money
borrowed will be subject to interest and other costs which may or may not exceed
the income received from the securities purchased with borrowed funds. The use
of borrowing tends to result in a faster than average movement, up or down, in
the net asset value of a Fund's shares. A Fund also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
INVESTMENT IN SECURITIES OF OTHER INVESTMENT COMPANIES
Securities of other investment companies have the potential to appreciate as do
any other securities, but tend to present less risk because their value is based
on a diversified portfolio of investments. The 1940 Act expressly permits mutual
funds to invest in other investment companies within prescribed limitations. An
investment company may invest in other investment companies if at the time of
such investment (1) it does not own more than 3 percent of the voting securities
of any one investment company, (2) it does not invest more than 5 percent of its
assets in any single investment company, and (3) its investment in all
investment companies does not exceed 10 percent of assets.
Some of the countries in which a Fund may invest may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government approved or authorized investment vehicles,
which may include other investment companies. In addition, it may be less
expensive and more expedient for the Fund to invest in a foreign investment
company in a country which permits direct foreign investment.
Investment companies in which the Funds may invest charge advisory and
administrative fees and may also assess a sales load and/or distribution fees.
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Therefore, investors in a Fund that invests in other investment companies would
indirectly bear costs associated with those investments as well as the costs
associated with investing in the Fund. The percentage limitations described
above significantly limit the costs a Fund may incur in connection with such
investments.
SHORT SALES (ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND)
A short sale is a transaction in which a Fund sells a security in anticipation
that the market price of the security will decline. A Fund may effect short
sales (i) as a form of hedging to offset potential declines in long positions in
securities it owns or anticipates acquiring, or in similar securities, and (ii)
to maintain flexibility in its holdings. In a short sale "against the box," at
the time of sale the Fund owns the security it has sold short or has the
immediate and unconditional right to acquire at no additional cost the identical
security. Under applicable guidelines of the SEC staff, if a Fund engages in a
short sale (other than a short sale against-the-box), it must put an appropriate
amount of cash or liquid securities in a segregated account (not with the
broker).
The effect of short selling on a Fund is similar to the effect of leverage.
Short selling may exaggerate changes in a Fund's NAV. Short selling may also
produce higher than normal portfolio turnover, which may result in increased
transaction costs to a Fund.
INVESTMENT PERFORMANCE
STANDARDIZED YIELD QUOTATIONS. Each class of the Funds may advertise investment
performance figures, including yield. Each class' yield will be based upon a
stated 30-day period and will be computed by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
YIELD = 2 [((A-B)/CD)+1)6-1]
Where:
A = the dividends and interest earned during the period.
B = the expenses accrued for the period (net of reimbursements, if any).
C = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
D = the maximum offering price (which is the net asset value plus, for Class A
shares only, the maximum initial sales charge) per share on the last day of the
period.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS. Each class of the Funds may
advertise its total return and its cumulative total return. The total return
will be based upon a stated period and will be computed by finding the average
annual compounded rate of return over the stated period that would equate an
initial amount invested to the ending redeemable value of the investment
(assuming reinvestment of all distributions), according to the following
formula:
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n
P (1+T) =ERV
Where:
P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value at the end of the stated period of a
hypothetical $1,000 payment made at the beginning of the stated period.
The total return for Class B and Class C shares of each Fund will assume the
maximum applicable contingent deferred sales charge is deducted at the times, in
the amounts, and under the terms disclosed in the Fund's Prospectus. The
cumulative total return will be based upon a stated period and will be computed
by dividing the ending redeemable value (i.e., after deduction of any applicable
sales charges) of a hypothetical investment by the value of the initial
investment (assuming reinvestment of all distributions).
Each investment performance figure will be carried to the nearest hundredth of
one percent.
NON-STANDARDIZED PERFORMANCE. In addition, in order to more completely represent
a Fund's performance or more accurately compare such performance to other
measures of investment return, a Fund also may include in advertisements, sales
literature and shareholder reports other total return performance data
("Non-Standardized Return"). Non-Standardized Return may be quoted for the same
or different periods as those for which Standardized Return is required to be
quoted; it may consist of an aggregate or average annual percentage rate of
return, actual year-by-year rates or any combination thereof. Non-Standardized
Return for Class A, B and C shares may or may not take sales charges into
account; performance data calculated without taking the effect of sales charges,
if any, into account may be higher than data including the effect of such
charges. All non-standardized performance will be advertised only if the
standard performance data for the same period, as well as for the required
periods, is also presented.
GENERAL INFORMATION. From time to time, the Funds may advertise their
performance compared to similar funds or types of investments using certain
unmanaged indices, reporting services and publications. Descriptions of some of
the indices which may be used are listed below.
The Standard & Poor's 500 Composite Stock Price Index is a well diversified list
of 500 companies representing the U.S. stock market.
The Standard & Poor's MidCap 400 Index consists of 400 domestic stocks of
companies whose market capitalizations range from $201 million to $14.4 billion,
with a median market capitalization of $2.1 billion.
The Nasdaq Composite OTC Price Index is a market value-weighted and unmanaged
index showing the changes in the aggregate market value of approximately 5,510
stocks listed on the Nasdaq Stock Market.
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The Lehman Government Bond Index is a measure of the market value of all public
obligations of the U.S. Treasury; all publicly issued debt of all agencies of
the U.S. Government and all quasi-federal corporations; and all corporate debt
guaranteed by the U.S. Government. Mortgage-backed securities and foreign
targeted issues are not included in the Lehman Government Bond Index.
The Lehman Government/Corporate Bond Index is a measure of the market value of
approximately 5,900 bonds with a face value currently in excess of $3.5
trillion. To be included in the Lehman Government/Corporate Index, an issue must
have amounts outstanding in excess of $100 million, have at least one year to
maturity and be rated "BBB/Baa" or higher ("investment grade") by an NRSRO.
The Lehman Brothers Aggregate Bond Index is an index consisting of the
securities listed in Lehman Brothers Government/Corporate Bond Index, the Lehman
Brothers Mortgage-Backed Securities Index, and the Lehman Brothers Asset-Backed
Securities Index. The Government/Corporate Bond Index is described above. The
Mortgage-Backed Securities Index consists of 15 and 30-year fixed rate
securities backed by mortgage pools of GNMA, FHLMC and FNMA (excluding buydowns,
manufactured homes and graduated equity mortgages). The Asset-Backed Securities
Index consists of credit card, auto and home equity loans (excluding
subordinated tranches) with an average life of one year.
The Morgan Stanley Capital International Europe, Australasia, Far East Index,
also known as the EAFE Index, is an unmanaged index of common stock prices of
more than 1,100 companies from Europe, Australia and the Far East translated
into U.S. dollars.
Each index includes income and distributions but does not reflect fees,
brokerage commissions or other expenses of investing.
In addition, from time to time in reports and promotions (1) a Fund's
performance may be compared to other groups of mutual funds tracked by: (a)
Lipper Analytical Services and Morningstar, Inc., widely used independent
research firms which rank mutual funds by overall performance, investment
objectives, and assets; or (b) other financial or business publications, such as
Business Week, Money Magazine, Forbes and Barron's which provide similar
information; (2) the Consumer Price Index (measure for inflation) may be used to
assess the real rate of return from an investment in a Fund; (3) other
statistics such as GNP and net import and export figures derived from
governmental publications, e.g., The Survey of Current Business or statistics
derived by other independent parties, e.g., the Investment Company Institute,
may be used to illustrate investment attributes of a Fund or the general
economic, business, investment, or financial environment in which a Fund
operates; (4) various financial, economic and market statistics developed by
brokers, dealers and other persons may be used to illustrate aspects of a Fund's
performance; and (5) the sectors or industries in which a Fund invests may be
compared to relevant indices or surveys (e.g., S&P Industry Surveys) in order to
evaluate the Fund's historical performance or current or potential value with
respect to the particular industry or sector.
25
<PAGE>
SECURITIES TRANSACTIONS
CONSECO EQUITY, CONSECO ASSET ALLOCATION, CONSECO FIXED INCOME, CONSECO 20 AND
CONSECO HIGH YIELD FUNDS
The Adviser is responsible for decisions to buy and sell securities for these
Funds, 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 a 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
these Funds and/or other accounts over which the Adviser exercises investment
discretion. Such services may include furnishing advice concerning the value of
securities (including providing quotations as to securities), the advisability
of investing in, purchasing or selling securities, and the availability of
securities or the purchasers or sellers of securities; furnishing analyses 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,
settlement and custody, or required in connection therewith.
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
26
<PAGE>
Adviser's overall responsibilities with respect to the Fund. The Adviser
allocates orders placed by it on behalf of these Funds 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.
The receipt of research from broker-dealers may be useful to the Adviser in
rendering investment management services to these 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 these 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.
For the fiscal year ended December 31, 1997, the Conseco Equity Fund, Conseco
Asset Allocation Fund and the Conseco Fixed Income Fund paid aggregate brokerage
commissions of $215,359, $37,658 and $0, respectively. During the fiscal year
ended December 31, 1997, the Conseco Fixed Income Fund acquired securities of
the following of its "regular brokers or dealers" (as defined in the 1940 Act)
("Regular B/Ds"): UBS Securities, Salomon Smith Barney, Inc., Morgan Stanley &
Co., Inc. and J.P. Morgan Securities, Inc.; at that date, the Conseco Fixed
Income Fund held the securities of its Regular B/Ds with an aggregate value as
follows: UBS Securities, $1,000,000; Salomon Smith Barney, Inc., $861,000,
Morgan Stanley & Co., Inc., $713,000 and J.P. Morgan Securities, Inc., $728,000.
Orders on behalf of these Funds may be bunched with orders on behalf of other
clients of the Adviser. It is the Adviser's policy that, to the extent
practicable, all clients with similar investment objectives and guidelines be
treated fairly and equitably in the allocation of securities trades.
The Board periodically reviews the Adviser's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of the
Trust.
CONSECO INTERNATIONAL FUND
The assets of the International Portfolio are allocated by AMR among investment
advisers designated for the Portfolio. Each investment adviser has discretion to
purchase and sell portfolio securities in accordance with the investment
objective, policies and restrictions described in the Prospectus and this SAI
and with specific investment strategies developed by AMR. Each investment
adviser will place its own orders to execute securities transactions.
27
<PAGE>
In placing such orders and in selecting brokers or dealers, the principal
objective of each investment adviser is to seek the best net price and execution
available. It is expected that securities ordinarily will be purchased in the
primary markets, and that in assessing the best net price and execution
available, each investment adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis.
In selecting brokers or dealers to execute particular transactions, the
Portfolio's investment advisers are authorized to consider "brokerage and
research services" (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934), provision of statistical quotations (including
the quotations necessary to determine the Portfolio's net asset value), the sale
of Fund shares by such broker-dealer or the servicing of Fund shareholders by
such broker-dealer, and other information provided to the Portfolio, to AMR
and/or to the investment advisers (or their affiliates), provided, however, that
the investment adviser determines that it has received the best net price and
execution available. The investment advisers are also authorized to cause the
Portfolio to pay a commission to a broker or dealer who provides such brokerage
and research services for executing a portfolio transaction which is in excess
of the amount of the commission another broker or dealer would have charged for
effecting that transaction. The AMR Trust Board, AMR or the investment advisers,
as appropriate, must determine in good faith, however, that such commission was
reasonable in relation to the value of the brokerage and research services
provided viewed in terms of that particular transaction or in terms of all the
accounts over which AMR or the investment adviser exercises investment
discretion.
For the fiscal years ended October 31, 1995, 1996 and 1997, the Portfolio (or
its predecessor) paid $422,670, $544,844 and $956,160, respectively, in
brokerage commissions.
The portfolio turnover rate for the Portfolio (or its predecessor) for the
fiscal years ended October 31, 1995, 1996 and 1997 was 21%, 19% and 15%,
respectively. High portfolio turnover can increase transaction costs and
generate additional capital gains or losses.
The fees of the investment advisers are not reduced by reason of receipt of such
brokerage and research services. However, with disclosure to and pursuant to
written guidelines approved by the AMR Trust Board, an investment adviser of the
Portfolio or its affiliated broker-dealer may execute portfolio transactions and
receive usual and customary brokerage commissions (within the meaning of Rule
17e-1 under the 1940 Act) for doing so. During the fiscal year ended October 31,
1995, the Portfolio paid $18,937 in brokerage commissions to Morgan Stanley,
Inc., an affiliate of Morgan Stanley Asset Management, an investment adviser to
the predecessor. During the fiscal year ended October 31, 1996, the Portfolio
paid $2,142, $1,002, $2,051 and $20,129 to Fleming Martin, Jardine Fleming, Ord
Minnett and Robert Fleming & Co., affiliates of Rowe Price-Fleming
International, Inc., then an adviser to the Portfolio and $3,892 to Morgan
Stanley International, an affiliate of Morgan Stanley Asset Management Inc.
During the fiscal year ended October 31, 1997, the Portfolio paid $3,260,
$13,141 and $81,109, to Jardine Fleming, Ord Minnett and Robert Fleming & Co.,
respectively, affiliates of Rowe Price-Fleming International, Inc., then an
28
<PAGE>
adviser to the Portfolio; $5,413 to Morgan Stanley International, an affiliate
of Morgan Stanley Asset Management; and $50,428 to Merrill Lynch & Co., Inc., an
affiliate of Hotchkis and Wiley.
MANAGEMENT
THE ADVISER
The Adviser provides investment advice and, in general, supervises the Trust's
management and investment program, furnishes office space, prepares reports for
the Funds, and pays all compensation of officers and Trustees of the Trust who
are affiliated persons of the Adviser. Each Fund pays all other expenses
incurred in the operation of the Fund, including fees and expenses of
unaffiliated Trustees of the Trust. While the Conseco International Fund
operates in a "master-feeder" structure, the Adviser is responsible for
selecting the investment company in which that Fund invests. If the Adviser is
not satisfied with the performance of that investment company, the Adviser will
recommend to the Board other investment companies in which the Conseco
International Fund may invest, or recommend that the Adviser manage the Conseco
International Fund itself.
The Adviser is a wholly owned subsidiary of Conseco, Inc. ("Conseco"), a
publicly-owned financial services company, the principal operations of which are
in development, marketing and administration of specialized annuity, life and
health insurance products. Conseco's offices are located at 11825 N.
Pennsylvania Street, Carmel, Indiana 46032.
The Investment Advisory Agreements, dated March 28, 1997, between the Adviser
and the Conseco Equity Fund, Conseco Asset Allocation Fund and Conseco Fixed
Income Fund, and the Investment Advisory Agreement dated December 31, 1997
between the Adviser and the Conseco 20 Fund, Conseco High Yield Fund and Conseco
International Fund, provide that the Adviser shall not be liable for any error
in judgment or mistake of law or for any loss suffered by a Fund in connection
with any investment policy or the purchase, sale or redemption of any securities
on the recommendations of the Adviser. The Agreements provide that the Adviser
is not protected against any liability to a Fund or its security holders for
which the Adviser shall otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed upon it
by the Agreements or the violation of any applicable law.
Under the terms of the Investment Advisory Agreements, the Adviser has
contracted to receive an investment advisory fee equal to an annual rate of
0.70% of the average daily net asset value of the Conseco Equity Fund, 0.70% of
the average daily net asset value of the Conseco Asset Allocation Fund, 0.45% of
the average daily net asset value of the Conseco Fixed Income Fund, 0.70% of the
average daily net asset value of the Conseco High Yield Fund, 0.70% of the
average daily net asset value of the Conseco 20 Fund and 1.00% of the average
daily net asset value of the Conseco International Fund. The Adviser has
voluntarily agreed to waive all of its fees under the Conseco International
Fund's Investment Advisory Agreement so long as that Fund invests all of its
investable assets in the Portfolio or another investment company with
substantially the same investment objective and policies as the Fund. For more
29
<PAGE>
information about the Portfolio's management, see "AMR and the Investment
Advisers to the International Equity Portfolio" below.
For the fiscal year ended December 31, 1997, the Conseco Equity Fund, Conseco
Asset Allocation Fund and the Conseco Fixed Income Fund accrued investment
advisory fees of $286,410, $63,605 and $58,632, respectively.
The Adviser, together with Conseco Services, LLC (the "Administrator") and
Conseco Equity Sales Inc. (the "Distributor"), have voluntarily agreed to waive
their fees and/or reimburse the Funds' expenses to the extent that the ratios of
expenses to net assets exceed the amounts set forth in the fee table in the
Prospectus. These voluntary limits may be discontinued at any time after April
30, 1999.
For the fiscal year ended December 31, 1997, fees waived and/or expenses
reimbursed were $66,061, $49,074 and $38,405 with respect to the Conseco Equity
Fund, Conseco Asset Allocation Fund and the Conseco Fixed Income Fund,
respectively.
Each Fund (except the Conseco International Fund) may receive credits from its
custodian based on cash held by the Fund at the custodian. These credits may be
used to reduce the custody fees payable by the Fund. In that case, the Adviser's
(and, other affiliates') voluntary agreement to waive fees or reimburse expenses
will be applied only after the Fund's custody fees have been reduced or
eliminated by the use of such credits.
THE ADMINISTRATOR
Conseco Services, LLC (the "Administrator") is a wholly owned subsidiary of
Conseco, and receives compensation from the Trust pursuant to an Administration
Agreement dated January 2, 1997 and amended December 31, 1997. Under that
agreement, the Administrator supervises the overall administration of the Funds.
These administrative services include supervising the preparation and filing of
all documents required for compliance by the Funds with applicable laws and
regulations, supervising the maintenance of books and records, and other general
and administrative responsibilities. In addition, while the Conseco
International Fund operates in a "master-feeder" structure, the Administrator
will monitor the performance of the investment company in which the Conseco
International Fund invests, coordinate the Conseco International Fund's
relationship with that investment company and communicate with the Board and
shareholders regarding the performance of that investment company and the Fund's
master-feeder structure.
For providing these services, the Administrator receives a fee from each of the
Funds, except the Conseco International Fund, of .20% per annum of its average
daily net assets and a fee from the Conseco International Fund of .75% per annum
of its average daily net assets. Pursuant to the Administration Agreement, the
Administrator reserves the right to employ one or more sub-administrators to
perform administrative services for the Funds. The Bank of New York performs
certain administrative services for each of the Funds, and AMR and State Street
30
<PAGE>
Bank and Trust Company perform services for the Conseco International Fund,
pursuant to agreements with the Administrator. See "The Adviser" above regarding
the Administrator's voluntary agreement to waive its fees and/or reimburse Fund
expenses.
For the fiscal year ended December 31, 1997, the Conseco Equity Fund, Conseco
Asset Allocation Fund and the Conseco Fixed Income Fund accrued administration
fees of $86,552, $23,055 and $34,161, respectively.
AMR AND THE INVESTMENT ADVISERS TO THE INTERNATIONAL EQUITY PORTFOLIO
Pursuant to a Management Agreement dated October 1, 1995, as amended July 25,
1997, AMR provides or oversees all administrative, investment advisory, and
portfolio management services for the Portfolio. AMR, located at 4333 Amon
Carter Boulevard, MD 5645, Fort Worth, Texas 76155, is a wholly owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. AMR bears the
expense of providing the above services and pays the fees of the investment
advisers of the Portfolio. As compensation, AMR receives an annualized advisory
fee that is calculated and accrued daily, equal to the sum of 0.10% of the net
assets of the Portfolio plus all fees payable by AMR to the Portfolio's
investment advisers. The advisory fee is payable quarterly in arrears.
The Management Agreement will continue in effect provided that annually such
continuance is specifically approved by a vote of the AMR Trust Board, including
the affirmative votes of a majority of the Trustees who are not parties to the
Management Agreement or "interested persons" as defined in the 1940 Act of any
such party ("Independent Trustees"), cast in person at a meeting called for the
purpose of considering such approval, or by the vote of the Portfolio's interest
holders. The Management Agreement may be terminated without penalty, by a
majority vote of Portfolio interests on sixty (60) days' written notice to AMR,
or by AMR, on sixty (60) days' written notice to the AMR Trust. A Management
Agreement will automatically terminate in the event of its "assignment" as
defined in the 1940 Act.
The assets of the Portfolio are allocated by AMR among investment advisers
designated for the Portfolio, as listed in the Prospectus. Although the
investment advisers are subject to general supervision by the AMR Trust Board
and AMR, the AMR Trust Board and AMR do not evaluate the investment merits of
specific securities transactions. As compensation for its services, each
investment adviser is paid a fee by AMR out of the proceeds of the management
fee received by AMR.
Each investment adviser has entered into a separate investment advisory
agreement with AMR to provide investment advisory services to the Portfolio.
Each Advisory Agreement was approved and became effective as of October 1, 1995.
Following the acquisition of Hotchkis and Wiley ("Hotchkis") by Merrill Lynch,
Pierce, Fenner & Smith, Inc., a new Advisory Agreement with Hotchkis was
approved, effective November 12, 1996. Following the merger of Morgan Stanley
Group Inc. and Dean, Witter, Discover & Co., a new Advisory Agreement with
Morgan Stanley Asset Management Inc. was approved, effective May 31, 1997.
31
<PAGE>
AMR is permitted to enter into new or modified advisory agreements with existing
or new investment advisers without approval of Conseco International Fund
shareholders or Portfolio interest holders, but subject to approval of the AMR
Trust Board. The SEC issued an exemptive order which eliminates the need for
shareholder/interest holder approval subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the Fund send a notice to shareholders containing information
about the change that would be included in a proxy statement. AMR recommends
investment advisers based upon its continuing quantitative and qualitative
evaluation of the investment advisers' skill in managing assets using specific
investment styles and strategies. The allocation of assets among investment
advisers may be changed at any time by AMR. Allocations among investment
advisers will vary based upon a variety of factors, including the overall
investment performance of each investment adviser, the Portfolio's cash flow
needs and market conditions. AMR need not allocate assets to each investment
adviser designated for the Portfolio. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an investment
adviser, and AMR does not expect to recommend frequent changes of investment
advisers. The Prospectus will be supplemented if additional investment advisers
are retained or the contract with any existing investment adviser is terminated.
Each investment advisory agreement will automatically terminate if assigned, and
may be terminated without penalty at any time by AMR, by a vote of a majority of
the AMR Trust Board or by a vote of a majority of the outstanding Portfolio
interests on no less than thirty (30) days' nor more than sixty (60) days'
written notice to the investment adviser, or by the investment adviser upon
sixty (60) days' written notice to the Portfolio. Each investment advisory
agreement will continue in effect provided that annually such continuance is
specifically approved by a vote of the AMR Trust Board, including the
affirmative votes of a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of considering such approval, or by the vote of
the outstanding Portfolio interests.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust, their affiliations, if any, with the
Adviser and their principal occupations are set forth below.
<TABLE>
<CAPTION>
Name, Address Position Held Principal Occupation(s)
and Age With Trust During Past 5 Years
--------------- ---------- -------------------
<S> <C> <C>
William P. Daves, Jr. (72) Chairman of the Consultant to insurance and healthcare
5723 Trail Meadow Board, Trustee industries. Director, President and Chief
Dallas, TX 75230 Executive Officer, FFG Insurance Co. Chairman of
the Board and Trustee of one other mutual fund
managed by the Adviser.
32
<PAGE>
Name, Address Position Held Principal Occupation(s)
and Age With Trust During Past 5 Years
--------------- ---------- -------------------
Maxwell E. Bublitz* (42) President and Chartered Financial Analyst. President and
11825 N. Pennsylvania St. Trustee Director, Adviser. Previously,
Carmel, IN 46032 Senior Vice President, Adviser. President and
Trustee of one other mutual fund
managed by the Adviser.
Gregory J. Hahn* (37) Vice President for Chartered Financial Analyst. Senior Vice
11825 N. Pennsylvania St. Investments and President, Adviser. Portfolio Manager of the
Carmel, IN 46032 Trustee fixed income portion of Asset Allocation and
Fixed Income Funds.
Harold W. Hartley (74) Trustee Retired. Chartered Financial Analyst. Previously,
317 Peppard Drive, S.W. Executive Vice President, Tenneco Financial
Ft. Myers Beach, Fl 33913 Services, Inc. Trustee of one other mutual fund
managed by the Adviser.
Dr. R. Jan LeCroy (67) Trustee President, Dallas Citizens Council. Trustee of
Dallas Citizens Council one other mutual fund managed by the Adviser.
1201 Main Street, Director, Southwest Securities Group, Inc.
Suite 2444
Dallas, TX 75202
Dr. Jesse H. Parrish (70) Trustee Former President, Midland College. Higher
2805 Sentinel Education Consultant. Trustee of one other
Midland, TX 79701 mutual fund managed by the Adviser.
33
<PAGE>
Name, Address Position Held Principal Occupation(s)
and Age With Trust During Past 5 Years
--------------- ---------- -------------------
William P. Latimer (62) Vice President and Vice President, Senior Counsel, Secretary, Chief
11825 N. Pennsylvania St. Secretary Compliance Officer and Director of Adviser. Vice
Carmel, IN 46032 President, Senior Counsel, Secretary and
Director, Conseco Equity Sales, Inc. Vice
President and Secretary of one other mutual fund
managed by the Adviser. Previously, Consultant
to securities industry. Previously, Senior Vice
President--Compliance, USF&G Investment Services,
Inc. and Vice President, Axe-Houghton Management
Inc.
James S. Adams (38) Treasurer Senior Vice President, Bankers National, Great
11815 N. Pennsylvania St. American Reserve. Senior Vice President,
Carmel, IN 46032 Treasurer, and Director, Conseco Equity Sales,
Inc. Senior Vice President and Treasurer, Conseco
Services, LLC. Treasurer of one other mutual
fund managed by the Adviser.
William T. Devanney, Jr. (42) Vice President, Senior Vice President, Corporate Taxes, Bankers
11815 N. Pennsylvania St. Corporate Taxes National and Great American Reserve. Senior Vice
Carmel, IN 46032 President, Corporate Taxes, Conseco Equity Sales,
Inc. and Conseco Services LLC. Vice President of
one other mutual fund managed by the Adviser.
</TABLE>
- ------------------
* The Trustee so indicated is an "interested person," as defined in the 1940
Act, of the Trust due to the positions indicated with the Adviser and its
affiliates.
The following table shows the compensation of each disinterested Trustee for the
fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
34
<PAGE>
COMPENSATION TABLE
Aggregate Total Compensation from
Compensation Investment Companies in the Trust
Name of Person, Position from the Trust* Complex Paid to Trustees*
- ------------------------ -------------- ---------------------------------
<S> <C> <C>
William P. Daves, Jr. $15,000 $24,000
(1 other investment company)
Harold W. Hartley $16,000 $25,000
(1 other investment company)
Dr. R. Jan LeCroy $16,000 $25,000
(1 other investment company)
Dr. Jesse H. Parrish $16,000 $25,000
(1 other investment company)
</TABLE>
- ------------------
* Compensation received in 1997 includes a retainer fee from the Funds' first
meeting held in December 1996.
TRUSTEES AND OFFICERS OF THE AMR TRUST
The AMR Trust Board provides broad supervision over the AMR Trust's affairs. The
Trustees and officers of the AMR Trust are listed below, together with their
principal occupations during the past five years. Unless otherwise indicated,
the address of each person listed below is 4333 Amon Carter Boulevard, MD 5645,
Forth Worth, Texas 76155.
<TABLE>
<CAPTION>
Position with
Name, Age and Address the AMR Trust Principal Occupation during Past 5 Years
- --------------------- ------------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (50) Trustee and President, AMR Investment Services, Inc.
President (1986-Present); Chairman, American Airlines Employees
Federal Credit Union (1989-Present); Trustee, American
Performance Funds (1990-1994); Director, Crescent Real
Estate Equities, Inc. (1994-Present); Trustee,
American AAdvantage Funds (1987-Present); Trustee,
American AAdvantage Mileage Funds (1995-Present).
35
<PAGE>
Position with
Name, Age and Address the AMR Trust Principal Occupation during Past 5 Years
- --------------------- ------------- ----------------------------------------
Alan D. Feld (60) Trustee Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
1700 Pacific Avenue (1960-Present)#; Director, Clear Channel
Suite 4100 Communications (1984-Present); Director, CenterPoint
Dallas, Texas 75201 Properties, Inc. (1994-Present); Trustee, American
AAdvantage Mileage Funds and American AAdvantage
Funds (1996-Present).
Ben J. Fortson (65) Trustee President and CEO, Fortson Oil Company (1958-Present);
301 Commerce Street Director, Kimbell Art Foundation (1964-Present);
Suite 3301 Director, Burnett Foundation (1987-Present); Honorary
Forth Worth, Texas 76102 Trustee, Texas Christian University (1986-Present);
Trustee, American AAdvantage Mileage Funds and
American AAdvantage Funds (1996-Present).
John S. Justin (81) Trustee Chairman and Chief Executive Officer, Justin
2821 West Seventh Street Industries, Inc. (a diversified holding company)
Fort Worth, Texas 76107 (1969-Present); Executive Board Member, Blue
Cross/Blue Shield of Texas (1985-Present); Board
Member, Zale Lipshy Hospital (1993-Present); Trustee,
Texas Christian University (1980-Present); Director and
Executive Board Member, Texas New Mexico enterprises
(1984-1993); Director, Texas New Mexico Power Company
(1979-1993); Trustee, American AAdvantage Funds
(1989-Present); Trustee, American AAdvantage Mileage
Funds (1995-Present).
Stephen D. O'Sullivan*(62) Trustee Consultant (1994-Present); Vice President and
Controller (1985-1994), American Airlines, Inc.;
Trustee, American AAdvantage Funds, (1987-Present);
Trustee, American AAdvantage Mileage Funds
(1995-Present).
36
<PAGE>
Position with
Name, Age and Address the AMR Trust Principal Occupation during Past 5 Years
- --------------------- ------------- ----------------------------------------
Roger T. Staubach (56) Trustee Chairman of the Board and Chief Executive Officer of
6750 LBJ Freeway the Staubach Company (a commercial real estate
Dallas, Texas 75240 company) (1982-Present); Director, Halliburton Company
(1991-Present); Director, Brinker International
(1993-Present); Director, International Home Foods,
Inc. (1997-Present); Member of the Advisory Board, The
Salvation Army; Trustee, Institute for Aerobics
Research; Member of Executive Council, Daytop/Dallas;
former quarterback of the Dallas Cowboys professional
football team; Trustee, American AAdvantage Mileage
Funds and American AAdvantage Funds (1995-Present).
Kneeland Youngblood (41) Trustee President Youngblood Enterprises, Inc. (a private
2305 Cedar Springs Road business management firm) (1983-Present); Trustee,
Suite 401 Teachers Retirement System of Texas (1993-Present);
Dallas, Texas 75201 Director, United States Enrichment Corporation
(1993-Present), Director, Just For the Kids
(1995-Present); Member, Council on Foreign Relations
(1995-Present); Trustee, American AAdvantage Mileage
Funds and American AAdvantage Funds (1995-Present);
Director, The L&M Valuation Board (1997-Present);
Trustee, Starwood Financial Trust (1998-Present).
Nancy A. Eckl (35) Vice President Vice President, AMR Investment Services, Inc.
(1990-Present).
Michael W. Fields (44) Vice President Vice President, AMR Investment Services, Inc.
(1988-Present).
37
<PAGE>
Position with
Name, Age and Address the AMR Trust Principal Occupation during Past 5 Years
- --------------------- ------------- ----------------------------------------
Barry Y. Greenberg (34) Vice President and Director, Legal and Compliance, AMR Investment
Assistant Secretary Services, Inc. (1995-Present); Branch Chief
(1992-1995) and Staff Attorney (1988-1992), Securities
and Exchange Commission.
Rebecca L. Harris (31) Treasurer Director of Finance (1995-Present), Controller
(1991-1995), AMR Investment Services, Inc.
John B. Roberson (39) Vice President Vice President, AMR Investment Services, Inc.
(1991-Present).
Robert J. Zutz (45) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
Thomas E. Jenkins, Jr. (31) Assistant Secretary Senior Compliance Analyst, AMR Investment Services,
Inc. (1996-Present); Staff Accountant (1994-1996) and
Compliance Examiner (1991-1994), Securities and
Exchange Commission.
Adriana R. Posada (43) Assistant Secretary Senior Compliance Analyst (1996-Present) and
Compliance Analyst (1993-1996), AMR Investment
Services, Inc.; Special Sales Representative, American
Airlines, Inc. (1991-1993).
</TABLE>
- ------------------
# The law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump") provides
legal services to American Airlines, Inc., an affiliate of AMR. Mr. Feld has
advised the AMR Trust that he has had no material involvement in the services
provided by Akin, Gump to American Airlines, Inc. and that he has received no
material benefit in connection with these services. Akin, Gump does not provide
legal services to AMR or AMR Corporation.
38
<PAGE>
* Messrs. Quinn and O'Sullivan, by virtue of their current or former positions,
are deemed to be "interested persons" of the AMR Trust as defined by the 1940
Act.
As compensation for their service to the AMR Trust, the Independent
Trustees and their spouses receive free air travel from American Airlines, Inc.,
an affiliate of AMR. The AMR Trust does not pay for these travel arrangements.
However, the AMR Trust compensates each Trustee with payments in an amount equal
to the Trustees' income tax on the value of this free airline travel. Mr.
O'Sullivan, who as a retiree of American Airlines, Inc. already receives free
airline travel, receives compensation annually of up to three round trip airline
tickets for each of his three adult children. Trustees are also reimbursed for
any expenses incurred in attending Board meetings. These amounts (excluding
reimbursements) are reflected in the following table for the fiscal year ended
October 31, 1997.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Aggregate Retirement Benefits Estimated From American
Compensation Accrued as part of Annual AAdvantage
Name of Trustee From the the AMR Benefits Upon Funds Complex
--------------- AMR Trust Trust's Expenses Retirement (27 Funds)
--------- ---------------- ------------- ------------------
<S> <C> <C> <C> <C>
William F. Quinn $ 0 $ 0 $ 0 $ 0
Alan D. Feld $ 15,962 $ 0 $ 0 $ 63,850
Ben J. Fortson $ 6,802 $ 0 $ 0 $ 27,209
John S. Justin $ 225 $ 0 $ 0 $ 901
Stephen D. O'Sullivan $ 493 $ 0 $ 0 $ 1,973
Roger T. Staubach $ 8,269 $ 0 $ 0 $ 33,076
Kneeland Youngblood $ 9,525 $ 0 $ 0 $ 38,099
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1998, 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, Class B and Class C shares of each Fund.
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
<S> <C> <C>
Conseco Fixed Income Fund MLPF & S 78.25%
Class A 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco Fixed Income Fund MLPF & S 100.00%
Class B 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
39
<PAGE>
FUND NAME NAME AND ADDRESS PERCENT OWNED
Conseco Fixed Income Fund Myrna M. Dodson Ttee. 100.00%
Class C Inter Vivos Trust Agreement of
Myrna M. Dodson
10034 64th Ave., N. Apt. 8
St. Petersburg, FL 33708-3556
Hilliard Lyons Cust. For 17.43%
Jennifer K. Brotherton IRA
564 W. 72nd St.
Indianapolis, IN 46260-4139
Conseco High Yield Fund Class A CCM 81.21%
11825 North Pennsylvania St.
Carmel, IN 46032-4555
Charles Schwab & Co. Inc. 6.52%
Special Custody Account for the
Exclusive Benefit of Customers
101 Montgomery St.
San Francisco, CA 94104-4122
Joseph F. Demichele 5.94%
6639 N. College Ave.
Indianapolis, IN 46220-1622
Conseco High Yield Fund Class B Merrill Lynch 62.28%
4800 Deer Lake Dr. East
Jacksonville, FL 32246-6486
c/o Murray & Murray Co. LPA 15.09%
Tamara J. Murray
P.O. Box 19
Sandusky, OH 44871-0019
c/o Murray & Murray Co. LPA 17.06%
Michael Murray
P.O. Box 19
Sandusky, OH 44871-0019
Conseco High Yield Fund Class C Merrill Lynch 100.00%
4800 Deer Lake Dr. East
Jacksonville, FL 32246-6486
40
<PAGE>
FUND NAME NAME AND ADDRESS PERCENT OWNED
Conseco Asset Allocation Fund Sara M. Ralph 8.36%
Class A 13078 Sterling Commons
Fishers, IN 46038-9241
MLPF & S 14.94%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Performance Mkt. Group 13.03%
1126 South 70th St., Ste. 420B
Milwaukee, WI 53214-3151
Conseco Asset Allocation Fund MLPF & S 63.98%
Class B 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Patricia M. Roedl 5.29%
637 E. South St.
Beaver Dam, WI 53916-3005
Retirement Accounts & Co. 7.03%
FBO Shirley A. Wolc
P.O. Box 173785
Denver, CO 80217-3785
Community National Bank Cust. 8.10%
FBO: Donald H. Leow IRA
P.O. Box 210
Seneca, KS 66538-0210
Prudential Securities Inc. FBO 11.50%
Mr. Donald g. Haslach IRA
468 Hilltop Ave.
Roseville, MN 55113-6910
Conseco Asset Allocation Fund Judy A. Felsman Ttee. 19.73%
Class C Judy A. Felsman Trust
11106 103rd Ter.
Largo, FL 33778-4110
Merrill Lynch 41.08%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
41
<PAGE>
FUND NAME NAME AND ADDRESS PERCENT OWNED
Lucila G. Whisenant Cust. 19.60%
Kristina Kalle Whisenant
4511 Pinfish Ln.
Palmetto, FL 34221-5626
Conseco Equity Fund Class A State Street Bank & Trust Co. 6.74%
Cust. For the IRA of
Steven L. Priddy
2861 Jeremy Ct.
Carmel, IN 46033-8757
Conseco Equity Fund Class B MLPF & S 60.85%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Retirement Accounts & Co. 6.38%
FBO Shirley A Wolc
P.O. Box 173785
Denver, CO 80217-3785
Hilliard Lyons Cust. For 17.43%
Jennifer K. Brotherton IRA
564 W. 72nd St.
Indianapolis, IN 46260-4139
Conseco Equity Fund Class C Merrill Lynch 77.89%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Christian M. Butston Ttee. 16.65%
The Butson Revocable Family Trust
2208 Eagle Bluff Dr.
Valrico, FL 33594-7218
McDonald & Co. Secs. Inc. Cust. 5.45%
Matthew M. Fornefeld IRA
3718 Devonshire Ct.
Bloomington, IN 47408-9641
Conseco International Fund CCM 99.86%
Class A 11825 North Pennsylvania St.
Carmel, IN 46032-4555
42
<PAGE>
FUND NAME NAME AND ADDRESS PERCENT OWNED
Conseco 20 Fund Class A CCM 98.29%
11825 North Pennsylvania St.
Carmel, IN 46032-4555
Conseco 20 Fund Class B MLPF & S 52.01%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Thomas J. Murray & 6.74%
Ann L. Murray Jtten
111 E. Shoreline Dr.
Sandusky, OH 44870-2517
William D. Hotson 6.82%
6542 E. US 40
Fillmore, IN 46128
Conseco 20 Fund Class C MLPF & S 92.96%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
</TABLE>
The Trustees and officers of the Trust, as a group, own less than 1% of each
Fund's outstanding shares. A shareholder owning of record or beneficially more
than 25% of a Fund's outstanding shares may be considered a controlling person.
That shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other shareholders.
FUND EXPENSES
Each Fund pays its own expenses including, without limitation: (i)
organizational and offering expenses of the Fund and expenses incurred in
connection with the issuance of shares of the Fund; (ii) fees of its custodian
and transfer agent; (iii) expenditures in connection with meetings of
shareholders and Trustees; (iv) compensation and expenses of Trustees who are
not interested persons of the Trust; (v) the costs of any liability,
uncollectible items of deposit and other insurance or fidelity bond; (vi) the
cost of preparing, printing, and distributing prospectuses and statements of
additional information, any supplements thereto, proxy statements, and reports
for existing shareholders; (vii) legal, auditing, and accounting fees; (viii)
trade association dues; (ix) filing fees and expenses of registering and
maintaining registration of shares of the Fund under applicable federal and
state securities laws; (x) brokerage commissions; (xi) taxes and governmental
fees; and (xii) extraordinary and non-recurring expenses.
43
<PAGE>
DISTRIBUTION ARRANGEMENTS
Conseco Equity Sales, Inc. (the "Distributor") serves as the principal
underwriter for each Fund pursuant to an Underwriting Agreement, dated January
2, 1997 as amended December 31, 1997. The Distributor is a registered
broker-dealer and member of the National Association of Securities Dealers, Inc.
("NASD"). Shares of each Fund will be continuously offered and will be sold by
brokers, dealers or other financial intermediaries who have executed selling
agreements with the Distributor. Subject to the compensation arrangement
discussed below, the Distributor bears all the expenses of providing services
pursuant to the Underwriting Agreement, including the payment of the expenses
relating to the distribution of Prospectuses for sales purposes and any
advertising or sales literature. The Underwriting Agreement continues in effect
for two years from initial approval and for successive one-year periods
thereafter, provided that each such continuance is specifically approved (i) by
the vote of a majority of the Trustees of the Trust or by the vote of a majority
of the outstanding voting securities of a Fund and (ii) by a majority of the
Trustees who are not "interested persons" of the Trust (as that term is defined
in the 1940 Act). The Distributor is not obligated to sell any specific amount
of shares of any Fund.
For the fiscal year ended December 31, 1997, the Distributor received as
compensation for the sale of Conseco Asset Allocation Fund A shares $20,746, of
which amount it retained $2,338 and reallowed $18,407. For the fiscal year ended
December 31, 1997, the Distributor received as compensation for the sale of
Conseco Equity Fund A shares $37,114, of which amount it retained $3,566 and
reallowed $33,547. For the fiscal year ended December 31, 1997, the Distributor
received as compensation for the sale of Conseco Fixed Income Fund A shares
$4,196, of which amount it retained $452 and reallowed $3,743.
The Distributor's principal address is 11815 N. Pennsylvania Street, Carmel,
Indiana 46032.
DISTRIBUTION AND SERVICE PLAN
The Trust has adopted distribution and service plans dated March 28, 1997 with
respect to the Class A shares of the Conseco Equity Fund, Conseco Asset
Allocation Fund and Conseco Fixed Income Fund, and dated December 31, 1997 with
respect to each other class of Fund shares (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 Plans, each Fund may compensate the Distributor for its
expenditures in financing any activity primarily intended to result in the sale
of each such class of Fund shares and for maintenance and personal service
provided to existing shareholders of that class. The Plans authorize payments to
the Distributor up to 0.50% annually of each Fund's (except for the Conseco
Fixed Income Fund's) average daily net assets attributable to its Class A
shares. The Conseco Fixed Income Fund's Plan authorizes payments to the
Distributor up to 0.65% annually of that Fund's average daily net assets
attributable to its Class A shares. The Plans authorize payments to the
Distributor up to 1.00% annually of each Fund's average daily net assets
44
<PAGE>
attributable to its Class B shares. The Plans authorize payments to the
Distributor up to 1.00% annually of each Fund's average daily net assets
attributable to its Class C shares. See "Management - The Adviser" above
regarding the Distributor's voluntary agreement to waive its fees and/or
reimburse Fund expenses.
For the fiscal year ended December 31, 1997, the 12b-1 fees attributable to
Class A shares of the Conseco Equity Fund, Conseco Asset Allocation Fund and the
Conseco Fixed Income Fund were $9,508, $2,149 and $1,984, 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 by
Class A, Class B or Class C of a Fund for shareholder servicing may not exceed
an annual rate of .25% of the average daily net asset value of Fund shares of
that class owned by clients of such broker, dealer or financial intermediary.
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 Plan 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
higher levels of sales and lower levels of redemptions of Class A, Class B and
Class C shares of each Fund, economies of scale, reduced expense ratios and
greater portfolio diversification.
Under 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.
45
<PAGE>
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase or redemption of Fund shares, see the
Prospectus.
RIGHTS OF ACCUMULATION. Each Fund offers to all qualifying investors rights of
accumulation under which investors are permitted to purchase Class A shares of
any Fund at the price applicable to the total of (a) the dollar amount then
being purchased plus (b) an amount equal to the then current net asset value of
the purchaser's holdings of shares of the Funds, or shares of the money market
fund currently managed by Federated Management (derived from the exchange of
Fund shares on which an initial sales charge was paid). Acceptance of the
purchase order is subject to confirmation of qualification. The rights of
accumulation may be amended or terminated at any time as to subsequent
purchases.
LETTER OF INTENT. Any shareholder may qualify for a reduced sales charge on
purchases of Class A shares made within a 13-month period pursuant to a Letter
of Intent (LOI). Class A shares acquired through the reinvestment of
distributions do not constitute purchases for purposes of the LOI. A Class A
shareholder may include, as an accumulation credit towards the completion of
such LOI, the value of all shares of all Funds of the Trust owned by the
shareholder. Such value is determined based on the net asset value on the date
of the LOI. During the term of an LOI, Boston Financial Data Services ("BFDS"),
the Trust's transfer agent, will hold shares in escrow to secure payment of the
higher sales charge applicable for shares actually purchased if the indicated
amount on the LOI is not purchased. Dividends and capital gains will be paid on
all escrowed shares and these shares will be released when the amount indicated
on the LOI has been purchased. A LOI does not obligate the investor to buy or
the Fund to sell the indicated amount of the LOI. If a Class A shareholder
exceeds the specified amount of the LOI and reaches an amount which would
qualify for a further quantity discount, a retroactive price adjustment will be
made at the time of the expiration of the LOI. The resulting difference in
offering price will purchase additional Class A shares for the shareholder's
account at the applicable offering price. If the specified amount of the LOI is
not purchased, the shareholder shall remit to BFDS an amount equal to the
difference between the sales charge paid and the sales charge that would have
been paid had the aggregate purchases been made at a single time. If the Class A
shareholder does not within 20 days after a written request by BFDS pay such
difference in sales charge, BFDS will redeem an appropriate number of escrowed
shares in order to realize such difference. Additional information about the
terms of the LOI are available from your broker, dealer or other financial
intermediary or from BFDS at (800) 986-3384.
SYSTEMATIC WITHDRAWAL PLAN. The Systematic Withdrawal Plan ("SWP") is designed
to provide a convenient method of receiving fixed payments at regular intervals
from Class A, Class B and Class C shares of a Fund deposited by the applicant
under this SWP. The applicant must deposit or purchase for deposit shares of the
Fund having a total value of not less than $5,000. Periodic checks of $50 or
more will be sent to the applicant, or any person designated by him, monthly or
quarterly. Redemptions of Class B or Class C shares under the SWP will not be
46
<PAGE>
subject to any contingent deferred sales charge so long as a shareholder does
not withdraw annually more than 12% of the SWP account.
Any income dividends or capital gain distributions on shares under the SWP will
be credited to the SWP account on the payment date in full and fractional shares
at the net asset value per share in effect on the record date.
SWP payments are made from the proceeds of the redemption of shares deposited in
a SWP account. Redemptions are taxable transactions to shareholders. To the
extent that such redemptions for periodic withdrawals exceed dividend income
reinvested in the SWP account, such redemptions will reduce and may ultimately
exhaust the number of shares deposited in the SWP account. In addition, the
amounts received by a shareholder cannot be considered as an actual yield or
income on his or her investment because part of such payments may be a return of
his or her capital.
The SWP may be terminated at any time (1) by written notice to the Fund or from
the Fund to the shareholder; (2) upon receipt by the Fund of appropriate
evidence of the shareholder's death; or (3) when all shares under the SWP have
been redeemed. The fees of the Fund for maintaining SWPs are paid by the Fund.
REDEMPTIONS IN KIND
Each Fund is obligated to redeem shares for any shareholder for cash during any
90-day period up to $250,000 or 1% of the net assets of the Fund, whichever is
less. Any redemptions beyond this amount also will be in cash unless the Board
determines that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Fund will pay all or a portion of
the remainder of the redemptions in portfolio instruments, valued in the same
way as the Fund determines net asset value. The portfolio instruments will be
selected in a manner that the Board deems fair and equitable. A redemption in
kind is not as liquid as a cash redemption. If a redemption is made in kind, a
shareholder receiving portfolio instruments could incur certain transaction
costs.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend a shareholder's right of redemption, or postpone payment
for a redemption for more than seven days, unless the NYSE is closed for other
than customary weekends or holidays; trading on the NYSE is restricted; for any
period during which an emergency exists as a result of which (1) disposition by
a Fund of securities owned by it is not reasonably practicable, or (2) it is not
reasonably practicable for a Fund to fairly determine the value of its assets;
or for such other periods as the SEC may permit for the protection of investors.
47
<PAGE>
GENERAL
The Trustees themselves have the power to alter the number and terms of office
of the Trustees, and they may at any time lengthen their own terms or make their
terms of unlimited duration (subject to certain removal procedures) and appoint
their own successors, provided that always at least a majority of the Trustees
have been elected by the shareholders of the Trust. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees. The Trust
is not required to hold annual meetings of shareholders for action by
shareholders' vote except as may be required by the 1940 Act or the Declaration
of Trust. The Declaration of Trust provides that shareholders can remove
Trustees by a vote of two-thirds of the vote of the outstanding shares. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the holders of 10% of the Trust's shares. In
addition, 10 or more shareholders meeting certain conditions and holding the
lesser of $25,000 worth or 1% of the Trust's shares may advise the Trustees in
writing that they wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then either give
those shareholders access to the shareholder list or, if requested by those
shareholders, mail at the shareholders' expense the shareholders' communication
to all other shareholders.
Each issued and outstanding share of each class of a Fund is entitled to
participate equally in dividends and other distributions of the respective class
of the Fund and, upon liquidation or dissolution, in the net assets of that
class remaining after satisfaction of outstanding liabilities. The shares of
each Fund have no preference, preemptive or similar rights, and are freely
transferable. The exchange privilege for each class and the conversion rights of
Class B shares are described in the Prospectus.
Under Rule 18f-2 under the 1940 Act, as to any investment company which has two
or more series (such as the Funds) outstanding and as to any matter required to
be submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a majority of the
outstanding voting securities of each series affected by the matter. Such
separate voting requirements do not apply to the election of Trustees, the
ratification of the contract with the principal underwriter or the ratification
of the selection of accountants. The rule contains special provisions for cases
in which an advisory contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series. Under Rule 18f-3 under the 1940 Act,
each class of a Fund shall have a different arrangement for shareholder services
or the distribution of securities or both and shall pay all of the expenses of
that arrangement, shall have exclusive voting rights on any matters submitted to
shareholders that relate solely to a particular class' arrangement, and shall
have separate voting rights on any matters submitted to shareholders in which
the interests of one class differ from the interests of any other class.
48
<PAGE>
Under Massachusetts law, shareholders of the Trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. The Declaration of Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or its Trustees. The Declaration of Trust
provides for indemnification and reimbursement of expenses out of Trust property
for any shareholder held personally liable for its obligations. The Declaration
of Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust
and satisfy any judgment thereon. Thus, while Massachusetts law permits a
shareholder of the Trust to be held personally liable as a partner under certain
circumstances, the risk of a shareholder's incurring financial loss on account
of shareholder liability is highly unlikely and is limited to the relatively
remote circumstances in which the Trust would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Trust and the Adviser have Codes of Ethics governing the personal securities
transactions of officers and employees. These codes require prior approval for
certain transactions and prohibit transactions which may be deemed to conflict
with the securities trading of the Adviser's clients.
TAXES
GENERAL
To qualify or continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"),
each Fund -- which is treated as a separate corporation for these purposes --
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. For each Fund, these requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or those currencies ("Income
Requirement"); and (2) at the close of each quarter of the Fund's taxable year,
(i) at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. Government securities, securities of other RICs and other
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities, and (ii) not more than 25% of the value of its total assets may be
invested in securities (other than U.S. Government securities or the securities
49
<PAGE>
of other RICs) of any one issuer. The Conseco International Fund, as an investor
in the Portfolio, is deemed to own a proportionate share of the Portfolio's
assets, and to earn a proportionate share of the Portfolio's income, for
purposes of determining whether the Fund satisfies the requirements described
above to qualify as a RIC.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
Distributions, if any, in excess of a Fund's current or accumulated earnings and
profits, as computed for federal income tax purposes, will constitute a return
of capital, which first will reduce a shareholder's tax basis in the Fund's
shares and then (after such basis is reduced to zero) generally will give rise
to capital gains. Under the Taxpayer Relief Act of 1997 ("Tax Act"), different
maximum tax rates apply to a non-corporate taxpayer's net capital gain (the
excess of net long-term capital gain over net short-term capital loss) depending
on the taxpayer's holding period and marginal rate of federal income tax --
generally, 28% for gain recognized on capital assets held for more than one year
but not more than 18 months and 20% (10% for taxpayers in the 15% marginal tax
bracket) for gain recognized on capital assets held for more than 18 months.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
At the time of an investor's purchase of shares of a Fund, a portion of the
purchase price is often attributable to unrealized appreciation in the Fund's
portfolio or undistributed taxable income. Consequently, subsequent
distributions from that appreciation (when realized) or income may be taxable to
the investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for the shares
and the distributions in reality represent a return of a portion of the purchase
price.
Each Fund will be subject to a nondeductible 4% federal excise tax ("Excise
Tax") on certain amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum distribution
requirements. Each Fund intends under normal circumstances to avoid liability
for such tax by satisfying those distribution requirements.
THE RELATIONSHIP OF THE CONSECO INTERNATIONAL FUND AND THE PORTFOLIO
The Portfolio has received a ruling from the Internal Revenue Service
("Service") to the effect that, among other things, the Portfolio is treated as
a separate partnership for federal income tax purposes and is not a "publicly
traded partnership." As a result, the Portfolio is not subject to federal income
tax; instead, each investor in the Portfolio, such as the Conseco International
Fund, is required to take into account in determining its federal income tax
liability its share of the Portfolio's income, gains, losses, deductions,
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credits and tax preference items, without regard to whether it has received any
cash distributions from the Portfolio. Because each investor in the Portfolio
that intends to qualify as a RIC (such as the Conseco International Fund) is
deemed to own a proportionate share of the Portfolio's assets, and to earn a
proportionate share of the Portfolio's income, for purposes of determining
whether the investor satisfies the requirements described above to qualify as a
RIC, the Portfolio intends to conduct its operations so that those investors
will be able to satisfy all those requirements.
Distributions to the Conseco International Fund from the Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
the Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds the Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, and
(3) loss will be recognized if a liquidation distribution consists solely of
cash and/or unrealized receivables. The Fund's basis for its interest in the
Portfolio generally will equal the amount of cash the Fund invests in the
Portfolio, increased by the Fund's share of the Portfolio's net income and gains
and decreased by (a) the amount of cash and the basis of any property the
Portfolio distributes to the Fund and (b) the Fund's share of the Portfolio's
losses.
INCOME FROM FOREIGN SECURITIES
Dividends and interest received by a Fund or the Portfolio, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield
and/or total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of the Conseco International
Fund's total assets (taking into account its proportionate share of the
Portfolio's assets) at the close of any taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the Service that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to its proportionate share of any
foreign taxes paid by the Portfolio ("Fund's foreign taxes"). Pursuant to that
election, the Fund would treat its foreign taxes as dividends paid to its
shareholders, and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his proportionate share of the Fund's foreign
taxes, (2) treat his share of those taxes and of any dividend paid by the Fund
that represents its proportionate share of the Portfolio's income from foreign
or U.S. possessions sources as his own income from those sources, and (3) either
deduct the taxes deemed paid by him in computing his taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against his federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's foreign
taxes and income (taking into account its proportionate share of the Portfolio's
income) from sources within foreign countries and U.S. possessions if it makes
this election. Pursuant to the Tax Act, individuals who have no more than $300
($600 for married persons filing jointly) of creditable foreign taxes included
on Forms 1099 and all of whose foreign source income is "qualified passive
income" may elect each year to be exempt from the extremely complicated foreign
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tax credit limitation and will be able to claim a foreign tax credit without
having to file the detailed Form 1116 that otherwise is required.
Each Fund and the Portfolio may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (I.E., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which a Fund or the Portfolio is a U.S. shareholder
(not effective in the case of the Conseco International Fund and the Portfolio
until after October 31, 1998) -- that, in general, meets either of the following
tests: (1) at least 75% of its gross income is passive or (2) an average of at
least 50% of its assets produce, or are held for the production of, passive
income. Under certain circumstances, a Fund will be subject to federal income
tax on a part (or, in the case of the Conseco International Fund, its
proportionate share of a part) of any "excess distribution" received by it (or
in the case of the Conseco International Fund, by the Portfolio) on the stock of
a PFIC or of any gain on the Fund's (or in the case of the Conseco International
Fund, the Portfolio's) disposition of the stock (collectively "PFIC income"),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. The
Portfolio currently does not intend to acquire stock in companies that are
considered PFICs.
If a Fund or the Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund, or in the Portfolio's case the Conseco
International Fund, would be required to include in income each year its pro
rata share (taking into account, in the case of the Conseco International Fund,
its proportionate share of the Portfolio's pro rata share) of the QEF's annual
ordinary earnings and net capital gain -- which likely would have to be
distributed by the Fund, or in the Portfolio's case the Conseco International
Fund, to satisfy the Distribution Requirement and avoid imposition of the Excise
Tax -- even if those earnings and gain were not distributed thereto by the QEF.
In most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Each Fund and the Portfolio (in the case of the latter and the Conseco
International Fund, after the taxable year ending October 31, 1998) may elect to
"mark to market" its stock in any PFIC. "Marking-to-market," in this context,
means including in ordinary income each taxable year the excess, if any, of the
fair market value of the PFIC's stock over the adjusted basis therein as of the
end of that year. Pursuant to the election, a Fund or the Portfolio also will be
allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of its
adjusted basis in PFIC stock over the fair market value thereof as of the
taxable year-end, but only to the extent of any net mark-to-market gains with
respect to that stock included in income for prior taxable years. The adjusted
basis in each PFIC's stock with respect to which this election is made will be
adjusted to reflect the amounts of income included and deductions taken under
the election.
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Foreign exchange gains and losses realized by a Fund or the Portfolio in
connection with certain transactions involving foreign currency-denominated debt
securities, certain foreign currency futures and options, foreign currency
positions and payables or receivables (e.g., dividends or interest receivable)
denominated in a foreign currency are subject to section 988 of the Code, which
generally causes those gains and losses to be treated as ordinary income and
losses and may affect the amount, timing and character of distributions to
shareholders. Any gains from the disposition of foreign currencies could, under
future Treasury regulations, produce income that is not "qualifying income"
under the Income Requirement.
INVESTMENTS IN DEBT SECURITIES
If a Fund or the Portfolio invests in zero coupon securities, payment-in-kind
securities and/or certain deferred interest securities (and, in general, any
other securities with original issue discount or with market discount if an
election is made to include market discount in income currently), it must accrue
income on those investments prior to the receipt of cash payments or interest
thereon. However, each Fund must distribute to its shareholders, at least
annually, all or substantially all of its investment company taxable income,
including such accrued discount and other non-cash income (including, in the
case of the Conseco International Fund, its proportionate share of such income
of the Portfolio), to satisfy the Distribution Requirement and avoid imposition
of the Excise Tax. Therefore, a Fund or the Portfolio may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to make the necessary
distributions.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Fund or the Portfolio that holds such obligations.
Tax rules are not entirely clear about issues such as when a Fund or the
Portfolio may cease to accrue interest, original issue discount or market
discount, when and to what extent deductions may be taken for bad debts or
worthless securities, how payments received on obligations in default should be
allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by any Fund that holds such obligations (including the Conseco
International Fund if the Portfolio holds any such obligations) in order to seek
to reduce the risk of distributing insufficient income to qualify for treatment
as a RIC and of becoming subject to federal income tax or the Excise Tax.
HEDGING STRATEGIES
The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the amount, character and
timing of recognition of the gains and losses a Fund realizes in connection
therewith. Gains from options, futures and forward contracts derived by a Fund
(or, in the case of the Conseco International Fund, by the Portfolio) with
respect to its business of investing in securities or foreign currencies -- and
as noted above, gains from the disposition of foreign currencies (except certain
gains that may be excluded by future regulations) -- will qualify as permissible
income under the Income Requirement.
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Certain futures and foreign currency contracts in which the Funds or the
Portfolio may invest will be "section 1256 contracts." Section 1256 contracts
held by a Fund or the Portfolio at the end of each taxable year, other than
section 1256 contracts that are part of a "mixed straddle" with respect to which
a Fund or the Portfolio has made an election not to have the following rules
apply, must be marked-to-market (that is, treated as sold for their fair market
value) for federal income tax purposes, with the result that unrealized gains or
losses will be treated as though they were realized. Sixty percent of any net
gain or loss recognized on these deemed sales, and 60% of any net realized gain
or loss from any actual sales of section 1256 contracts, will be treated as
long-term capital gain or loss, and the balance will be treated as short-term
capital gain or loss. As of the date of this SAI, it is not entirely clear
whether that 60% portion will qualify for the reduced maximum tax rates on
non-corporate taxpayers' net capital gain enacted by the Tax Act noted above,
although technical corrections legislation passed by the House of
Representatives late in 1997 would clarify that those rates apply. Section 1256
contracts also may be marked-to-market for purposes of the Excise Tax.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Funds and the Portfolio may invest.
Section 1092 defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent the
loss exceeds the unrealized gain on the offsetting position(s) of the straddle.
Section 1092 also provides certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If a Fund or the Portfolio makes certain elections, the amount,
character and timing of recognition of gains and losses from the affected
straddle positions would be determined under rules that vary according to the
elections made. Because only a few of the regulations implementing the straddle
rules have been promulgated, the tax consequences to the Funds of straddle
transactions are not entirely clear.
If a Fund or the Portfolio has an "appreciated financial position" -- generally,
an interest (including an interest through an option, futures or forward
contract, or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund or the Portfolio will be treated as
having made an actual sale thereof, with the result that gain will be recognized
at that time. A constructive sale generally consists of a short sale, an
offsetting notional principal contract or futures or forward contract entered
into by a Fund or the Portfolio or a related person with respect to the same or
substantially similar property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.
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The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates) subject to tax under that law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of the shares of a Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Funds in their particular
circumstances.
OTHER INFORMATION
CUSTODIAN
The Bank of New York, 90 Washington Street, 22nd Floor, New York, New York
10826, serves as custodian of the assets of each Fund (except the Conseco
International Fund). State Street Bank and Trust Company ("State Street") serves
as custodian of the assets of the Conseco International Fund and of the
International Portfolio.
TRANSFER AGENCY SERVICES
State Street is the transfer agent for each Fund.
INDEPENDENT ACCOUNTANTS/AUDITORS
Coopers & Lybrand L.L.P., 2900 One American Square, Box 82002, Indianapolis,
Indiana 46282-0002 serves as the Trust's independent accountant. The independent
auditors of the International Portfolio are Ernst & Young LLP, Dallas, Texas.
FINANCIAL STATEMENTS
Audited financial statements for the Conseco Equity Fund, the Conseco Asset
Allocation Fund and the Conseco Fixed Income Fund for the fiscal year ended
December 31, 1997 are incorporated by reference from the Trust's annual report
to shareholders.
Audited financial statements for the International Equity Portfolio for the
fiscal year ended October 31, 1997 are incorporated by reference from the
American AAdvantage Funds' Annual Report to Shareholders for the period ended
October 31, 1997.
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STATEMENT OF ADDITIONAL INFORMATION
CONSECO FUND GROUP
CONSECO FIXED INCOME FUND
CONSECO HIGH YIELD FUND
CONSECO ASSET ALLOCATION FUND
CONSECO EQUITY FUND
CONSECO INTERNATIONAL FUND
CONSECO 20 FUND
CLASS Y SHARES
MAY 1, 1998
This Statement of Additional Information ("SAI") is not a prospectus. It
contains additional information about the Conseco Fund Group (the "Trust") and
the six series of the Trust: Conseco Fixed Income Fund, Conseco High Yield Fund,
Conseco Asset Allocation Fund, Conseco Equity Fund, Conseco International Fund,
and Conseco 20 Fund (each a "Fund" and collectively the "Funds"). It should be
read in conjunction with the Funds' Class Y prospectus (the "Prospectus"), dated
May 1, 1998. You may obtain a copy by contacting the Trust's Administrative
Office, 11815 N. Pennsylvania Street, Carmel, Indiana 46032.
TABLE OF CONTENTS
PAGE
General Information........................................................
Investment Restrictions....................................................
Description of Securities and Investment Techniques........................
Investment Performance.....................................................
Securities Transactions....................................................
Management.................................................................
Control Persons and Principal Holders of Securities........................
Fund Expenses .............................................................
Distribution Arrangements..................................................
Purchase and Redemption of Shares..........................................
General....................................................................
Taxes......................................................................
Other Information..........................................................
Financial Statements.......................................................
<PAGE>
GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust on September 24, 1996.
The Trust is an open-end management investment company registered with the
Securities and Exchange Commission ("SEC") under the Investment Company Act of
1940 (the "1940 Act"). The Trust is a "series" type of mutual fund which issues
separate series of shares, each of which represents a separate portfolio of
investments. Each Fund offers four classes of shares. This SAI relates solely to
Class Y shares of the Funds. Class A shares, Class B shares and Class C shares
are offered to individual investors through a separate prospectus and SAI. Each
class may have different expenses, which may affect performance. Conseco Capital
Management, Inc. (the "Adviser") serves as the Trust's investment adviser. The
Conseco International Fund invests all of its investable assets in the
International Equity Portfolio (the "Portfolio" or the "International
Portfolio") of AMR Investment Services Trust ("AMR Trust"). The Portfolio is a
separate investment company managed by AMR Investment Services, Inc. ("AMR").
INVESTMENT RESTRICTIONS
The Trust and the AMR Trust have adopted the following policies relating to the
investment of assets of the Funds and the Portfolio, respectively, and their
activities. These are fundamental policies and may not be changed without the
approval of the holders of a "majority" of the outstanding shares of the
affected Fund or the outstanding interests of the Portfolio. Under the 1940 Act,
the vote of such a "majority" means the vote of the holders of the lesser of (i)
67 percent of the shares or interests represented at a meeting at which more
than 50 percent of the outstanding shares or interests are represented or (ii)
more than 50 percent of the outstanding shares or interests. A change in policy
affecting only one Fund or the Portfolio may be effected with the approval of
the holders of a majority of the outstanding shares of the Fund or the
Portfolio. Except for the limitation on borrowing, any investment policy or
limitation that involves a maximum percentage of securities or assets will not
be considered to be violated unless the percentage limitation is exceeded
immediately after, and because of, a transaction by a Fund or the Portfolio.
CONSECO EQUITY, CONSECO ASSET ALLOCATION AND CONSECO FIXED INCOME FUNDS
The Conseco Equity, Conseco Asset Allocation and Conseco Fixed Income Funds 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
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rate futures contracts, stock index futures, futures contracts based on
other financial instruments, and options on such futures contracts; and
(b) Conseco Asset Allocation Fund may engage in futures contracts on gold;
3. Borrow money or pledge, mortgage, or assign assets, except that a Fund
may: (a) borrow from banks, but only if immediately after each
borrowing and continuing thereafter it will have an asset coverage of
at least 300 percent; (b) enter into reverse repurchase agreements,
options, futures, options on futures contracts, foreign 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 (as defined in the Prospectus);
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 (as defined in the Prospectus), or repurchase
agreements as to these securities, shall not be considered investments in
an industry;
10. Purchase or sell real estate, except that it may purchase marketable
securities which are issued by companies which invest in real estate or
interests therein;
11. Make loans of its assets, except the Funds may enter into repurchase
agreements and lend portfolio securities in an amount not to exceed 15% of
the value of a Fund's total assets. Any loans of portfolio securities will
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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.
CONSECO 20 AND CONSECO HIGH YIELD FUNDS
The Conseco 20 and Conseco High Yield Funds may not (except as noted):
1. Purchase or sell commodities or commodity contracts except that a Fund may
purchase or sell options, futures contracts, and options on futures
contracts and may engage in interest rate and foreign currency
transactions;
2. Borrow money, except that a Fund may: (a) borrow from banks, and (b) enter
into reverse repurchase agreements, provided that (a) and (b) in
combination do not exceed 33-1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than borrowings);
and except that a Fund may borrow from any person up to 5% of its total
assets (not including the amount borrowed) for temporary purposes (but not
for leverage or the purchase of investments);
3. Underwrite securities of other issuers except to the extent that a Fund
may be deemed an underwriter under the Securities Act of 1933 (the "1933
Act") in connection with the purchase or sale of portfolio securities;
4. With respect to 75% of the Conseco High Yield Fund's total assets,
purchase the securities of any issuer if (a) more than 5% of Fund's total
assets would be invested in the securities of that issuer or (b) the Fund
would own more than 10% of the outstanding voting securities of that
issuer; this restriction does not apply to U.S. Government securities (as
defined in the Prospectus);
5. Purchase any security if thereafter 25% or more of the total assets of the
Fund would be invested in securities of issuers having their principal
business activities in the same industry; this restriction does not apply
to U.S. Government securities (as defined in the Prospectus);
6. Purchase or sell real estate, except that a Fund may purchase securities
which are issued by companies which invest in real estate or which are
secured by real estate or interests therein;
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7. Make loans of its assets if, as a result, more than 33-1/3% of the Fund's
total assets would be lent to other parties except through (a) entering
into repurchase agreements and (b) purchasing debt instruments; or
8. Issue any senior security, except as permitted under the 1940 Act.
CONSECO INTERNATIONAL FUND
The Conseco International Fund has the following fundamental investment policy
that enables it to invest in the Portfolio:
Notwithstanding any other limitation, the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives, policies and limitations as
the Fund. For this purpose, "all of the Fund's investable assets" means
that the only investment securities that will be held by the Fund will be
the Fund's interest in the investment company.
All other fundamental investment policies and the non-fundamental investment
policies of the Conseco International Fund and the Portfolio are identical
(except, as noted below, their policies on borrowing).
In addition to the investment limitations noted in the Prospectus, the following
seven restrictions have been adopted by the Conseco International Fund and the
Portfolio and may be changed only by the majority vote of the outstanding shares
of the Fund or the outstanding interests of the Portfolio. Whenever the Conseco
International Fund is requested to vote on a change in the investment
restrictions of the Portfolio, the Fund will hold a meeting of its shareholders
and will cast its votes as instructed by its shareholders. The percentage of the
Fund's votes representing the Fund's shareholders not voting will be voted by
the Fund in the same proportion as those Fund shareholders who do, in fact,
vote.
The Conseco International Fund may not (although the following discusses the
investment policies of the Fund, except as noted, it applies equally to the
Portfolio):
1. Purchase or sell real estate or real estate limited partnership interests,
provided, however, that the Fund may invest in securities secured by real
estate or interests therein or issued by companies which invest in real
estate or interests therein when consistent with the other policies and
limitations described in its Prospectus;
2. Purchase or sell commodities (including direct interests and/or leases in
oil, gas or minerals) or commodities contracts, except with respect to
forward foreign currency exchange contracts, foreign currency futures
contracts and when-issued securities when consistent with the other
policies and limitations described in its Prospectus;
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3. Engage in the business of underwriting securities issued by others, except
to the extent that, in connection with the disposition of securities, the
Fund may be deemed an underwriter under federal securities law;
4. Make loans to any person or firm, provided, however, that the making
of a loan shall not be construed to include (i) the acquisition for
investment of bonds, debentures, notes or other evidences of
indebtedness of any corporation or government which are publicly
distributed or (ii) the entry into repurchase agreements and further
provided, however, that the Fund may lend its securities to
broker-dealers or other institutional investors in accordance with the
guidelines stated in its Prospectus;
5. Purchase from or sell securities to its officers, Trustees or other
"interested persons" of the Trust, as defined in the 1940 Act, including
its investment adviser(s) and their affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder;
6. Issue senior securities except that the Fund may engage in when-issued
securities and forward commitment transactions and may engage in currency
futures and forward currency contracts; or
7. Borrow money, except that the Fund may: (a) borrow from banks, and (b)
enter into reverse repurchase agreements, provided that (a) and (b) in
combination do not exceed 33-1/3% of the value of its total assets
(including the amount borrowed) less liabilities (other than
borrowings); and except that the Fund may borrow up to 5% of its total
assets (not including the amount borrowed) for temporary purposes (but
not for leverage or the purchase of investments). (This policy does
not apply to the Portfolio.)
As a matter of fundamental policy, the International Portfolio may borrow from
banks or through reverse repurchase agreements for temporary purposes in an
aggregate amount not to exceed 10% of the value of its total assets at the time
of borrowing. Because this policy may only be changed by the majority vote of
the outstanding interests in the Portfolio, before any change could be adopted,
the Fund would seek voting instructions from its shareholders. So long as the
Conseco International Fund invests all of its investable assets in the
Portfolio, the Fund intends to follow the 10% limitation set forth in the
Portfolio's fundamental policy. In addition, although not a fundamental policy,
the Portfolio intends to repay any money borrowed before any additional
portfolio securities are purchased.
NONFUNDAMENTAL INVESTMENT RESTRICTIONS
The following restrictions are designated as nonfundamental with respect to the
Conseco Equity, Conseco Asset Allocation and Conseco Fixed Income Funds and may
be changed by the Trust's Board of Trustees ("Board") without shareholder
approval.
The Conseco Equity, Conseco Asset Allocation and Conseco Fixed Income Funds may
not (except as noted):
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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.
The following restrictions are designated as nonfundamental with respect to the
Conseco 20 and Conseco High Yield Funds and may be changed by the Board without
shareholder approval.
The Conseco 20 and Conseco High Yield Funds may not (except as noted):
1. Sell securities short in an amount exceeding 15% of its assets, except
that a Fund may, without limit, make short sales against the box.
Transactions in options, futures, options on futures and other derivative
instruments shall not constitute selling securities short;
2. Purchase securities on margin, except that a Fund may obtain such
short-term credits as are necessary for the clearance of securities
transactions and except that margin deposits in connection with
transactions in options, futures, options on futures and other derivative
instruments shall not constitute a purchase of securities on margin; or
3. Make loans of its assets, except that a Fund may enter into repurchase
agreements and purchase debt instruments as set forth in its fundamental
policy on lending and may lend portfolio securities in an amount not to
exceed 33 1/3% of the value of the Fund's total assets.
The following restrictions are designated as nonfundamental with respect to the
Conseco International Fund and the Portfolio and may be changed by the Board or
the AMR Trust's Board of Trustees ("AMR Trust Board") without shareholder
approval.
The Conseco International Fund may not (although the following discusses the
investment policies of the Fund, it applies equally to the Portfolio):
1. Purchase securities on margin;
2. Effect short sales (except that the Fund may obtain such short term
credits as necessary for the clearance of purchases or sales of
securities);
3. Purchase or sell call options or engage in the writing of such options; or
4. Invest more than 10% of its total assets in the securities of other
investment companies.
In order to limit the risks associated with entry into repurchase agreements,
the Board has adopted certain criteria (which are not fundamental policies) to
be followed by the Funds. These criteria provide for entering into repurchase
agreement transactions (a) only with banks or broker-dealers meeting certain
guidelines for creditworthiness, (b) that are fully collateralized, (c) on an
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approved standard form of agreement and (d) that meet limits on investments in
the repurchase agreements of any one bank, broker or dealer.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
The following discussion describes in greater detail different types of
securities and investment techniques used by the Funds, as well as the risks
associated with such securities and techniques. References in this section to "a
Fund" or "the Funds" or the "Conseco International Fund" include the
International Portfolio unless the context otherwise requires.
U.S. GOVERNMENT SECURITIES
U.S. Government securities are issued or guaranteed by the U.S. Government or
its agencies or instrumentalities.
The Inter-American Development Bank, the Asian-American Development Bank and the
International Bank for Reconstruction and Development (the "World Bank"), while
not U.S. Government agencies or instrumentalities, have the right to borrow from
the participating countries, including the United States.
ASSET-BACKED SECURITIES
Asset-backed securities represent fractional interests in pools of leases,
retail installment loans and revolving credit receivables, both secured and
unsecured. These assets are generally held by a trust. Payments of principal and
interest or interest only are passed through to certificate holders and may be
guaranteed up to certain amounts by letters of credit issued by a financial
institution affiliated or unaffiliated with the trustee or originator of the
trust.
Underlying automobile sales contracts or credit card receivables are subject to
prepayment, which may reduce the overall return to certificate holders.
Nevertheless, principal repayment rates tend not to vary much with interest
rates and the short-term nature of the underlying car loans or other receivables
tends to dampen the impact of any change in the prepayment level. Certificate
holders may experience delays in payment on the certificates if the full amounts
due on underlying sales contracts or receivables are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. Other asset-backed
securities may be developed in the future.
HIGH YIELD (HIGH RISK) SECURITIES (ALL FUNDS EXCEPT CONSECO INTERNATIONAL
FUND)
IN GENERAL. Higher yields are generally available from securities rated BB
or lower by Standard & Poor's ("S&P") or Ba or lower by Moody's Investors
Service, Inc. ("Moody's"), securities comparably rated by another nationally
recognized statistical rating organization ("NRSRO"), or unrated securities of
equivalent quality. Debt securities rated below investment grade (i.e., below
BBB/Baa) are deemed by the rating agencies to be predominantly speculative with
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respect to the issuer's capacity to pay interest and repay principal. High yield
securities, while generally offering higher yields than investment grade
securities with similar maturities, involve greater risks, including the
possibility of default or bankruptcy. The special risk considerations in
connection with investments in these securities are discussed below.
Subsequent to purchase by the Conseco Equity Fund, Conseco Asset Allocation
Fund, Conseco Fixed Income Fund or Conseco 20 Fund, an issue of debt securities
may cease to be rated or its rating may be reduced, so that the securities would
no longer be eligible for purchase by that Fund. In such a case, the Fund will
engage in an orderly disposition of the downgraded securities to the extent
necessary to ensure that its holdings do not exceed the permissible amount as
set forth in the Prospectus.
EFFECT OF INTEREST RATES AND ECONOMIC CHANGES. All interest-bearing
securities typically experience appreciation when interest rates decline and
depreciation when interest rates rise. The market values of high yield
securities tend to reflect individual corporate developments to a greater extent
than do higher rated securities, which react primarily to fluctuations in the
general level of interest rates. High yield securities also tend to be more
sensitive to economic conditions than are higher-rated securities. As a result,
they generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of high yield securities may experience
financial stress which may adversely affect their ability to service their debt
obligations, meet projected business goals, and obtain additional financing.
Periods of economic uncertainty and changes would also generally result in
increased volatility in the market prices of these securities and thus in a
Fund's net asset value.
PAYMENT EXPECTATIONS. High yield securities may contain redemption, call
or prepayment provisions which permit the issuer of such securities to, at its
discretion, redeem the securities. During periods of falling interest rates,
issuers of these securities are likely to redeem or prepay the securities and
refinance them with debt securities with a lower interest rate. To the extent an
issuer is able to refinance the securities, or otherwise redeem them, a Fund may
have to replace the securities with a lower yielding security, which would
result in a lower return.
CREDIT RATINGS. Credit ratings issued by credit-rating agencies are
designed to evaluate the safety of principal and interest payments of rated
securities. They do not, however, evaluate the market value risk of
lower-quality securities and, therefore, may not fully reflect the risks of an
investment. In addition, credit rating agencies may or may not make timely
changes in a rating to reflect changes in the economy or in the condition of the
issuer that affect the market value of the security. With regard to an
investment in high yield securities, the achievement of a Fund's investment
objective may be more dependent on the Adviser's own credit analysis than is the
case for higher rated securities. Although the Adviser considers security
ratings when making investment decisions, it does not rely solely on the ratings
assigned by the rating services. Rather, the Adviser performs research and
independently assesses the value of particular securities relative to the
market. The Adviser's analysis may include consideration of the issuer's
experience and managerial strength, changing financial condition, borrowing
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requirements or debt maturity schedules, and the issuer's responsiveness to
changes in business conditions and interest rates. It also considers relative
values based on anticipated cash flow, interest or dividend coverage, asset
coverage and earnings prospects.
The Adviser buys and sells debt securities principally in response to its
evaluation of an issuer's continuing ability to meet its obligations, the
availability of better investment opportunities, and its assessment of changes
in business conditions and interest rates.
LIQUIDITY AND VALUATION. High yield securities may lack an established
retail secondary market, and to the extent a secondary trading market does
exist, it may be less liquid than the secondary market for higher rated
securities. The lack of a liquid secondary market may negatively impact a Fund's
ability to dispose of particular securities. The lack of a liquid secondary
market for certain securities may also make it more difficult for a Fund to
obtain accurate market quotations for purposes of valuing the Fund's portfolio.
In addition, adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of high yield
securities, especially in a thinly traded market.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
New issues of certain debt securities are often offered on a when-issued or
delayed delivery basis; that is, the payment obligation and the interest rate
are fixed at the time the buyer enters into the commitment, but delivery and
payment for the securities normally take place after the customary settlement
time. The settlement dates of these transactions may be a month or more after
entering into the transaction. A Fund bears the risk that, on the settlement
date, the market value of the securities may be lower than the purchase price.
At the time a Fund makes a commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction and reflect the value of
such securities each day in determining the Fund's net asset value. However, a
Fund will not accrue any income on these securities prior to delivery. There are
no fees or other expenses associated with these types of transactions other than
normal transaction costs. To the extent a Fund engages in when-issued and
delayed delivery transactions, it will do so for the purpose of acquiring
instruments consistent with its investment objective and policies and not for
the purpose of investment leverage or to speculate on interest rate changes.
When effecting when-issued and delayed delivery transactions, cash or liquid
securities in an amount sufficient to make payment for the obligations to be
purchased will be segregated at the trade date and maintained until the
transaction has been settled. A Fund may dispose of these securities before the
issuance thereof. However, absent extraordinary circumstances not presently
foreseen, it is each Fund's policy not to divest itself of its right to acquire
these securities prior to the settlement date thereof.
VARIABLE AND FLOATING RATE SECURITIES
Variable rate securities provide for automatic establishment of a new interest
rate at fixed intervals (i.e., daily, monthly, semi-annually, etc.). Floating
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
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percentage of, a bank's prime rate, the 90-day U.S. Treasury bill rate, the rate
of return on commercial paper or bank certificates of deposit, an index of
short-term interest rates, or some other objective measure.
Variable or floating rate securities frequently include a demand feature
entitling the holder to sell the securities to the issuer at par value. In many
cases, the demand feature can be exercised at any time on seven days' notice; in
other cases, the demand feature is exercisable at any time on 30 days' notice or
on similar notice at intervals of not more than one year.
BANKING AND SAVINGS INDUSTRY OBLIGATIONS
Such obligations include certificates of deposit, time deposits, bankers'
acceptances, and other short-term debt obligations issued by commercial banks
and savings and loan associations ("S&Ls"). Certificates of deposit are receipts
from a bank or an S&L for funds deposited for a specified period of time at a
specified rate of return. Time deposits in banks or S&Ls are generally similar
to certificates of deposit, but are uncertificated. Bankers' acceptances are
time drafts drawn on commercial banks by borrowers, usually in connection with
international commercial transactions. The Funds may each invest in obligations
of foreign branches of domestic commercial banks and foreign banks; provided,
however, that the Conseco Equity and Conseco Fixed Income Funds may invest in
these types of instruments so long as they are U.S. dollar denominated. See
"Foreign Securities" in the Prospectus for information regarding risks
associated with investments in foreign securities.
The Funds, with the exception of the Conseco International Fund, will not invest
in obligations issued by a commercial bank or S&L unless:
1. The bank or S&L has total assets of at least $1 billion, or the equivalent
in other currencies, and the institution has outstanding securities rated A
or better by Moody's or S&P, or, if the institution has no outstanding
securities rated by Moody's or S&P, it has, in the determination of the
Adviser, similar creditworthiness to institutions having outstanding
securities so rated;
2. In the case of a U.S. bank or S&L, its deposits are federally insured; and
3. In the case of a foreign bank, the security is, in the determination of the
Adviser, of an investment quality comparable with other debt securities
which may be purchased by the Fund. These limitations do not prohibit
investments in securities issued by foreign branches of U.S. banks,
provided such U.S. banks meet the foregoing requirements.
REPURCHASE AGREEMENTS
Repurchase agreements permit a Fund to maintain liquidity and earn income over
periods of time as short as overnight. In these transactions, a Fund purchases
securities (the "underlying securities") from a broker or bank, which agrees to
repurchase the underlying securities on a certain date or on demand and at a
fixed price calculated to produce a previously agreed upon return. If the broker
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or bank were to default on its repurchase obligation and the underlying
securities were sold for a lesser amount, the Fund would realize a loss. A
repurchase transaction will be subject to guidelines approved by the Board or
the AMR Trust Board, as appropriate. These guidelines require monitoring the
creditworthiness of counterparties to repurchase transactions, obtaining
collateral at least equal in value to the repurchase obligation, and marking the
collateral to market on a daily basis. Repurchase agreements maturing in more
than seven days may be considered illiquid and may be subject to each Fund's
limitation on investment in illiquid securities.
REVERSE REPURCHASE AGREEMENTS AND MORTGAGE DOLLAR ROLLS
A reverse repurchase agreement involves the temporary sale of a security by a
Fund and its agreement to repurchase the instrument at a specified time at a
higher price. Such agreements are short-term in nature. During the period before
repurchase, the Fund continues to receive principal and interest payments on the
securities.
In a mortgage dollar roll, a Fund sells a fixed income security for delivery in
the current month and simultaneously contracts to repurchase a substantially
similar security (same type, coupon and maturity) on a specified future date.
During the roll period, the Fund would forego principal and interest paid on
such securities. The Fund would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well as by
any interest earned on the proceeds of the initial sale.
In accordance with regulatory requirements, a Fund will segregate cash or liquid
securities whenever it enters into reverse repurchase agreements or mortgage
dollar rolls. Such transactions may be considered to be borrowings for purposes
of the Funds' fundamental policies concerning borrowings.
WARRANTS
The holder of a warrant has the right to purchase a given number of shares of a
security of a particular issuer at a specified price until expiration of the
warrant. Such investments provide greater potential for profit than a direct
purchase of the same amount of the securities. Prices of warrants do not
necessarily move in tandem with the prices of the underlying securities, and
warrants are considered speculative investments. They pay no dividends and
confer no rights other than a purchase option. If a warrant is not exercised by
the date of its expiration, a Fund would lose its entire investment in such
warrant.
INTEREST RATE TRANSACTIONS (ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND)
Each of these Funds 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
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increase in the price of securities a Fund anticipates purchasing at a later
date. Each Fund intends to use these transactions as a hedge and not as
speculative investments.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments. The purchase of an interest rate cap
entitles the purchaser, to the extent that a specified index exceeds a
predetermined interest rate, to receive payments on a notional principal amount
from the party selling such interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a notional
principal amount from the party selling such interest rate floor. An interest
rate collar combines elements of buying a cap and selling a floor.
A Fund may enter into interest rate swaps, caps, floors, and collars on either
an asset-based or liability-based basis depending on whether it is hedging its
assets or its liabilities, and will only enter into such transactions on a net
basis, i.e., the two payment streams are netted out, with a Fund receiving or
paying, as the case may be, only the net amount of the two payments. The amount
of the excess, if any, of a Fund's obligations over its entitlements with
respect to each interest rate swap, cap, floor, or collar will be accrued on a
daily basis and an amount of cash or liquid securities having an aggregate value
at least equal to the accrued excess will be maintained in a segregated account
by the custodian.
A Fund will not enter into any interest rate transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one NRSRO at the time of entering into
such transaction. If there is a default by the other party to such transaction,
a Fund will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
agents. As a result, the swap market has become well established and provides a
degree of liquidity. Caps, floors and collars are more recent innovations which
tend to be less liquid than swaps.
STEP DOWN PREFERRED SECURITIES
Step down perpetual preferred securities are issued by a real estate investment
trust ("REIT") making a mortgage loan to a single borrower. The dividend rate
paid by these securities is initially relatively high, but declines yearly. The
securities are subject to call if the REIT suffers an unfavorable tax event, and
to tender by the issuer's equity holder in the 10th year; both events could be
on terms unfavorable to the holder of the preferred securities. The value of
these securities will be affected by changes in the value of the underlying
mortgage loan. The REIT is not diversified, and the value of the mortgaged
property may not cover its obligations. Step down perpetual preferred securities
are considered restricted securities under the 1933 Act.
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LOAN PARTICIPATIONS AND ASSIGNMENTS
Loan participations and assignments are interests in loans originated by banks
and other financial institutions. Both the lending bank and the borrower may be
deemed to be "issuers" of a loan participation.
Although some of the loans may be secured, there is no assurance that the
collateral can be liquidated in particular cases, or that its liquidation value
will be equal to the value of the debt. Borrowers that are in bankruptcy may pay
only a small portion of the amount owed, if they are able to pay at all. Where a
Fund purchases a loan through an assignment, there is a possibility that the
Fund will, in the event the borrower is unable to pay the loan, become the owner
of the collateral. This involves certain risks to the Fund as a property owner.
Loans are often administered by a lead bank, which acts as agent for the lenders
in dealing with the borrower. In asserting rights against the borrower, a Fund
may be dependent on the willingness of the lead bank to assert these rights, or
upon a vote of all the lenders to authorize the action. Assets held by the lead
bank for the benefit of the Fund may be subject to claims of the lead bank's
creditors.
FUTURES CONTRACTS (ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND)
Each of these Funds may purchase and sell futures contracts solely for the
purpose of hedging against the effect that changes in general market conditions,
interest rates, and conditions affecting particular industries may have on the
values of securities held by a Fund or which a Fund intends to purchase, and not
for purposes of speculation. For information about foreign currency futures
contracts, see "Foreign Currency Transactions" below.
GENERAL DESCRIPTION OF FUTURES CONTRACTS. A futures contract provides for
the future sale by one party and purchase by another party of a specified amount
of a particular financial instrument (debt security) or commodity for a
specified price at a designated date, time, and place. Although futures
contracts by their terms require actual future delivery of and payment for the
underlying financial instruments, such contracts are usually closed out before
the delivery date. Closing out an open futures contract position is effected by
entering into an offsetting sale or purchase, respectively, for the same
aggregate amount of the same financial instrument on the same delivery date.
Where a Fund has sold a futures contract, if the offsetting price is more than
the original futures contract purchase price, the Fund realizes a gain; if it is
less, the Fund realizes a loss.
At the time a Fund enters into a futures contract, an amount of cash or liquid
securities, equal to the fair market value less initial margin of the futures
contract, will be deposited in a segregated account with the Trust's custodian
to collateralize the position and thereby ensure that such futures contract is
covered. A Fund may be required to deposit additional assets in the segregated
account in order to continue covering the contract as market conditions change.
A Fund may also be required to post additional "variation" margin. In addition,
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each Fund will comply with certain regulations of the Commodity Futures Trading
Commission to qualify for an exclusion from being a "commodity pool operator."
INTEREST RATE FUTURES CONTRACTS. An interest rate futures contract is an
obligation traded on an exchange or board of trade that requires the purchaser
to accept delivery, and the seller to make delivery, of a specified quantity of
the underlying financial instrument, such as U.S. Treasury bills and bonds, in a
stated delivery month at a price fixed in the contract.
The Funds may purchase and sell interest rate futures as a hedge against changes
in interest rates that would adversely impact the value of debt instruments and
other interest rate sensitive securities being held or to be purchased by a
Fund. A Fund might employ a hedging strategy whereby it would purchase an
interest rate futures contract when it intends to invest in long-term debt
securities but wishes to defer their purchase until it can orderly invest in
such securities or because short-term yields are higher than long-term yields.
Such a purchase would enable the Fund to earn the income on a short-term
security while at the same time minimizing the effect of all or part of an
increase in the market price of the long-term debt security which the Fund
intends to purchase in the future. A rise in the price of the long-term debt
security prior to its purchase either would be offset by an increase in the
value of the futures contract purchased by the Fund or avoided by taking
delivery of the debt securities under the futures contract.
A Fund would sell an interest rate futures contract to continue to receive the
income from a long-term debt security, while endeavoring to avoid part or all of
the decline in market value of that security which would accompany an increase
in interest rates. If interest rates rise, a decline in the value of the debt
security held by the Fund would be substantially offset by the ability of the
Fund to repurchase at a lower price the interest rate futures contract
previously sold. While the Fund could sell the long-term debt security and
invest in a short-term security, this would ordinarily cause the Fund to give up
income on its investment since long-term rates normally exceed short-term rates.
STOCK INDEX FUTURES CONTRACTS (CONSECO EQUITY, CONSECO ASSET ALLOCATION,
AND CONSECO 20 FUNDS). A stock index (for example, the Standard & Poor's 500
Composite Stock Price Index or the New York Stock Exchange Composite Index)
assigns relative values to the common stocks included in the index and
fluctuates with changes in the market values of such stocks. A stock index
futures contract is a bilateral agreement to accept or make payment, depending
on whether a contract is purchased or sold, of an amount of cash equal to a
specified dollar amount multiplied by the difference between the stock index
value at the close of the last trading day of the contract and the price at
which the futures contract was originally purchased or sold.
To the extent that changes in the value of a Fund correspond to changes in a
given stock index, the sale of futures contracts on that index ("short hedge")
would substantially reduce the risk to the Fund of a market decline and, by so
doing, provide an alternative to a liquidation of securities positions, which
may be difficult to accomplish in a rapid and orderly fashion. Stock index
futures contracts might also be sold:
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1. When a sale of Fund securities at that time would appear to be
disadvantageous in the long-term because such liquidation would:
a. Forego possible appreciation,
b. Create a situation in which the securities would be difficult to
repurchase, or
c. Create substantial brokerage commission;
2. When a liquidation of part of the investment portfolio has commenced or is
contemplated, but there is, in the Adviser's determination, a substantial
risk of a major price decline before liquidation can be completed; or
3. To close out stock index futures purchase transactions.
Where the Adviser anticipates a significant market or market sector advance, the
purchase of a stock index futures contract ("long hedge") affords a hedge
against the possibility of not participating in such advance at a time when a
Fund is not fully invested. Such purchases would serve as a temporary substitute
for the purchase of individual stocks, which may then be purchased in an orderly
fashion. As purchases of stock are made, an amount of index futures contracts
which is comparable to the amount of stock purchased would be terminated by
offsetting closing sales transactions. Stock index futures might also be
purchased:
1. If the Fund is attempting to purchase equity positions in issues which it
may have or is having difficulty purchasing at prices considered by the
Adviser to be fair value based upon the price of the stock at the time it
qualified for inclusion in the investment portfolio, or
2. To close out stock index futures sales transactions.
GOLD FUTURES CONTRACTS. Conseco 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.
OPTIONS ON FUTURES CONTRACTS. The Funds may purchase options on futures
contracts, although they will not write options on any such contracts. A futures
option gives a Fund the right, in return for the premium paid, to assume a long
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position (in the case of a call) or short position (in the case of a put) in a
futures contract at a specified exercise price prior to the expiration of the
option. Upon exercise of a call option, the purchaser acquires a long position
in the futures contract and the writer of the option is assigned the opposite
short position. In the case of a put option, the converse is true. In most
cases, however, a Fund would close out its position before expiration by an
offsetting purchase or sale.
The Funds may enter into options on futures contracts only in connection with
hedging strategies. Generally, these strategies would be employed under the same
market conditions in which a Fund would use put and call options on debt
securities, as described in "Options on Securities" below.
RISKS ASSOCIATED WITH FUTURES AND FUTURES OPTIONS. There are several risks
associated with the use of futures and futures options for hedging purposes.
While hedging transactions may protect a Fund against adverse movements in the
general level of interest rates and economic conditions, such transactions could
also preclude the Fund from the opportunity to benefit from favorable movements
in the underlying securities. There can be no guarantee that the anticipated
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged will occur. An incorrect correlation could result in a
loss on both the hedged securities and the hedging vehicle so that the Fund's
return might have been better if hedging had not been attempted. The degree of
imperfection of correlation depends on circumstances such as variations in
speculative market demand for futures and futures options, including technical
influences in futures and futures options trading, and differences between the
financial instruments being hedged and the instruments underlying the standard
contracts available for trading in such respects as interest rate levels,
maturities, and creditworthiness of issuers. A decision as to whether, when, and
how to hedge involves the exercise of skill and judgment and even a
well-conceived hedge may be unsuccessful to some degree because of unexpected
market behavior or interest rate trends.
There can be no assurance that a liquid market will exist at a time when a Fund
seeks to close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day. Once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. The daily limit governs only price movements during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses. In addition, certain of these instruments are relatively new
and without a significant trading history. Lack of a liquid market for any
reason may prevent a Fund from liquidating an unfavorable position and the Fund
would remain obligated to meet margin requirements and continue to incur losses
until the position is closed.
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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. 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" would exceed 5 percent of the Fund's net assets.
OPTIONS ON SECURITIES AND SECURITIES INDICES (ALL FUNDS EXCEPT CONSECO
INTERNATIONAL FUND)
Each of these Funds may purchase put and call options on securities, and (except
for the Conseco Fixed Income and Conseco High Yield Funds) put and call options
on stock indices, at such times as the Adviser deems appropriate and consistent
with a Fund's investment objective. The Funds may also write listed "covered"
call and "secured" put options. Each Fund may enter into closing transactions in
order to terminate its obligations either as a writer or a purchaser of an
option prior to the expiration of the option.
PURCHASING OPTIONS ON SECURITIES. An option on a security is a contract
that gives the purchaser of the option, in return for the premium paid, the
right to buy a specified security (in the case of a call option) or to sell a
specified security (in the case of a put option) from or to the seller
("writer") of the option at a designated price during the term of the option. A
Fund may purchase put options on securities to protect holdings in an underlying
or related security against a substantial decline in market value. Securities
are considered related if their price movements generally correlate to one
another. For example, the purchase of put options on debt securities held by a
Fund would enable a Fund to protect, at least partially, an unrealized gain in
an appreciated security without actually selling the security. In addition, the
Fund would continue to receive interest income on such security.
A Fund may purchase call options on securities to protect against substantial
increases in prices of securities which the Fund intends to purchase pending its
ability to invest in such securities in an orderly manner. A Fund may sell put
or call options it has previously purchased, which could result in a net gain or
loss depending on whether the amount realized on the sale is more or less than
the premium and transactional costs paid on the option which is sold.
WRITING COVERED CALL AND SECURED PUT OPTIONS. In order to earn additional
income on its portfolio securities or to protect partially against declines in
the value of such securities, each Fund may write "covered" call options. The
exercise price of a call option may be below, equal to, or above the current
market value of the underlying security at the time the option is written.
During the option period, a covered call option writer may be assigned an
exercise notice 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
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underlying security from being called, to permit the sale of the underlying
security, or to enable a Fund to write another call option on the underlying
security with either a different exercise price or expiration date or both.
In order to earn additional income or to protect partially against increases in
the value of securities to be purchased, the Funds may write "secured" put
options. During the option period, the writer of a put option may be assigned an
exercise notice 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. Call and put options on securities indices
would be purchased or written 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. When such options are written, the
Fund is required to maintain a segregated account consisting of cash or liquid
securities, or the Fund must purchase a like option of greater value that will
expire no earlier than the option written. The purchase of such options may not
enable a Fund to hedge effectively against stock market risk if they are not
highly correlated with the value of its securities. Moreover, the ability to
hedge effectively depends upon the ability to predict movements in the stock
market, which cannot be done accurately in all cases.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, and, as
long as its obligation as a writer continues, has retained the risk of loss if
the price of the underlying security declines. The writer of an option has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or purchase the underlying
securities at the exercise price. If a put or call option purchased by a Fund is
not sold when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price or, in the case of a call, remains less than or equal to the exercise
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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
over-the-counter ("OTC") option at any time prior to expiration. In contrast to
exchange-traded options where the clearing organization affiliated with the
particular exchange on which the option is listed in effect guarantees
completion of every exchange-traded option, OTC options are contracts between a
Fund and a counter-party, with no clearing organization guarantee. Thus, when a
Fund purchases an OTC option, it generally will be able to close out the option
prior to its expiration only by entering into a closing transaction with the
dealer from whom the Fund originally purchased the option.
Since option premiums paid or received by a Fund are small in relation to the
market value of underlying investments, buying and selling put and call options
offer large amounts of leverage. Thus, trading in options could result in a
Fund's net asset value being more sensitive to changes in the value of the
underlying securities.
FOREIGN CURRENCY TRANSACTIONS (CONSECO ASSET ALLOCATION, CONSECO 20, CONSECO
HIGH YIELD AND CONSECO INTERNATIONAL FUNDS)
A foreign currency futures contract is a standardized contract for the future
delivery of a specified amount of a foreign currency, at a future date at a
price set at the time of the contract. A forward currency contract is an
obligation to purchase or sell a currency against another currency at a future
date at a price agreed upon by the parties. A Fund may either accept or make
delivery of the currency at the maturity of the contract or, prior to maturity,
enter into a closing transaction involving the purchase or sale of an offsetting
contract. A Fund will purchase and sell such contracts for hedging purposes and
not as an investment. A Fund will engage in foreign currency futures contracts
and forward currency transactions in anticipation of or to protect itself
against fluctuations in currency exchange rates. The International Portfolio may
seek to hedge against changes in the value of a particular currency by using
forward contracts on another foreign currency or a basket of currencies with a
value that bears a positive correlation to the value of the currency being
hedged. Except for the International Portfolio, a Fund will not (1) commit more
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than 15 percent of its total assets computed at market value at the time of
commitment to foreign currency futures or forward currency contracts, or (2)
enter into a foreign currency contract with a term of greater than one year.
Forward currency contracts are not traded on regulated commodities exchanges.
When a Fund enters into a forward currency contract, it incurs the risk of
default by the counter-party to the transaction.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out a foreign currency futures or forward currency position. 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 each Fund values its assets daily in U.S. dollars, it does not intend
physically to convert its holdings of foreign currencies into U.S. dollars on a
daily basis. A Fund will do so from time to time, thereby incurring the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange if the Fund desires to resell that
currency to the dealer.
OPTIONS ON FOREIGN CURRENCIES (CONSECO ASSET ALLOCATION, CONSECO 20 AND
CONSECO HIGH YIELD FUNDS)
Each of these Funds may invest in call and put options on foreign currencies. A
Fund may purchase call and put options on foreign currencies as a hedge against
changes in the value of the U.S. dollar (or another currency) in relation to a
foreign currency in which portfolio securities of the Fund may be denominated. A
call option on a foreign currency gives the purchaser the right to buy, and a
put option the right to sell, a certain amount of foreign currency at a
specified price during a fixed period of time. A Fund may enter into closing
sale transactions with respect to such options, exercise them, or permit them to
expire.
A Fund may employ hedging strategies with options on currencies before the Fund
purchases a foreign security denominated in the hedged currency, during the
period the Fund holds a foreign security, or between the day a foreign security
is purchased or sold and the date on which payment therefor is made or received.
Hedging against a change in the value of a foreign currency in the foregoing
manner does not eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Furthermore, such
hedging transactions reduce or preclude the opportunity for gain if the value of
the hedged currency increases relative to the U.S. dollar. The Funds will
purchase options on foreign currencies only for hedging purposes and will not
speculate in options on foreign currencies. The Funds may invest in options on
foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
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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
Funds 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 a 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.
BORROWING
Except for the Conseco International Fund and the Portfolio (as discussed above
under "Investment Restrictions--Conseco International Fund"), a Fund may borrow
money from a bank, but only if immediately after each such borrowing and
continuing thereafter the Fund would have asset coverage of 300 percent.
Leveraging by means of borrowing will exaggerate the effect of any increase or
decrease in the value of portfolio securities on a Fund's net asset value; money
borrowed will be subject to interest and other costs which may or may not exceed
the income received from the securities purchased with borrowed funds. The use
of borrowing tends to result in a faster than average movement, up or down, in
the net asset value of a Fund's shares. A Fund also may be required to maintain
minimum average balances in connection with such borrowing or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements would increase the cost of borrowing over the stated interest rate.
INVESTMENT IN SECURITIES OF OTHER INVESTMENT COMPANIES
Securities of other investment companies have the potential to appreciate as do
any other securities, but tend to present less risk because their value is based
on a diversified portfolio of investments. The 1940 Act expressly permits mutual
funds to invest in other investment companies within prescribed limitations. An
investment company may invest in other investment companies if at the time of
such investment (1) it does not own more than 3 percent of the voting securities
of any one investment company, (2) it does not invest more than 5 percent of its
assets in any single investment company, and (3) its investment in all
investment companies does not exceed 10 percent of assets.
Some of the countries in which a Fund may invest may not permit direct
investment by outside investors. Investments in such countries may only be
permitted through foreign government approved or authorized investment vehicles,
which may include other investment companies. In addition, it may be less
expensive and more expedient for the Fund to invest in a foreign investment
company in a country which permits direct foreign investment.
Investment companies in which the Funds may invest charge advisory and
administrative fees and may also assess a sales load and/or distribution fees.
Therefore, investors in a Fund that invests in other investment companies would
indirectly bear costs associated with those investments as well as the costs
associated with investing in the Fund. The percentage limitations described
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above significantly limit the costs a Fund may incur in connection with such
investments.
SHORT SALES (ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND)
A short sale is a transaction in which a Fund sells a security in anticipation
that the market price of the security will decline. A Fund may effect short
sales (i) as a form of hedging to offset potential declines in long positions in
securities it owns or anticipates acquiring, or in similar securities, and (ii)
to maintain flexibility in its holdings. In a short sale "against the box," at
the time of sale the Fund owns the security it has sold short or has the
immediate and unconditional right to acquire at no additional cost the identical
security. Under applicable guidelines of the SEC staff, if a Fund engages in a
short sale (other than a short sale against-the-box), it must put an appropriate
amount of cash or liquid securities in a segregated account (not with the
broker).
The effect of short selling on a Fund is similar to the effect of leverage.
Short selling may exaggerate changes in a Fund's NAV. Short selling may also
produce higher than normal portfolio turnover, which may result in increased
transaction costs to a Fund.
INVESTMENT PERFORMANCE
STANDARDIZED YIELD QUOTATIONS. Class Y shares of the Funds may advertise
investment performance figures, including yield. The yield will be based upon a
stated 30-day period and will be computed by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
YIELD = 2 [((A-B)/CD)+1)6-1]
Where:
A = the dividends and interest earned during the period.
B = 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 net asset value) per share on the last
day of the period.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS. Class Y shares of the Funds
may advertise its total return and its cumulative total return. The total return
will be based upon a stated period and will be computed by finding the average
annual compounded rate of return over the stated period that would equate an
initial amount invested to the ending redeemable value of the investment
(assuming reinvestment of all distributions), according to the following
formula:
n
P (1+T) =ERV
Where:
P = a hypothetical initial payment of $1,000.
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T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value at the end of the stated period of a
hypothetical $1,000 payment made at the beginning of the stated period.
The cumulative total return will be based upon a stated period and will be
computed by dividing the ending redeemable value of a hypothetical investment by
the value of the initial investment (assuming reinvestment of all
distributions).
Each investment performance figure will be carried to the nearest hundredth of
one percent.
NON-STANDARDIZED PERFORMANCE. In addition, in order to more completely represent
a Fund's performance or more accurately compare such performance to other
measures of investment return, a Fund also may include in advertisements, sales
literature and shareholder reports other total return performance data
("Non-Standardized Return"). Non-Standardized Return may be quoted for the same
or different periods as those for which Standardized Return is 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. 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 Standard & Poor's MidCap 400 Index consists of 400 domestic stocks of
companies whose market capitalizations range from $201 million to $14.4 billion,
with a median market capitalization of $2.1 billion.
The Nasdaq Composite OTC Price Index is a market value-weighted and unmanaged
index showing the changes in the aggregate market value of approximately 5,510
stocks listed on the Nasdaq Stock Market.
The Lehman Government Bond Index is a measure of the market value of all public
obligations of the U.S. Treasury; all publicly issued debt of all agencies of
the U.S. Government and all quasi-federal corporations; and all corporate debt
guaranteed by the U.S. Government. Mortgage-backed securities and foreign
targeted issues are not included in the Lehman Government Bond Index.
The Lehman Government/Corporate Bond Index is a measure of the market value of
approximately 5,900 bonds with a face value currently in excess of $3.5
trillion. To be included in the Lehman Government/Corporate Index, an issue must
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have amounts outstanding in excess of $100 million, have at least one year to
maturity and be rated "BBB/Baa" or higher ("investment grade") by an NRSRO.
The Lehman Brothers Aggregate Bond Index is an index consisting of the
securities listed in Lehman Brothers Government/Corporate Bond Index, the Lehman
Brothers Mortgage-Backed Securities Index, and the Lehman Brothers Asset-Backed
Securities Index. The Government/Corporate Bond Index is described above. The
Mortgage-Backed Securities Index consists of 15 and 30-year fixed rate
securities backed by mortgage pools of GNMA, FHLMC and FNMA (excluding buydowns,
manufactured homes and graduated equity mortgages). The Asset-Backed Securities
Index consists of credit card, auto and home equity loans (excluding
subordinated tranches) with an average life of one year.
The Morgan Stanley Capital International Europe, Australasia, Far East Index,
also known as the EAFE Index, is an unmanaged index of common stock prices of
more than 1,100 companies from Europe, Australia and the Far East translated
into U.S. dollars.
Each index includes income and distributions but does not reflect fees,
brokerage commissions or other expenses of investing.
In addition, from time to time in reports and promotions (1) a Fund's
performance may be compared to other groups of mutual funds tracked by: (a)
Lipper Analytical Services and Morningstar, Inc., widely used independent
research firms which rank mutual funds by overall performance, investment
objectives, and assets; or (b) other financial or business publications, such as
Business Week, Money Magazine, Forbes and Barron's which provide similar
information; (2) the Consumer Price Index (measure for inflation) may be used to
assess the real rate of return from an investment in a Fund; (3) other
statistics such as GNP and net import and export figures derived from
governmental publications, e.g., The Survey of Current Business or statistics
derived by other independent parties, e.g., the Investment Company Institute,
may be used to illustrate investment attributes of a Fund or the general
economic, business, investment, or financial environment in which a Fund
operates; (4) various financial, economic and market statistics developed by
brokers, dealers and other persons may be used to illustrate aspects of a Fund's
performance; and (5) the sectors or industries in which a Fund invests may be
compared to relevant indices or surveys (e.g., S&P Industry Surveys) in order to
evaluate the Fund's historical performance or current or potential value with
respect to the particular industry or sector.
SECURITIES TRANSACTIONS
CONSECO EQUITY, CONSECO ASSET ALLOCATION, CONSECO FIXED INCOME, CONSECO 20
AND CONSECO HIGH YIELD FUNDS
The Adviser is responsible for decisions to buy and sell securities for these
Funds, 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
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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 a 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
these Funds and/or other accounts over which the Adviser exercises investment
discretion. Such services may include furnishing advice concerning the value of
securities (including providing quotations as to securities), the advisability
of investing in, purchasing or selling securities, and the availability of
securities or the purchasers or sellers of securities; furnishing analyses 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,
settlement and custody, or required in connection therewith.
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 these Funds 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.
The receipt of research from broker-dealers may be useful to the Adviser in
rendering investment management services to these 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 these 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.
For the fiscal year ended December 31, 1997, the Conseco Equity Fund, Conseco
Asset Allocation Fund and the Conseco Fixed Income Fund paid aggregate brokerage
commissions of $215,359, $37,658 and $0, respectively. During the fiscal year
ended December 31, 1997, the Conseco Fixed Income Fund acquired securities of
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the following of its "regular brokers or dealers" (as defined in the 1940 Act)
("Regular B/Ds"): UBS Securities, Salomon Smith Barney, Inc., Morgan Stanley &
Co., Inc. and J.P. Morgan Securities, Inc.; at that date, the Conseco Fixed
Income Fund held the securities of its Regular B/Ds with an aggregate value as
follows: UBS Securities, $1,000,000; Salomon Smith Barney, Inc., $861,000,
Morgan Stanley & Co., Inc., $713,000 and J.P.
Morgan Securities, Inc., $728,000.
Orders on behalf of these Funds may be bunched with orders on behalf of other
clients of the Adviser. It is the Adviser's policy that, to the extent
practicable, all clients with similar investment objectives and guidelines be
treated fairly and equitably in the allocation of securities trades.
The Board periodically reviews the Adviser's performance of its responsibilities
in connection with the placement of portfolio transactions on behalf of the
Trust.
CONSECO INTERNATIONAL FUND
The assets of the International Portfolio are allocated by AMR among investment
advisers designated for the Portfolio. Each investment adviser has discretion to
purchase and sell portfolio securities in accordance with the investment
objective, policies and restrictions described in the Prospectus and this SAI
and with specific investment strategies developed by AMR. Each investment
adviser will place its own orders to execute securities transactions.
In placing such orders and in selecting brokers or dealers, the principal
objective of each investment adviser is to seek the best net price and execution
available. It is expected that securities ordinarily will be purchased in the
primary markets, and that in assessing the best net price and execution
available, each investment adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis.
In selecting brokers or dealers to execute particular transactions, the
Portfolio's investment advisers are authorized to consider "brokerage and
research services" (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934), provision of statistical quotations (including
the quotations necessary to determine the Portfolio's net asset value), the sale
of Fund shares by such broker-dealer or the servicing of Fund shareholders by
such broker-dealer, and other information provided to the Portfolio, to AMR
and/or to the investment advisers (or their affiliates), provided, however, that
the investment adviser determines that it has received the best net price and
execution available. The investment advisers are also authorized to cause the
Portfolio to pay a commission to a broker or dealer who provides such brokerage
and research services for executing a portfolio transaction which is in excess
of the amount of the commission another broker or dealer would have charged for
effecting that transaction. The AMR Trust Board, AMR or the investment advisers,
as appropriate, must determine in good faith, however, that such commission was
reasonable in relation to the value of the brokerage and research services
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provided viewed in terms of that particular transaction or in terms of all the
accounts over which AMR or the investment adviser exercises investment
discretion.
For the fiscal years ended October 31, 1995, 1996 and 1997, the Portfolio (or
its predecessor) paid $422,670, $544,844 and $956,160, respectively, in
brokerage commissions.
The portfolio turnover rate for the Portfolio (or its predecessor) for the
fiscal years ended October 31, 1995, 1996 and 1997 was 21%, 19% and 15%,
respectively. High portfolio turnover can increase transaction costs and
generate additional capital gains or losses.
The fees of the investment advisers are not reduced by reason of receipt of such
brokerage and research services. However, with disclosure to and pursuant to
written guidelines approved by the AMR Trust Board, an investment adviser of the
Portfolio or its affiliated broker-dealer may execute portfolio transactions and
receive usual and customary brokerage commissions (within the meaning of Rule
17e-1 under the 1940 Act) for doing so. During the fiscal year ended October 31,
1995, the Portfolio paid $18,937 in brokerage commissions to Morgan Stanley,
Inc., an affiliate of Morgan Stanley Asset Management, an investment adviser to
the predecessor. During the fiscal year ended October 31, 1996, the Portfolio
paid $2,142, $1,002, $2,051 and $20,129 to Fleming Martin, Jardine Fleming, Ord
Minnett and Robert Fleming & Co., affiliates of Rowe Price-Fleming
International, Inc., then an adviser to the Portfolio and $3,892 to Morgan
Stanley International, an affiliate of Morgan Stanley Asset Management Inc.
During the fiscal year ended October 31, 1997, the Portfolio paid $3,260,
$13,141 and $81,109, to Jardine Fleming, Ord Minnett and Robert Fleming & Co.,
respectively, affiliates of Rowe Price-Fleming International, Inc., then an
adviser to the Portfolio; $5,413 to Morgan Stanley International, an affiliate
of Morgan Stanley Asset Management; and $50,428 to Merrill Lynch & Co., Inc., an
affiliate of Hotchkis and Wiley.
MANAGEMENT
THE ADVISER
The Adviser provides investment advice and, in general, supervises the Trust's
management and investment program, furnishes office space, prepares reports for
the Funds, and pays all compensation of officers and Trustees of the Trust who
are affiliated persons of the Adviser. Each Fund pays all other expenses
incurred in the operation of the Fund, including fees and expenses of
unaffiliated Trustees of the Trust. While the Conseco International Fund
operates in a "master-feeder" structure, the Adviser is responsible for
selecting the investment company in which that Fund invests. If the Adviser is
not satisfied with the performance of that investment company, the Adviser will
recommend to the Board other investment companies in which the Conseco
International Fund may invest, or recommend that the Adviser manage the Conseco
International Fund itself.
The Adviser is a wholly owned subsidiary of Conseco, Inc. ("Conseco"), a
publicly-owned financial services company, the principal operations of which are
in development, marketing and administration of specialized annuity, life and
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health insurance products. Conseco's offices are located at 11825 N.
Pennsylvania Street, Carmel, Indiana 46032.
The Investment Advisory Agreements, dated March 28, 1997, between the Adviser
and the Conseco Equity Fund, Conseco Asset Allocation Fund and Conseco Fixed
Income Fund, and the Investment Advisory Agreement dated December 31, 1997
between the Adviser and the Conseco 20 Fund, Conseco High Yield Fund and Conseco
International Fund, provide that the Adviser shall not be liable for any error
in judgment or mistake of law or for any loss suffered by a Fund in connection
with any investment policy or the purchase, sale or redemption of any securities
on the recommendations of the Adviser. The Agreements provide that the Adviser
is not protected against any liability to a Fund or its security holders for
which the Adviser shall otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed upon it
by the Agreements or the violation of any applicable law.
Under the terms of the Investment Advisory Agreements, the Adviser has
contracted to receive an investment advisory fee equal to an annual rate of
0.70% of the average daily net asset value of the Conseco Equity Fund, 0.70% of
the average daily net asset value of the Conseco Asset Allocation Fund, 0.45% of
the average daily net asset value of the Conseco Fixed Income Fund, 0.70% of the
average daily net asset value of the Conseco High Yield Fund, 0.70% of the
average daily net asset value of the Conseco 20 Fund and 1.00% of the average
daily net asset value of the Conseco International Fund. The Adviser has
voluntarily agreed to waive all of its fees under the Conseco International
Fund's Investment Advisory Agreement so long as that Fund invests all of its
investable assets in the Portfolio or another investment company with
substantially the same investment objective and policies as the Fund. For more
information about the Portfolio's management, see "AMR and the Investment
Advisers to the International Equity Portfolio" below.
For the fiscal year ended December 31, 1997, the Conseco Equity Fund, Conseco
Asset Allocation Fund and the Conseco Fixed Income Fund accrued investment
advisory fees of $286,410, $63,605 and $58,632, respectively.
The Adviser, together with Conseco Services, LLC (the "Administrator"), have
voluntarily agreed to waive their fees and/or reimburse the Funds' expenses to
the extent that the ratios of expenses to net assets exceed the amounts set
forth in the fee table in the Prospectus. These voluntary limits may be
discontinued at any time after April 30, 1999.
For the fiscal year ended December 31, 1997, fees waived and/or expenses
reimbursed were $96,817, $125,654 and $141,110 with respect to the Conseco
Equity Fund, Conseco Asset Allocation Fund and the Conseco Fixed Income Fund,
respectively.
Each Fund (except the Conseco International Fund) may receive credits from its
custodian based on cash held by the Fund at the custodian. These credits may be
used to reduce the custody fees payable by the Fund. In that case, the Adviser's
(and, other affiliates') voluntary agreement to waive fees or reimburse expenses
will be applied only after the Fund's custody fees have been reduced or
eliminated by the use of such credits.
29
<PAGE>
THE ADMINISTRATOR
Conseco Services, LLC (the "Administrator") is a wholly owned subsidiary of
Conseco, and receives compensation from the Trust pursuant to an Administration
Agreement dated January 2, 1997 and amended December 31, 1997. Under that
agreement, the Administrator supervises the overall administration of the Funds.
These administrative services include supervising the preparation and filing of
all documents required for compliance by the Funds with applicable laws and
regulations, supervising the maintenance of books and records, and other general
and administrative responsibilities. In addition, while the Conseco
International Fund operates in a "master-feeder" structure, the Administrator
will monitor the performance of the investment company in which the Conseco
International Fund invests, coordinate the Conseco International Fund's
relationship with that investment company and communicate with the Board and
shareholders regarding the performance of that investment company and the Fund's
master-feeder structure.
For providing these services, the Administrator receives a fee from each of the
Funds, except the Conseco International Fund, of .20% per annum of its average
daily net assets and a fee from the Conseco International Fund of .75% per annum
of its average daily net assets. Pursuant to the Administration Agreement, the
Administrator reserves the right to employ one or more sub-administrators to
perform administrative services for the Funds. The Bank of New York performs
certain administrative services for each of the Funds, and AMR and State Street
Bank and Trust Company perform services for the Conseco International Fund,
pursuant to agreements with the Administrator. See "The Adviser" above regarding
the Administrator's voluntary agreement to waive its fees and/or reimburse Fund
expenses.
For the fiscal year ended December 31, 1997, the Conseco Equity Fund, Conseco
Asset Allocation Fund and the Conseco Fixed Income Fund accrued administration
fees of $86,552, $23,055 and $34,161, respectively.
AMR AND THE INVESTMENT ADVISERS TO THE INTERNATIONAL EQUITY PORTFOLIO
Pursuant to a Management Agreement dated October 1, 1995, as amended July 25,
1997, AMR provides or oversees all administrative, investment advisory, and
portfolio management services for the Portfolio. AMR, located at 4333 Amon
Carter Boulevard, MD 5645, Fort Worth, Texas 76155, is a wholly owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. AMR bears the
expense of providing the above services and pays the fees of the investment
advisers of the Portfolio. As compensation, AMR receives an annualized advisory
fee that is calculated and accrued daily, equal to the sum of 0.10% of the net
assets of the Portfolio plus all fees payable by AMR to the Portfolio's
investment advisers. The advisory fee is payable quarterly in arrears.
The Management Agreement will continue in effect provided that annually such
continuance is specifically approved by a vote of the AMR Trust Board, including
the affirmative votes of a majority of the Trustees who are not parties to the
Management Agreement or "interested persons" as defined in the 1940 Act of any
30
<PAGE>
such party ("Independent Trustees"), cast in person at a meeting called for the
purpose of considering such approval, or by the vote of the Portfolio's interest
holders. The Management Agreement may be terminated without penalty, by a
majority vote of Portfolio interests on sixty (60) days' written notice to AMR,
or by AMR, on sixty (60) days' written notice to the AMR Trust. A Management
Agreement will automatically terminate in the event of its "assignment" as
defined in the 1940 Act.
The assets of the Portfolio are allocated by AMR among investment advisers
designated for the Portfolio, as listed in the Prospectus. Although the
investment advisers are subject to general supervision by the AMR Trust Board
and AMR, the AMR Trust Board and AMR do not evaluate the investment merits of
specific securities transactions. As compensation for its services, each
investment adviser is paid a fee by AMR out of the proceeds of the management
fee received by AMR.
Each investment adviser has entered into a separate investment advisory
agreement with AMR to provide investment advisory services to the Portfolio.
Each Advisory Agreement was approved and became effective as of October 1, 1995.
Following the acquisition of Hotchkis and Wiley ("Hotchkis") by Merrill Lynch,
Pierce, Fenner & Smith, Inc., a new Advisory Agreement with Hotchkis was
approved, effective November 12, 1996. Following the merger of Morgan Stanley
Group Inc. and Dean, Witter, Discover & Co., a new Advisory Agreement with
Morgan Stanley Asset Management Inc. was approved, effective May 31, 1997.
AMR is permitted to enter into new or modified advisory agreements with existing
or new investment advisers without approval of Conseco International Fund
shareholders or Portfolio interest holders, but subject to approval of the AMR
Trust Board. The SEC issued an exemptive order which eliminates the need for
shareholder/interest holder approval subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the Fund send a notice to shareholders containing information
about the change that would be included in a proxy statement. AMR recommends
investment advisers based upon its continuing quantitative and qualitative
evaluation of the investment advisers' skill in managing assets using specific
investment styles and strategies. The allocation of assets among investment
advisers may be changed at any time by AMR. Allocations among investment
advisers will vary based upon a variety of factors, including the overall
investment performance of each investment adviser, the Portfolio's cash flow
needs and market conditions. AMR need not allocate assets to each investment
adviser designated for the Portfolio. Short-term investment performance, by
itself, is not a significant factor in selecting or terminating an investment
adviser, and AMR does not expect to recommend frequent changes of investment
advisers. The Prospectus will be supplemented if additional investment advisers
are retained or the contract with any existing investment adviser is terminated.
Each investment advisory agreement will automatically terminate if assigned, and
may be terminated without penalty at any time by AMR, by a vote of a majority of
the AMR Trust Board or by a vote of a majority of the outstanding Portfolio
interests on no less than thirty (30) days' nor more than sixty (60) days'
31
<PAGE>
written notice to the investment adviser, or by the investment adviser upon
sixty (60) days' written notice to the Portfolio. Each investment advisory
agreement will continue in effect provided that annually such continuance is
specifically approved by a vote of the AMR Trust Board, including the
affirmative votes of a majority of the Independent Trustees, cast in person at a
meeting called for the purpose of considering such approval, or by the vote of
the outstanding Portfolio interests.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust, their affiliations, if any, with the
Adviser and their principal occupations are set forth below.
<TABLE>
<CAPTION>
Name, Address Position Held Principal Occupation(s)
AND AGE WITH TRUST DURING PAST 5 YEARS
--------------- ---------- -------------------
<S> <C> <C>
William P. Daves, Jr. (72) Chairman of the Consultant to insurance and
5723 Trail Meadow Board, Trustee healthcare industries. Director,
Dallas, TX 75230 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, Adviser.
Carmel, IN 46032 Previously,
Senior Vice President, Adviser.
President and Trustee of one
other mutual fund managed by the
Adviser.
Gregory J. Hahn* (37) Vice President Chartered Financial Analyst.
11825 N. Pennsylvania St. for Investments Senior Vice President, Adviser.
Carmel, IN 46032 and Trustee Portfolio Manager of the fixed
income portion of Asset
Allocation and Fixed Income Funds.
Harold W. Hartley (74) Trustee Retired. Chartered Financial
317 Peppard Drive, S.W. Analyst. Previously, Executive
Ft. Myers Beach, Fl 33913 Vice President, Tenneco Financial
Services, Inc. Trustee of one
other mutual fund managed by the
Adviser.
32
<PAGE>
Dr. R. Jan LeCroy (67) Trustee President, Dallas Citizens
Dallas Citizens Council Council. Trustee of one other
1201 Main Street, mutual fund managed by the
Suite 2444 Adviser. Director, Southwest
Dallas, TX 75202 Securities Group, Inc.
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 Counsel,
11825 N. Pennsylvania St. and Secretary Secretary, Chief Compliance
Carmel, IN 46032 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.
James S. Adams (38) Treasurer Senior 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 President, Senior Vice President, Corporate
11815 N. Pennsylvania St. Corporate Taxes Taxes, Bankers National and Great
Carmel, IN 46032 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.
</TABLE>
33
<PAGE>
- ------------------
* 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 compensation of each disinterested Trustee for the
fiscal year ending December 31, 1997.
<TABLE>
<CAPTION>
COMPENSATION TABLE
TOTAL COMPENSATION FROM
AGGREGATE COMPENSATION INVESTMENT COMPANIES IN THE TRUST
NAME OF PERSON, POSITION FROM THE TRUST* COMPLEX PAID TO TRUSTEES*
- ------------------------ -------------- ------------------------
<S> <C> <C>
William P. Daves, Jr. $15,000 $24,000
(1 other investment company)
Harold W. Hartley $16,000 $25,000
(1 other investment company)
Dr. R. Jan LeCroy $16,000 $25,000
(1 other investment company)
Dr. Jesse H. Parrish $16,000 $25,000
(1 other investment company)
</TABLE>
- ------------------
* Compensation received in 1997 includes a retainer fee from the Funds' first
meting held in December 1996.
TRUSTEES AND OFFICERS OF THE AMR TRUST
The AMR Trust Board provides broad supervision over the AMR Trust's affairs. The
Trustees and officers of the AMR Trust are listed below, together with their
principal occupations during the past five years. Unless otherwise indicated,
the address of each person listed below is 4333 Amon Carter Boulevard, MD 5645,
Forth Worth, Texas 76155.
34
<PAGE>
<TABLE>
<CAPTION>
Position with
NAME, AGE AND ADDRESS THE AMR TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- ------------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (50) Trustee and President, AMR Investment Services,
President Inc. (1986-Present); Chairman,
American Airlines Employees Federal
Credit Union (1989-Present); Trustee,
American Performance Funds
(1990-1994); Director, Crescent Real
Estate Equities, Inc. (1994-Present);
Trustee, American AAdvantage Funds
(1987-Present); Trustee, American
AAdvantage Mileage Funds
(1995-Present).
Alan D. Feld (60) Trustee Partner, Akin, Gump, Strauss, Hauer &
1700 Pacific Avenue Feld, LLP (1960-Present)#; Director,
Suite 4100 Clear Channel Communications
Dallas, Texas 75201 (1984-Present); Director, CenterPoint
Properties, Inc. (1994-Present);
Trustee, American AAdvantage Mileage
Funds and American AAdvantage Funds
(1996-Present).
Ben J. Fortson (65) Trustee President and CEO, Fortson Oil Company
301 Commerce Street (1958-Present); Director, Kimbell Art
Suite 3301 Foundation (1964-Present); Director,
Forth Worth, Texas 76102 Burnett Foundation (1987-Present);
Honorary Trustee, Texas Christian
University (1986-Present); Trustee,
American AAdvantage Mileage Funds and
American AAdvantage Funds
(1996-Present).
John S. Justin (81) Trustee Chairman and Chief Executive Officer,
2821 West Seventh Street Justin Industries, Inc. (a diversified
Fort Worth, Texas 76107 holding company) (1969-Present);
Executive Board Member, Blue Cross/Blue
Shield of Texas (1985-Present); Board
Member, Zale Lipshy Hospital
(1993-Present); Trustee, Texas
Christian University (1980-Present);
Director and Executive Board Member,
Texas New Mexico enterprises
(1984-1993); Director, Texas New Mexico
Power Company (1979-1993); Trustee,
American AAdvantage Funds
(1989-Present); Trustee, American
AAdvantage Mileage Funds
(1995-Present).
35
<PAGE>
Stephen D. O'Sullivan*(62) Trustee Consultant (1994-Present); Vice
President and Controller (1985-1994),
American Airlines, Inc.; Trustee,
American AAdvantage Funds,
(1987-Present); Trustee, American
AAdvantage Mileage Funds
(1995-Present).
Roger T. Staubach (56) Trustee Chairman of the Board and Chief
6750 LBJ Freeway Executive Officer of the Staubach
Dallas, Texas 75240 Company (a commercial real estate
company) (1982-Present); Director,
Halliburton Company (1991-Present);
Director, Brinker International
(1993-Present); Director,
International Home Foods, Inc.
(1997-Present); Member of the
Advisory Board, The Salvation Army;
Trustee, Institute for Aerobics
Research; Member of Executive
Council, Daytop/Dallas; former
quarterback of the Dallas Cowboys
professional football team; Trustee,
American AAdvantage Mileage Funds and
American AAdvantage Funds
(1995-Present).
Kneeland Youngblood (41) Trustee President Youngblood Enterprises, Inc.
2305 Cedar Springs Road (a private business management firm)
Suite 401 (1983-Present); Trustee, Teachers
Dallas, Texas 75201 Retirement System of Texas
(1993-Present); Director, United States
Enrichment Corporation (1993-Present),
Director, Just For the Kids
(1995-Present); Member, Council on
Foreign Relations (1995-Present);
Trustee, American AAdvantage Mileage
Funds and American AAdvantage Funds
(1995-Present); Director, The L&M
Valuation Board (1997-Present);
Trustee, Starwood Financial Trust
(1998-Present).
Nancy A. Eckl (35) Vice President Vice President, AMR Investment
Services, Inc. (1990-Present).
36
<PAGE>
Michael W. Fields (44) Vice President Vice President, AMR Investment
Services, Inc. (1988-Present).
Barry Y. Greenberg (34) Vice Director, Legal and Compliance, AMR
President and Investment Services, Inc.
Assistant (1995-Present); Branch Chief
Secretary (1992-1995) and Staff Attorney
(1988-1992), Securities and Exchange
Commission.
Rebecca L. Harris (31) Treasurer Director of Finance (1995-Present),
Controller (1991-1995), AMR
Investment Services, Inc.
John B. Roberson (39) Vice President Vice President, AMR Investment
Services, Inc. (1991-Present).
Robert J. Zutz (45) Secretary Partner, Kirkpatrick & Lockhart LLP
(law firm)
Thomas E. Jenkins, Jr. (31) Assistant Senior Compliance Analyst, AMR
Secretary Investment Services, Inc.
(1996-Present); Staff Accountant
(1994-1996) and Compliance Examiner
(1991-1994), Securities and Exchange
Commission.
Adriana R. Posada (43) Assistant Senior Compliance Analyst
Secretary (1996-Present) and Compliance Analyst
(1993-1996), AMR Investment Services,
Inc.; Special Sales Representative,
American Airlines, Inc. (1991-1993).
</TABLE>
- ------------------
# The law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump") provides
legal services to American Airlines, Inc., an affiliate of AMR. Mr. Feld has
advised the AMR Trust that he has had no material involvement in the services
provided by Akin, Gump to American Airlines, Inc. and that he has received no
material benefit in connection with these services. Akin, Gump does not provide
legal services to AMR or AMR Corporation.
* Messrs. Quinn and O'Sullivan, by virtue of their current or former positions,
are deemed to be "interested persons" of the AMR Trust as defined by the 1940
Act.
37
<PAGE>
As compensation for their service to the AMR Trust, the Independent
Trustees and their spouses receive free air travel from American Airlines, Inc.,
an affiliate of AMR. The AMR Trust does not pay for these travel arrangements.
However, the AMR Trust compensates each Trustee with payments in an amount equal
to the Trustees' income tax on the value of this free airline travel. Mr.
O'Sullivan, who as a retiree of American Airlines, Inc. already receives free
airline travel, receives compensation annually of up to three round trip airline
tickets for each of his three adult children. Trustees are also reimbursed for
any expenses incurred in attending Board meetings. These amounts (excluding
reimbursements) are reflected in the following table for the fiscal year ended
October 31, 1997.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Aggregate Retirement Benefits Estimated From American
Compensation Accrued as part of Annual AAdvantage
From the the AMR Benefits Upon Funds Complex
Name Of TrusteE AMR Trust Trust's Expenses Retirement (27 Funds)
--------------- --------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
William F. Quinn $ 0 $ 0 $ 0 $ 0
Alan D. Feld $ 15,962 $ 0 $ 0 $ 63,850
Ben J. Fortson $ 6,802 $ 0 $ 0 $ 27,209
John S. Justin $ 225 $ 0 $ 0 $ 901
Stephen D. O'Sullivan $ 493 $ 0 $ 0 $ 1,973
Roger T. Staubach $ 8,269 $ 0 $ 0 $ 33,076
Kneeland Youngblood $ 9,525 $ 0 $ 0 $ 38,099
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1998, 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 Y shares of each Fund.
FUND NAME NAME AND ADDRESS PERCENT OWNED
Conseco Fixed Income Fund American Traveller Life 7.64%
Class Y 11815 N. Pennsylvania Street
Carmel, IN 46032-4555
Bankers Life and Casualty 5.10%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Beneficial Standard Life 5.10%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
38
<PAGE>
FUND NAME NAME AND ADDRESS PERCENT OWNED
Great American Reserve 5.10%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Massachusetts General 5.10%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
National Fidelity Life 7.66%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Philadelphia Life 7.66%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Transport Life 7.66%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Conseco Save 401K Plan 40.68%
11805 N. Pennsylvania St.
Carmel, IN 46032-4555
National City Bank Indiana C/F 8.21%
Community Foundation of Boone
County
P.O. Box 94984
Cleveland, OH 44101-4984
Conseco High Yield Fund MLPF & S 100.00%
Class 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco Asset Allocation Fund American Traveller Life 12.78%
Class Y 11815 N. Pennsylvania Street
Carmel, IN 46032-4555
Bankers Life and Casualty 12.78%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
39
<PAGE>
FUND NAME NAME AND ADDRESS PERCENT OWNED
Beneficial Standard Life 8.52%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Great American Reserve 8.52%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Massachusetts General 8.52%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
National Fidelity Life 8.52%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Philadelphia Life 12.78%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Transport Life 12.78%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Conseco Save 401K Plan/BNL 12.87%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Conseco Equity Fund Class Y Conseco Save 401K Plan/BNL 70.17%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Conseco 20 Fund Class Y MLPF & S 100.00%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
The Trustees and officers of the Trust, as a group, own less than 1% of each
Fund's outstanding shares. A shareholder owning of record or beneficially more
than 25% of a Fund's outstanding shares may be considered a controlling person.
That shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other shareholders.
40
<PAGE>
FUND EXPENSES
Each Fund pays its own expenses including, without limitation: (i)
organizational and offering expenses of the Fund and expenses incurred in
connection with the issuance of shares of the Fund; (ii) fees of its custodian
and transfer agent; (iii) expenditures in connection with meetings of
shareholders and Trustees; (iv) compensation and expenses of Trustees who are
not interested persons of the Trust; (v) the costs of any liability,
uncollectible items of deposit and other insurance or fidelity bond; (vi) the
cost of preparing, printing, and distributing prospectuses and statements of
additional information, any supplements thereto, proxy statements, and reports
for existing shareholders; (vii) legal, auditing, and accounting fees; (viii)
trade association dues; (ix) filing fees and expenses of registering and
maintaining registration of shares of the Fund under applicable federal and
state securities laws; (x) brokerage commissions; (xi) taxes and governmental
fees; and (xii) extraordinary and non-recurring expenses.
DISTRIBUTION ARRANGEMENTS
Conseco Equity Sales, Inc. (the "Distributor") serves as the principal
underwriter for each Fund pursuant to an Underwriting Agreement, dated January
2, 1997 as amended December 31, 1997. The Distributor is a registered
broker-dealer and member of the National Association of Securities Dealers, Inc.
("NASD"). Shares of each Fund will be continuously offered and will be sold by
brokers, dealers or other financial intermediaries who have executed selling
agreements with the Distributor. The Distributor bears all the expenses of
providing services pursuant to the Underwriting Agreement, including the payment
of the expenses relating to the distribution of Prospectuses for sales purposes
and any advertising or sales literature. The Underwriting Agreement continues in
effect for two years from initial approval and for successive one-year periods
thereafter, provided that each such continuance is specifically approved (i) by
the vote of a majority of the Trustees of the Trust or by the vote of a majority
of the outstanding voting securities of a Fund and (ii) by a majority of the
Trustees who are not "interested persons" of the Trust (as that term is defined
in the 1940 Act). The Distributor is not obligated to sell any specific amount
of shares of any Fund.
The Distributor's principal address is 11815 N. Pennsylvania Street, Carmel,
Indiana 46032.
PURCHASE AND REDEMPTION OF SHARES
For information regarding the purchase or redemption of Fund shares, see the
Prospectus.
REDEMPTIONS IN KIND
Each Fund is obligated to redeem shares for any shareholder for cash during any
90-day period up to $250,000 or 1% of the net assets of the Fund, whichever is
less. Any redemptions beyond this amount also will be in cash unless the Board
determines that further cash payments will have a material adverse effect on
remaining shareholders. In such a case, the Fund will pay all or a portion of
41
<PAGE>
the remainder of the redemptions in portfolio instruments, valued in the same
way as the Fund determines net asset value. The portfolio instruments will be
selected in a manner that the Board deems fair and equitable. A redemption in
kind is not as liquid as a cash redemption. If a redemption is made in kind, a
shareholder receiving portfolio instruments could incur certain transaction
costs.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend a shareholder's right of redemption, or postpone payment
for a redemption for more than seven days, unless the NYSE is closed for other
than customary weekends or holidays; trading on the NYSE is restricted; for any
period during which an emergency exists as a result of which (1) disposition by
a Fund of securities owned by it is not reasonably practicable, or (2) it is not
reasonably practicable for a Fund to fairly determine the value of its assets;
or for such other periods as the SEC may permit for the protection of investors.
GENERAL
The Trustees themselves have the power to alter the number and terms of office
of the Trustees, and they may at any time lengthen their own terms or make their
terms of unlimited duration (subject to certain removal procedures) and appoint
their own successors, provided that always at least a majority of the Trustees
have been elected by the shareholders of the Trust. The voting rights of
shareholders are not cumulative, so that holders of more than 50 percent of the
shares voting can, if they choose, elect all Trustees being selected, while the
holders of the remaining shares would be unable to elect any Trustees. The Trust
is not required to hold annual meetings of shareholders for action by
shareholders' vote except as may be required by the 1940 Act or the Declaration
of Trust. The Declaration of Trust provides that shareholders can remove
Trustees by a vote of two-thirds of the vote of the outstanding shares. The
Trustees will call a meeting of shareholders to vote on the removal of a Trustee
upon the written request of the holders of 10% of the Trust's shares. In
addition, 10 or more shareholders meeting certain conditions and holding the
lesser of $25,000 worth or 1% of the Trust's shares may advise the Trustees in
writing that they wish to communicate with other shareholders for the purpose of
requesting a meeting to remove a Trustee. The Trustees will then either give
those shareholders access to the shareholder list or, if requested by those
shareholders, mail at the shareholders' expense the shareholders' communication
to all other shareholders.
Each issued and outstanding Class Y share of a Fund is entitled to participate
equally in dividends and other distributions of that class of the Fund and, upon
liquidation or dissolution, in the net assets of that class remaining after
satisfaction of outstanding liabilities. The shares of each Fund have no
preference, preemptive or similar rights, and are freely transferable. The
exchange privilege is 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
42
<PAGE>
effectively acted upon unless approved by the holders of a majority of the
outstanding voting securities of each series affected by the matter. Such
separate voting requirements do not apply to the election of Trustees, the
ratification of the contract with the principal underwriter or the ratification
of the selection of accountants. The rule contains special provisions for cases
in which an advisory contract is approved by one or more, but not all, series. A
change in investment policy may go into effect as to one or more series whose
holders so approve the change even though the required vote is not obtained as
to the holders of other affected series. Under Rule 18f-3 under the 1940 Act,
each class of a Fund shall have a different arrangement for shareholder services
or the distribution of securities or both and shall pay all of the expenses of
that arrangement, shall have exclusive voting rights on any matters submitted to
shareholders that relate solely to a particular class' arrangement, and shall
have separate voting rights on any matters submitted to shareholders in which
the interests of one class differ from the interests of any other class.
Under Massachusetts law, shareholders of the Trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. The Declaration of Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or its Trustees. The Declaration of Trust
provides for indemnification and reimbursement of expenses out of Trust property
for any shareholder held personally liable for its obligations. The Declaration
of Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust
and satisfy any judgment thereon. Thus, while Massachusetts law permits a
shareholder of the Trust to be held personally liable as a partner under certain
circumstances, the risk of a shareholder's incurring financial loss on account
of shareholder liability is highly unlikely and is limited to the relatively
remote circumstances in which the Trust would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Trust and the Adviser have Codes of Ethics governing the personal securities
transactions of officers and employees. These codes require prior approval for
certain transactions and prohibit transactions which may be deemed to conflict
with the securities trading of the Adviser's clients.
TAXES
GENERAL
To qualify or continue 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 --
<PAGE>
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of net investment
income, net short-term capital gain and net gains from certain foreign currency
transactions) ("Distribution Requirement") and must meet several additional
requirements. For each Fund, these requirements include the following: (1) the
Fund must derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of securities or foreign currencies, or other
income (including gains from options, futures or forward contracts) derived with
respect to its business of investing in securities or those currencies ("Income
Requirement"); and (2) at the close of each quarter of the Fund's taxable year,
(i) at least 50% of the value of its total assets must be represented by cash
and cash items, U.S. Government securities, securities of other RICs and other
securities, with those other securities limited, in respect of any one issuer,
to an amount that does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding voting
securities, and (ii) not more than 25% of the value of its total assets may be
invested in securities (other than U.S. Government securities or the securities
of other RICs) of any one issuer. The Conseco International Fund, as an investor
in the Portfolio, is deemed to own a proportionate share of the Portfolio's
assets, and to earn a proportionate share of the Portfolio's income, for
purposes of determining whether the Fund satisfies the requirements described
above to qualify as a RIC.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
Distributions, if any, in excess of a Fund's current or accumulated earnings and
profits, as computed for federal income tax purposes, will constitute a return
of capital, which first will reduce a shareholder's tax basis in the Fund's
shares and then (after such basis is reduced to zero) generally will give rise
to capital gains. Under the Taxpayer Relief Act of 1997 ("Tax Act"), different
maximum tax rates apply to a non-corporate taxpayer's net capital gain (the
excess of net long-term capital gain over net short-term capital loss) depending
on the taxpayer's holding period and marginal rate of federal income tax --
generally, 28% for gain recognized on capital assets held for more than one year
but not more than 18 months and 20% (10% for taxpayers in the 15% marginal tax
bracket) for gain recognized on capital assets held for more than 18 months.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
At the time of an investor's purchase of shares of a Fund, a portion of the
purchase price is often attributable to unrealized appreciation in the Fund's
portfolio or undistributed taxable income. Consequently, subsequent
distributions from that appreciation (when realized) or income may be taxable to
44
<PAGE>
the investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for the shares
and the distributions in reality represent a return of a portion of the purchase
price.
Each Fund will be subject to a nondeductible 4% federal excise tax ("Excise
Tax") on certain amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum distribution
requirements. Each Fund intends under normal circumstances to avoid liability
for such tax by satisfying those distribution requirements.
THE RELATIONSHIP OF THE CONSECO INTERNATIONAL FUND AND THE PORTFOLIO
The Portfolio has received a ruling from the Internal Revenue Service
("Service") to the effect that, among other things, the Portfolio is treated as
a separate partnership for federal income tax purposes and is not a "publicly
traded partnership." As a result, the Portfolio is not subject to federal income
tax; instead, each investor in the Portfolio, such as the Conseco International
Fund, is required to take into account in determining its federal income tax
liability its share of the Portfolio's income, gains, losses, deductions,
credits and tax preference items, without regard to whether it has received any
cash distributions from the Portfolio. Because each investor in the Portfolio
that intends to qualify as a RIC (such as the Conseco International Fund) is
deemed to own a proportionate share of the Portfolio's assets, and to earn a
proportionate share of the Portfolio's income, for purposes of determining
whether the investor satisfies the requirements described above to qualify as a
RIC, the Portfolio intends to conduct its operations so that those investors
will be able to satisfy all those requirements.
Distributions to the Conseco International Fund from the Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
the Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds the Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio, and
(3) loss will be recognized if a liquidation distribution consists solely of
cash and/or unrealized receivables. The Fund's basis for its interest in the
Portfolio generally will equal the amount of cash the Fund invests in the
Portfolio, increased by the Fund's share of the Portfolio's net income and gains
and decreased by (a) the amount of cash and the basis of any property the
Portfolio distributes to the Fund and (b) the Fund's share of the Portfolio's
losses.
INCOME FROM FOREIGN SECURITIES
Dividends and interest received by a Fund or the Portfolio, and gains realized
thereby, may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions ("foreign taxes") that would reduce the yield
and/or total return on its securities. Tax conventions between certain countries
and the United States may reduce or eliminate foreign taxes, however, and many
foreign countries do not impose taxes on capital gains in respect of investments
by foreign investors. If more than 50% of the value of the Conseco International
Fund's total assets (taking into account its proportionate share of the
45
<PAGE>
Portfolio's assets) at the close of any taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the Service that will enable its shareholders, in effect, to receive the
benefit of the foreign tax credit with respect to its proportionate share of any
foreign taxes paid by the Portfolio ("Fund's foreign taxes"). Pursuant to that
election, the Fund would treat its foreign taxes as dividends paid to its
shareholders, and each shareholder would be required to (1) include in gross
income, and treat as paid by him, his proportionate share of the Fund's foreign
taxes, (2) treat his share of those taxes and of any dividend paid by the Fund
that represents its proportionate share of the Portfolio's income from foreign
or U.S. possessions sources as his own income from those sources, and (3) either
deduct the taxes deemed paid by him in computing his taxable income or,
alternatively, use the foregoing information in calculating the foreign tax
credit against his federal income tax. The Fund will report to its shareholders
shortly after each taxable year their respective shares of the Fund's foreign
taxes and income (taking into account its proportionate share of the Portfolio's
income) from sources within foreign countries and U.S. possessions if it makes
this election. Pursuant to the Tax Act, individuals who have no more than $300
($600 for married persons filing jointly) of creditable foreign taxes included
on Forms 1099 and all of whose foreign source income is "qualified passive
income" may elect each year to be exempt from the extremely complicated foreign
tax credit limitation and will be able to claim a foreign tax credit without
having to file the detailed Form 1116 that otherwise is required.
Each Fund and the Portfolio may invest in the stock of "passive foreign
investment companies" ("PFICs"). A PFIC is a foreign corporation -- other than a
"controlled foreign corporation" (I.E., a foreign corporation in which, on any
day during its taxable year, more than 50% of the total voting power of all
voting stock therein or the total value of all stock therein is owned, directly,
indirectly, or constructively, by "U.S. shareholders," defined as U.S. persons
that individually own, directly, indirectly, or constructively, at least 10% of
that voting power) as to which a Fund or the Portfolio is a U.S. shareholder
(not effective in the case of the Conseco International Fund and the Portfolio
until after October 31, 1998) -- that, in general, meets either of the following
tests: (1) at least 75% of its gross income is passive or (2) an average of at
least 50% of its assets produce, or are held for the production of, passive
income. Under certain circumstances, a Fund will be subject to federal income
tax on a part (or, in the case of the Conseco International Fund, its
proportionate share of a part) of any "excess distribution" received by it (or
in the case of the Conseco International Fund, by the Portfolio) on the stock of
a PFIC or of any gain on the Fund's (or in the case of the Conseco International
Fund, the Portfolio's) disposition of the stock (collectively "PFIC income"),
plus interest thereon, even if the Fund distributes the PFIC income as a taxable
dividend to its shareholders. The balance of the PFIC income will be included in
the Fund's investment company taxable income and, accordingly, will not be
taxable to it to the extent that income is distributed to its shareholders. The
Portfolio currently does not intend to acquire stock in companies that are
considered PFICs.
If a Fund or the Portfolio invests in a PFIC and elects to treat the PFIC as a
"qualified electing fund" ("QEF"), then in lieu of the foregoing tax and
interest obligation, the Fund, or in the Portfolio's case the Conseco
International Fund, would be required to include in income each year its pro
rata share (taking into account, in the case of the Conseco International Fund,
its proportionate share of the Portfolio's pro rata share) of the QEF's annual
46
<PAGE>
ordinary earnings and net capital gain -- which likely would have to be
distributed by the Fund, or in the Portfolio's case the Conseco International
Fund, to satisfy the Distribution Requirement and avoid imposition of the Excise
Tax -- even if those earnings and gain were not distributed thereto by the QEF.
In most instances it will be very difficult, if not impossible, to make this
election because of certain requirements thereof.
Each Fund and the Portfolio (in the case of the latter and the Conseco
International Fund, after the taxable year ending October 31, 1998) may elect to
"mark to market" its stock in any PFIC. "Marking-to-market," in this context,
means including in ordinary income each taxable year the excess, if any, of the
fair market value of the PFIC's stock over the adjusted basis therein as of the
end of that year. Pursuant to the election, a Fund or the Portfolio also will be
allowed to deduct (as an ordinary, not capital, loss) the excess, if any, of its
adjusted basis in PFIC stock over the fair market value thereof as of the
taxable year-end, but only to the extent of any net mark-to-market gains with
respect to that stock included in income for prior taxable years. The adjusted
basis in each PFIC's stock with respect to which this election is made will be
adjusted to reflect the amounts of income included and deductions taken under
the election.
Foreign exchange gains and losses realized by a Fund or the Portfolio in
connection with certain transactions involving foreign currency-denominated debt
securities, certain foreign currency futures and options, foreign currency
positions and payables or receivables (e.g., dividends or interest receivable)
denominated in a foreign currency are subject to section 988 of the Code, which
generally causes those gains and losses to be treated as ordinary income and
losses and may affect the amount, timing and character of distributions to
shareholders. Any gains from the disposition of foreign currencies could, under
future Treasury regulations, produce income that is not "qualifying income"
under the Income Requirement.
INVESTMENTS IN DEBT SECURITIES
If a Fund or the Portfolio invests in zero coupon securities, payment-in-kind
securities and/or certain deferred interest securities (and, in general, any
other securities with original issue discount or with market discount if an
election is made to include market discount in income currently), it must accrue
income on those investments prior to the receipt of cash payments or interest
thereon. However, each Fund must distribute to its shareholders, at least
annually, all or substantially all of its investment company taxable income,
including such accrued discount and other non-cash income (including, in the
case of the Conseco International Fund, its proportionate share of such income
of the Portfolio), to satisfy the Distribution Requirement and avoid imposition
of the Excise Tax. Therefore, a Fund or the Portfolio may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to make the necessary
distributions.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Fund or the Portfolio that holds such obligations.
Tax rules are not entirely clear about issues such as when a Fund or the
Portfolio may cease to accrue interest, original issue discount or market
discount, when and to what extent deductions may be taken for bad debts or
47
<PAGE>
worthless securities, how payments received on obligations in default should be
allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by any Fund that holds such obligations (including the Conseco
International Fund if the Portfolio holds any such obligations) in order to seek
to reduce the risk of distributing insufficient income to qualify for treatment
as a RIC and of becoming subject to federal income tax or the Excise Tax.
HEDGING STRATEGIES
The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the amount, character and
timing of recognition of the gains and losses a Fund realizes in connection
therewith. Gains from options, futures and forward contracts derived by a Fund
(or, in the case of the Conseco International Fund, by the Portfolio) with
respect to its business of investing in securities or foreign currencies -- and
as noted above, gains from the disposition of foreign currencies (except certain
gains that may be excluded by future regulations) -- will qualify as permissible
income under the Income Requirement.
Certain futures and foreign currency contracts in which the Funds or the
Portfolio may invest will be "section 1256 contracts." Section 1256 contracts
held by a Fund or the Portfolio at the end of each taxable year, other than
section 1256 contracts that are part of a "mixed straddle" with respect to which
a Fund or the Portfolio has made an election not to have the following rules
apply, must be marked-to-market (that is, treated as sold for their fair market
value) for federal income tax purposes, with the result that unrealized gains or
losses will be treated as though they were realized. Sixty percent of any net
gain or loss recognized on these deemed sales, and 60% of any net realized gain
or loss from any actual sales of section 1256 contracts, will be treated as
long-term capital gain or loss, and the balance will be treated as short-term
capital gain or loss. As of the date of this SAI, it is not entirely clear
whether that 60% portion will qualify for the reduced maximum tax rates on
non-corporate taxpayers' net capital gain enacted by the Tax Act noted above,
although technical corrections legislation passed by the House of
Representatives late in 1997 would clarify that those rates apply. Section 1256
contracts also may be marked-to-market for purposes of the Excise Tax.
Code section 1092 (dealing with straddles) also may affect the taxation of
options and futures contracts in which the Funds and the Portfolio may invest.
Section 1092 defines a "straddle" as offsetting positions with respect to
personal property; for these purposes, options and futures contracts are
personal property. Section 1092 generally provides that any loss from the
disposition of a position in a straddle may be deducted only to the extent the
loss exceeds the unrealized gain on the offsetting position(s) of the straddle.
Section 1092 also provides certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. If a Fund or the Portfolio makes certain elections, the amount,
character and timing of 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
48
<PAGE>
rules have been promulgated, the tax consequences to the Funds of straddle
transactions are not entirely clear.
If a Fund or the Portfolio has an "appreciated financial position" -- generally,
an interest (including an interest through an option, futures or forward
contract, or short sale) with respect to any stock, debt instrument (other than
"straight debt") or partnership interest the fair market value of which exceeds
its adjusted basis -- and enters into a "constructive sale" of the same or
substantially similar property, the Fund or the Portfolio will be treated as
having made an actual sale thereof, with the result that gain will be recognized
at that time. A constructive sale generally consists of a short sale, an
offsetting notional principal contract or futures or forward contract entered
into by a Fund or the Portfolio or a related person with respect to the same or
substantially similar property. In addition, if the appreciated financial
position is itself a short sale or such a contract, acquisition of the
underlying property or substantially similar property will be deemed a
constructive sale.
The foregoing discussion relates solely to U.S. federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates) subject to tax under that law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of the shares of a Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Funds in their particular
circumstances.
OTHER INFORMATION
CUSTODIAN
The Bank of New York, 90 Washington Street, 22nd Floor, New York, New York
10826, serves as custodian of the assets of each Fund (except the Conseco
International Fund). State Street Bank and Trust Company ("State Street") serves
as custodian of the assets of the Conseco International Fund and of the
International Portfolio.
TRANSFER AGENCY SERVICES
State Street is the transfer agent for each Fund.
INDEPENDENT ACCOUNTANTS/AUDITORS
Coopers & Lybrand L.L.P., 2900 One American Square, Box 82002, Indianapolis,
Indiana 46282-0002 serves as the Trust's independent accountant. The independent
auditors of the International Portfolio are Ernst & Young LLP, Dallas, Texas.
49
<PAGE>
FINANCIAL STATEMENTS
Audited financial statements for the Conseco Equity Fund, the Conseco Asset
Allocation Fund and the Conseco Fixed Income Fund for the fiscal year ended
December 31, 1997 are incorporated by reference from the Trust's annual report
to shareholders.
Audited financial statements for the International Equity Portfolio for the
fiscal year ended October 31, 1997 are incorporated by reference from the
American AAdvantage Funds' Annual Report to Shareholders for the period ended
October 31, 1997.
50
<PAGE>
CONSECO FUND GROUP:
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Asset Allocation Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements included in Part B of this Registration
Statement:
(1) The audited financial statements for the fiscal year ended
December 31, 1997 for the Conseco Equity Fund, the Conseco
Asset Allocation Fund, and the Conseco Fixed Income Fund and
the report of the independent accountants are filed herewith.
(2) The audited financial statements for the fiscal year ended
October 31, 1997 for the International Equity Portfolio, a
series of AMR Investment Services Trust and the report of the
independent auditors are filed herewith.
(b) Exhibits:
(1) Agreement and Declaration of 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/
- ----------------
1/ Incorporated by reference from the Registrant's registration statement, SEC
File No. 333-13185, filed on October 1, 1996.
<PAGE>
(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/
(d) Form of Investment Advisory Agreement between Conseco Fund
Group, on behalf of the Conseco 20 Fund, the Conseco High
Yield Fund and the Conseco International Fund, and Conseco
Capital Management, Inc. (filed herewith)
(6) Amended and Restated Principal Underwriting Agreement between
Conseco Fund Group and Conseco Equity Sales, Inc. (filed
herewith)
(7) Bonus, profit sharing or pension plans - None
(8)(a) Custody Agreement between Conseco Fund Group and The Bank of
New York 3/
(b) Custody Agreement between Conseco Fund Group and State Street
Bank and Trust Company with respect to the Conseco
International Fund (to be filed)
(9)(a) Amended and Restated Administration Agreement between Conseco
Fund Group and Conseco Services, LLC (filed herewith)
(b) Sub-Administration Agreement between Conseco Services, LLC and
The Bank of New York 3/
(c) Sub-Administration Agreement between Conseco Services, LLC and
AMR Investment Services, Inc. (to be filed by amendment)
(d) Fund Accounting Agreement between Conseco Services, LLC and
The Bank of New York 3/
(e) Transfer Agency Agreement between Conseco Fund Group and State
Street Bank and Trust Company 3/
- ------------------
2/ Incorporated by reference from Post-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-13185, filed July 30, 1997.
3/ Incorporated by reference from Post-Effective Registrant's Amendment No. 4 to
the registration statement, SEC File No. 333-13185, filed December 29, 1997.
2
<PAGE>
(f) Agreement Among AMR Investment Services Trust, AMR Investment
Services, Inc., and Conseco Fund Group and Conseco Capital
Management, Inc. (filed herewith)
(10) Opinion and Consent of Counsel as to the Legality of the
Securities being Registered (filed herewith)
(11)(a) Consent of Independent Accountants with respect to the Conseco
Equity Fund, the Conseco Asset Allocation Fund, and the
Conseco Fixed Income Fund (filed herewith)
(b) Consent of Independent Auditors with respect to International
Equity Portfolio (filed herewith)
(12) Financial statements omitted from prospectus - None
(13) Letter of investment intent - None
(14) Prototype retirement plan - None
(15)(a) Class A Plan of Distribution and Service pursuant to Rule
12b-1 with Respect to the Equity 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) Plan of Distribution and Service pursuant to Rule 12b-1 (filed
herewith)
(e) Selling Group Agreement (to be filed by amendment)
(16) Performance Computation Schedule - None
(17) Financial Data Schedule (filed herewith)
(18) Amended and Restated Multiple Class Plan Pursuant to Rule
18f-3 3/
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
3
<PAGE>
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Number of Record Holders as of
------------------------------
Title of Class April 1, 1998
-------------- -------------
Conseco Fixed Income Fund
Class A shares 40
Class B shares 1
Class C shares 1
Class Y shares 18
Conseco High Yield Fund
Class A shares 19
Class B shares 7
Class C shares 2
Class Y shares 2
Conseco Asset Allocation Fund
Class A shares 152
Class B shares 9
Class C shares 9
Class Y shares 17
Conseco Equity Fund
Class A shares 425
Class B shares 16
Class C shares 3
Class Y shares 32
Conseco International Fund
Class A shares 9
Class B shares 0
Class C shares 3
Class Y shares 0
Conseco 20 Fund
Class A shares 89
Class B shares 52
Class C shares 8
Class Y shares 2
4
<PAGE>
ITEM 27. INDEMNIFICATION.
Reference is made to Articles II and V of the Agreement and Declaration
of Trust incorporated by reference from the Registrant's registration statement,
SEC File No. 333-13185, filed previously on October 1, 1996.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Conseco Capital Management, Inc. (the "Adviser") is an Indiana
corporation which offers investment advisory services. The Adviser is a
wholly-owned subsidiary of Conseco, Inc., also an Indiana corporation, a
publicly owned financial services company. Both the Adviser's and Conseco,
Inc.'s offices are located at 11825 N. Pennsylvania Street, Carmel, Indiana
46032.
Information as to the officers and directors of the Adviser is included
in its current Form ADV filed with the SEC and is incorporated by reference
herein.
ITEM 29. PRINCIPAL UNDERWRITERS.
Conseco Equity Sales, Inc. serves as the Registrant's principal
underwriter. Conseco Equity Sales, Inc. also serves as distributor of one other
investment company, Conseco Series Trust.
The following information is furnished with respect to the officers and
directors of Conseco Equity Sales, Inc. The principal business address of each
person listed is 11815 N. Pennsylvania Street, Carmel, Indiana 46032.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Principal Underwriter with Registrant
---------------- -------------------------- -------------------
<S> <C> <C>
L. Gregory Gloeckner President None
William P. Latimer Vice President, Senior Vice President and Secretary
Counsel, Secretary, and
Director
James S. Adams Senior Vice President, Treasurer, Principal Financial and
Treasurer, and Director Accounting Officer
William T. Devanney, Jr. Senior Vice President, Vice President, Corporate Taxes
Corporate Taxes
</TABLE>
5
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts, books and other documents required to be maintained by
the Registrant pursuant to Section 31(a) of the Investment Company Act of 1940
and the rules promulgated thereunder are in the possession of the Adviser or the
registrant's custodian, The Bank of New York, 90 Washington Street, 22nd Floor,
New York, New York 10826.
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
1. Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant , Conseco
Fund Group, certifies that it meets all of the requirements for effectiveness of
the Post-Effective Amendment No. 6 to its Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of Carmel and
State of Indiana on the 27th day of April, 1998.
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. 6 to the Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Maxwell E. Bublitz President (Principal Executive April 27, 1998
- --------------------------- Officer) and Trustee
Maxwell E. Bublitz
/s/ James S. Adams Treasurer (Principal Financial and April 27, 1998
- --------------------------- Accounting Officer)
James S. Adams
/s/ William P. Daves, Jr. Chairman of the Board and Trustee April 27, 1998
- ---------------------------
William P. Daves, Jr.*
/s/ Gregory J. Hahn Trustee April 27, 1998
- ---------------------------
Gregory J. Hahn*
/s/ Harold W. Hartley Trustee April 27, 1998
- ---------------------------
Harold W. Hartley*
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ R. Jan LeCroy Trustee April 27, 1998
- ----------------------------
Dr. R. Jan LeCroy*
/s/ Jesse H. Parrish Trustee April 27, 1998
- ----------------------------
Dr. Jesse H. Parrish*
/s/ William P. Latimer April 27, 1998
- -----------------------------
*By: William P. Latimer
Attorney-In-Fact
</TABLE>
<PAGE>
SIGNATURES
AMR Investment Services Trust has duly caused this Post-Effective
Amendment No. 6 to the Registration Statement on Form N-1A of Conseco Fund Group
to be signed on its behalf by the undersigned only with respect to disclosures
relating to the International Equity Portfolio, a series of the AMR Investment
Services Trust, hereunto duly authorized, in the City of Fort Worth and the
State of Texas on April 27, 1998.
AMR INVESTMENT SERVICES TRUST
By: /s/ William F. Quinn
----------------------------
William F. Quinn
President
Attest:
/s/ Barry Y. Greenberg
- -----------------------------------------
Barry Y. Greenberg
Vice President and Assistant Secretary
This Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A of Conseco Fund Group has been signed below by the following persons
in the capacities and on the dates indicated only with respect to disclosures
relating to the International Equity Portfolio, a series of the AMR Investment
Services Trust.
Signature Title Date
- --------- ----- ----
/s/ William F. Quinn
- ------------------------------
William F. Quinn President and Trustee April 27, 1998
/s/ Alan D. Feld
- ------------------------------
Alan D. Feld* Trustee April 27, 1998
/s/ Ben J. Fortson
- ------------------------------
Ben J. Fortson* Trustee April 27, 1998
/s/John S. Justin
- ------------------------------
John S. Justin* Trustee April 27, 1998
<PAGE>
/s/ Stephen D. O'Sullivan
- ------------------------------
Stephen D. O'Sullivan Trustee April 27, 1998
/s/ Roger T. Staubach
- ------------------------------
Roger T. Staubach* Trustee April 27, 1998
/s/ Kneeland Youngblood
- ------------------------------
Kneeland Youngblood* Trustee April 27, 1998
*By: /s/ William F. Quinn
------------------------------------
William F. Quinn, Attorney-In-Fact
<PAGE>
SIGNATURES
AMR Investment Services Trust has duly caused this Post-Effective
Amendment No. 4 to the Registration Statement on Form N-1A of Conseco Fund Group
to be signed on its behalf by the undersigned only with respect to disclosures
relating to the International Equity Portfolio, a series of the AMR Investment
Services Trust, hereunto duly authorized, in the City of Fort Worth and the
State of Texas on April 27, 1998.
AMR INVESTMENT SERVICES TRUST
By: /s/ William F. Quinn
------------------------------
William F. Quinn
President
Attest:
/s/ Barry Y. Greenberg
- ---------------------------
Barry Y. Greenberg
Vice President and Assistant Secretary
This Post-Effective Amendment No. 4 to the Registration Statement on
Form N-1A of Conseco Fund Group has been signed below by the following persons
in the capacities and on the dates indicated only with respect to disclosures
relating to the International Equity Portfolio, a series of the AMR Investment
Services Trust.
Signature Title Date
- --------- ----- ----
/s/ William F. Quinn
- -----------------------------
William F. Quinn President and Trustee April 27, 1998
/s/ Alan D. Feld
- -----------------------------
Alan D. Feld* Trustee April 27, 1998
/s/ Ben J. Fortson
- -----------------------------
Ben J. Fortson* Trustee April 27, 1998
/s/ John S. Justin
- -----------------------------
John S. Justin* Trustee April 27, 1998
<PAGE>
/s/ Stephen D. O'Sullivan
- -----------------------------
Stephen D. O'Sullivan Trustee April 27, 1998
/s/ Roger T. Staubach
- -----------------------------
Roger T. Staubach* Trustee April 27, 1998
/s/ Kneeland Youngblood
- -----------------------------
Kneeland Youngblood* Trustee April 27, 1998
*By: /s/ William F. Quinn
-------------------------------------
William F. Quinn, Attorney-In-Fact
<PAGE>
EXHIBIT INDEX
Exhibit
Number 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/
(d) Investment Advisory Agreement between Conseco Fund Group, on
behalf of the Conseco 20 Fund, the Conseco High Yield Fund
and the International Fund, and Conseco Capital Management,
Inc. (filed herewith)
(6) Amended and Restated Principal Underwriting Agreement
between Conseco Fund Group and Conseco Equity Sales, Inc.
(filed herewith)
(7) Bonus, profit sharing or pension plans - None
(8)(a) Custody Agreement between Conseco Fund Group and The Bank of
New York 3/
- ---------------------
1/ Incorporated by reference from the Registrant's registration statement, SEC
File No. 333-13185, filed on October 1, 1996.
2/ Incorporated by reference from Post-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-13185, filed July 30, 1997.
<PAGE>
(b) Custody Agreement between Conseco Fund Group and State
Street Bank and Trust Company with respect to the Conseco
International Fund (to be filed)
(9)(a) Amended and Restated Administration Agreement between
Conseco Fund Group and Conseco Services, LLC (filed
herewith)
(b) Sub-Administration Agreement between Conseco Services, LLC
and The Bank of New York 3/
(c) Sub-Administration Agreement between Conseco Services, LLC
and AMR Investment Services, Inc. (to be filed by amendment)
(d) Fund Accounting Agreement between Conseco Services, LLC and
The Bank of New York 3/
(e) Transfer Agency Agreement between Conseco Fund Group and
State Street Bank and Trust Company 3/
(f) Agreement Among AMR Investment Services Trust, AMR
Investment Services, Inc., and Conseco Fund Group and
Conseco Capital Management, Inc. (filed herewith)
(10) Opinion and Consent of Counsel as to the Legality of the
Securities being Registered (filed herewith)
(11) (a) Consent of Independent Accountants with respect to the
Conseco Equity Fund, the Conseco Asset Allocation Fund, and
the Conseco Fixed Income Fund (filed herewith)
(b) Consent of Independent Auditors with respect to
International Equity Portfolio (filed herewith)
(12) Financial statements omitted from prospectus - None
(13) Letter of investment intent - None
(14) Prototype retirement plan - None
(15) (a) Class A Plan of Distribution and Service pursuant to Rule
12b-1 with Respect to the Equity Fund 2/
- ----------------------
3/ Incorporated by reference from Post-Effective Registrant's Amendment No.4 to
the registration statement, SEC File No. 333-13185, filed December 29, 1997.
<PAGE>
(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) Plan of Distribution and Service pursuant to Rule 12b-1
(filed herewith)
(e) Selling Group Agreement (to be filed by amendment)
(16) Performance Computation Schedule - None
(17) Financial Data Schedule (filed herewith)
(18) Amended and Restated Multiple Class Plan Pursuant to Rule
18f-3 3/
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
INFORMATION EXTRACTED FROM THE AUDITED 12/31/97 FINANCIAL STATEMENTS OF THE
CONSECO FUND GROUP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> ASSET ALLOCATION CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 12,779,910
<INVESTMENTS-AT-VALUE> 13,351,015
<RECEIVABLES> 348,928
<ASSETS-OTHER> 370,695
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,070,638
<PAYABLE-FOR-SECURITIES> 93,637
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 864,346
<TOTAL-LIABILITIES> 957,983
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,395,023
<SHARES-COMMON-STOCK> 100,187
<SHARES-COMMON-PRIOR> 1,668
<ACCUMULATED-NII-CURRENT> 6,516
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 140,011
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 571,105
<NET-ASSETS> 13,112,655
<DIVIDEND-INCOME> 52,606
<INTEREST-INCOME> 383,995
<OTHER-INCOME> 0
<EXPENSES-NET> (117,547)
<NET-INVESTMENT-INCOME> 319,054
<REALIZED-GAINS-CURRENT> 994,075
<APPREC-INCREASE-CURRENT> 571,105
<NET-CHANGE-FROM-OPS> 1,884,234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (312,538)
<DISTRIBUTIONS-OF-GAINS> (854,064)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100,694
<NUMBER-OF-SHARES-REDEEMED> (2,468)
<SHARES-REINVESTED> 293
<NET-CHANGE-IN-ASSETS> 13,079,305
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 63,605
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 292,274
<AVERAGE-NET-ASSETS> 442,955
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .28
<PER-SHARE-GAIN-APPREC> 1.43
<PER-SHARE-DIVIDEND> (.27)
<PER-SHARE-DISTRIBUTIONS> (.71)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.73
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
INFORMATION EXTRACTED FROM THE AUDITED 12/31/97 FINANCIAL STATEMENTS OF THE
CONSECO FUND GROUP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 002
<NAME> ASSET ALLOCATION CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 12,779,910
<INVESTMENTS-AT-VALUE> 13,351,015
<RECEIVABLES> 348,928
<ASSETS-OTHER> 370,695
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,070,638
<PAYABLE-FOR-SECURITIES> 93,637
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 864,346
<TOTAL-LIABILITIES> 957,983
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,395,023
<SHARES-COMMON-STOCK> 1,116,698
<SHARES-COMMON-PRIOR> 1,667
<ACCUMULATED-NII-CURRENT> 6,516
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 140,011
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 571,105
<NET-ASSETS> 13,112,655
<DIVIDEND-INCOME> 52,606
<INTEREST-INCOME> 383,995
<OTHER-INCOME> 0
<EXPENSES-NET> (117,547)
<NET-INVESTMENT-INCOME> 319,054
<REALIZED-GAINS-CURRENT> 994,075
<APPREC-INCREASE-CURRENT> 571,105
<NET-CHANGE-FROM-OPS> 1,884,234
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (312,538)
<DISTRIBUTIONS-OF-GAINS> (854,064)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,115,405
<NUMBER-OF-SHARES-REDEEMED> (11,798)
<SHARES-REINVESTED> 11,424
<NET-CHANGE-IN-ASSETS> 13,079,305
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 63,605
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 292,274
<AVERAGE-NET-ASSETS> 10,559,396
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> 1.58
<PER-SHARE-DIVIDEND> (.28)
<PER-SHARE-DISTRIBUTIONS> (.71)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.78
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
INFORMATION EXTRACTED FROM THE AUDITED 12/31/97 FINANCIAL STATEMENTS OF THE
CONSECO FUND GROUP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> EQUITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 62,009,842
<INVESTMENTS-AT-VALUE> 66,838,014
<RECEIVABLES> 634,560
<ASSETS-OTHER> 770,008
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,242,582
<PAYABLE-FOR-SECURITIES> 761,513
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,270,440
<TOTAL-LIABILITIES> 3,031,953
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,713,491
<SHARES-COMMON-STOCK> 440,528
<SHARES-COMMON-PRIOR> 1,668
<ACCUMULATED-NII-CURRENT> 4,831
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,664,135
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,828,172
<NET-ASSETS> 65,210,629
<DIVIDEND-INCOME> 409,988
<INTEREST-INCOME> 37,625
<OTHER-INCOME> 0
<EXPENSES-NET> (442,782)
<NET-INVESTMENT-INCOME> 4,831
<REALIZED-GAINS-CURRENT> 8,301,910
<APPREC-INCREASE-CURRENT> 4,828,172
<NET-CHANGE-FROM-OPS> 13,134,913
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (6,637,775)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 455,408
<NUMBER-OF-SHARES-REDEEMED> (16,547)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 65,177,279
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 286,410
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 605,660
<AVERAGE-NET-ASSETS> 2,024,306
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 2.33
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.07
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
INFORMATION EXTRACTED FROM THE AUDITED 12/31/97 FINANCIAL STATEMENTS OF THE
CONSECO FUND GROUP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> EQUITY FUND CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 62,009,842
<INVESTMENTS-AT-VALUE> 66,838,014
<RECEIVABLES> 634,560
<ASSETS-OTHER> 770,008
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,242,582
<PAYABLE-FOR-SECURITIES> 761,513
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,270,440
<TOTAL-LIABILITIES> 3,031,953
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 58,713,491
<SHARES-COMMON-STOCK> 5,418,986
<SHARES-COMMON-PRIOR> 1,667
<ACCUMULATED-NII-CURRENT> 4,831
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,664,135
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,828,172
<NET-ASSETS> 65,210,629
<DIVIDEND-INCOME> 409,988
<INTEREST-INCOME> 37,625
<OTHER-INCOME> 0
<EXPENSES-NET> (442,782)
<NET-INVESTMENT-INCOME> 4,831
<REALIZED-GAINS-CURRENT> 8,301,910
<APPREC-INCREASE-CURRENT> 4,828,172
<NET-CHANGE-FROM-OPS> 13,134,913
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (6,637,775)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,992,638
<NUMBER-OF-SHARES-REDEEMED> (575,320)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 65,177,279
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 286,410
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 605,660
<AVERAGE-NET-ASSETS> 39,947,615
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 2.35
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.13
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
INFORMATION EXTRACTED FROM THE AUDITED 12/31/97 FINANCIAL STATEMENTS OF THE
CONSECO FUND GROUP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> FIXED INCOME CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 20,746,520
<INVESTMENTS-AT-VALUE> 21,042,531
<RECEIVABLES> 1,181,385
<ASSETS-OTHER> 836,576
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,060,492
<PAYABLE-FOR-SECURITIES> 736,200
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 295,066
<TOTAL-LIABILITIES> 1,031,266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,685,963
<SHARES-COMMON-STOCK> 15,148
<SHARES-COMMON-PRIOR> 1,667
<ACCUMULATED-NII-CURRENT> 9,027
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38,225
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 296,011
<NET-ASSETS> 22,029,226
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,173,009
<OTHER-INCOME> 0
<EXPENSES-NET> (104,504)
<NET-INVESTMENT-INCOME> 1,068,505
<REALIZED-GAINS-CURRENT> 317,897
<APPREC-INCREASE-CURRENT> 296,011
<NET-CHANGE-FROM-OPS> 1,682,413
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,059,478)
<DISTRIBUTIONS-OF-GAINS> (279,672)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,325
<NUMBER-OF-SHARES-REDEEMED> (989)
<SHARES-REINVESTED> 144
<NET-CHANGE-IN-ASSETS> 21,995,876
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 58,632
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 284,018
<AVERAGE-NET-ASSETS> 255,327
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .66
<PER-SHARE-GAIN-APPREC> .18
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> (.13)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.13
<EXPENSE-RATIO> 1.25
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
PER SHARE AND RATIO INFORMATION IS SHOWN AT THE CLASS LEVEL. ALL OTHER
INFORMATION IS COMBINED FOR ALL CLASSES. THIS SCHEDULE CONTAINS SUMMARY
INFORMATION EXTRACTED FROM THE AUDITED 12/31/97 FINANCIAL STATEMENTS OF THE
CONSECO FUND GROUP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 022
<NAME> FIXED INCOME FUND CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 20,746,520
<INVESTMENTS-AT-VALUE> 21,042,531
<RECEIVABLES> 1,181,385
<ASSETS-OTHER> 836,576
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,060,492
<PAYABLE-FOR-SECURITIES> 736,200
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 295,066
<TOTAL-LIABILITIES> 1,031,266
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,685,963
<SHARES-COMMON-STOCK> 2,154,327
<SHARES-COMMON-PRIOR> 1,668
<ACCUMULATED-NII-CURRENT> 9,027
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 38,225
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 296,011
<NET-ASSETS> 22,029,226
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,173,009
<OTHER-INCOME> 0
<EXPENSES-NET> (104,504)
<NET-INVESTMENT-INCOME> 1,068,505
<REALIZED-GAINS-CURRENT> 317,897
<APPREC-INCREASE-CURRENT> 296,011
<NET-CHANGE-FROM-OPS> 1,682,413
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,059,478)
<DISTRIBUTIONS-OF-GAINS> (279,672)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,195,219
<NUMBER-OF-SHARES-REDEEMED> (85,930)
<SHARES-REINVESTED> 43,371
<NET-CHANGE-IN-ASSETS> 21,995,876
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 58,632
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 284,018
<AVERAGE-NET-ASSETS> 15,332,418
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .68
<PER-SHARE-GAIN-APPREC> .21
<PER-SHARE-DIVIDEND> (.61)
<PER-SHARE-DISTRIBUTIONS> (.13)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.15
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 250
<NAME> AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<INVESTMENTS-AT-COST> 664005
<INVESTMENTS-AT-VALUE> 774331
<RECEIVABLES> 4505
<ASSETS-OTHER> 32479
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 811315
<PAYABLE-FOR-SECURITIES> 1144
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48498
<TOTAL-LIABILITIES> 49642
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
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<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 761673
<DIVIDEND-INCOME> 15631
<INTEREST-INCOME> 2891
<OTHER-INCOME> 322
<EXPENSES-NET> 3433
<NET-INVESTMENT-INCOME> 15411
<REALIZED-GAINS-CURRENT> 21331
<APPREC-INCREASE-CURRENT> 57105
<NET-CHANGE-FROM-OPS> 93847
<EQUALIZATION> 0
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<NET-CHANGE-IN-ASSETS> 263330
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<AVERAGE-NET-ASSETS> 604399
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</TABLE>
INVESTMENT ADVISORY AGREEMENT
Between CONSECO FUND GROUP
and
CONSECO CAPITAL MANAGEMENT, INC.
THIS INVESTMENT ADVISORY AGREEMENT is entered into as of this 31st day
of December, 1997, by and between Conseco Fund Group (the "Trust"), a
Massachusetts business trust, and Conseco Capital Management, Inc. (the
"Adviser"), a Delaware corporation.
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end diversified management
investment company;
WHEREAS, the Trust has established several separate series of shares,
each of which represents a separate diversified portfolio of investments, and
may establish additional series of shares (each series now or hereafter listed
on Schedule A hereto, as such schedule may be amended from time to time, shall
be referred to herein as a "Fund");
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940;
WHEREAS, the Trust desires to retain the Adviser to render investment
advice and furnish portfolio management services to each Fund; and
WHEREAS, the Adviser is willing to render such advice and furnish such
services pursuant to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties mutually agree as follows:
1. Employment; Duties of the Adviser. (a) The Trust hereby employs the
Adviser as investment adviser of each Fund. The Adviser hereby accepts such
employment and agrees to provide the services set forth herein in return for the
compensation under Paragraph 8.
(b) Subject to the supervision and direction of the Board of
Trustees of the Trust (the "Trustees"), the Adviser shall provide a continuous
investment program for each Fund and shall, as part of its duties hereunder, (i)
furnish investment research and management with respect to the investment of the
assets of each Fund, (ii) determine from time to time securities or other
<PAGE>
investments to be purchased, sold, retained or lent by each Fund, (iii) furnish,
without cost to each Fund, such office space, equipment, facilities and
personnel as needed for servicing the investments of the Fund to the extent not
provided by the Trust's administrator under a separate agreement with the Trust,
(iv) maintain all books and records with respect to portfolio transactions of
each Fund, and (v) permit its directors, officers and employees to serve,
without compensation from the Trust or each Fund, as Trustees or officers of the
Trust. The Adviser shall carry out its duties under this Agreement in accordance
with each Fund's stated investment objective, policies, and restrictions, the
1940 Act and other applicable laws and regulations, and such other guidelines as
the Trustees may reasonably establish from time to time.
(c) The Adviser will place orders for each Fund either
directly with the issuer or with any broker or dealer. In placing orders with
brokers and dealers, the Adviser will attempt to obtain the best net results in
terms of price and execution. Consistent with this obligation, the Adviser may,
in its discretion, purchase and sell portfolio securities to and from brokers
and dealers that provide brokerage and research services. The Adviser may pay
such brokers and dealers a higher commission than may be charged by other
brokers and dealers if the Adviser determines in good faith that such commission
is reasonable in relation to the value of the brokerage and research services
provided. This determination may be viewed in terms either of the particular
transaction or of the overall responsibility of the Adviser to the Funds and its
other clients.
2. Retention of a Sub-Adviser. Subject to such approval as may be
required under the 1940 Act, the Adviser may retain a sub-adviser, at the
Adviser's own cost and expense, for the purpose of making investment
recommendations and research available to the Adviser. Retention of a
sub-adviser with respect to any or all Funds shall in no way reduce the
responsibilities or obligations of the Adviser under this Agreement, and the
Adviser shall be responsible to the Trust and each such Fund for all acts or
omissions of the sub-adviser in connection with the performance of the Adviser's
duties hereunder.
3. Independent Contractor Status; Services Not Exclusive. The Adviser
shall, for all purposes herein, be deemed to be an independent contractor. The
services to be rendered by the Adviser pursuant to the provisions of this
Agreement are not to be deemed exclusive and the Adviser shall therefore be free
to render similar or different services to others, provided that, its ability to
render the services described herein shall not be impaired thereby.
4. Furnishing of Information. (a) Each Fund shall from time to time
furnish or make available to the Adviser detailed statements of the investments
and assets of the Fund, information pertaining to the investment objectives and
needs of the Fund, financial reports, proxy statements, and such legal or other
information as the Adviser may reasonably request in connection with the
performance of its obligations hereunder.
(b) The Adviser will furnish the Trustees with such periodic
and special reports (including data on securities, economic conditions and other
pertinent subjects) as the Trustees may reasonably request.
5. Fund Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, the Adviser agrees that all records which it maintains for
2
<PAGE>
the Trust shall be the property of the Trust and shall be surrendered promptly
to the Trust upon request. The Adviser further agrees to preserve all such
records for the periods prescribed by Rule 31a-2 under the 1940 Act. The Adviser
agrees that it will maintain all records and accounts regarding the investment
activities of each Fund in a confidential manner. All such accounts or records
shall be made available within five (5) business days of request to the
accountants or auditors of each Fund during regular business hours at the
Adviser's offices. In addition, the Adviser will provide any materials
reasonably related to the investment advisory services provided hereunder as may
be reasonably requested in writing by the designated officers of the Trust or as
may be required by any duly constituted authority.
6. Allocation of Costs and Expenses. (a) The Adviser shall pay the
costs of rendering its services pursuant to the terms of this Agreement, other
than the costs of securities (including brokerage commissions, if any) purchased
by the Funds.
(b) Each Fund shall bear all expenses of its operation
(including its proportionate share of the general expenses of the Trust) not
specifically assumed by the Adviser. Expenses borne by each Fund shall include,
but are not limited to, (i) organizational and offering expenses of the Fund and
expenses incurred in connection with the issuance of shares of the Fund; (ii)
fees of the Trust's custodian and transfer agent; (iii) costs and expenses of
pricing and calculating the net asset value per share for each class of the Fund
and of maintaining the books and records required by the 1940 Act; (iv)
expenditures in connection with meetings of shareholders and Trustees, other
than those called solely to accommodate the Adviser; (v) compensation and
expenses of Trustees who are not interested persons of the Trust or the Adviser
("Disinterested Trustees"); (vi) the costs of any liability, uncollectible items
of deposit and other insurance or fidelity bond; (vii) the cost of preparing,
printing, and distributing prospectuses and statements of additional
information, any supplements thereto, proxy statements, and reports for existing
shareholders; (viii) legal, auditing, and accounting fees; (ix) trade
association dues; (x) filing fees and expenses of registering and maintaining
registration of shares of the Fund under applicable federal and state securities
laws; (xi) brokerage commissions; (xii) taxes and governmental fees; and (xiii)
extraordinary and non-recurring expenses.
(c) To the extent the Adviser incurs any costs which are an
obligation of a Fund as set forth herein and to the extent such costs have been
reasonably rendered, the Fund shall promptly reimburse the Adviser for such
costs.
8. Investment Advisory Fees. (a) As compensation for the advice and
services rendered and the expenses assumed by the Adviser pursuant hereto, each
Fund shall pay to the Adviser a fee computed at the annual rate set forth on
Schedule A hereto, as such schedule may be amended from time to time.
(b) The investment advisory fee shall be accrued daily by each
Fund and paid to the Adviser at the end of each calendar month.
(c) In the case this Agreement becomes effective or terminates
with respect to any Fund before the end of any month, the investment advisory
fee for that month shall be calculated on the basis of the number of business
days during which it is in effect for that month.
3
<PAGE>
9. Additional Funds. In the event that the Trust establishes one or
more series of shares with respect to which it desires to have the Adviser
render services under this Agreement, it shall so notify the Adviser in writing.
If the Adviser agrees in writing to provide said services, such series of shares
shall become a Fund hereunder upon execution of a new Schedule A and the
approval of the Trustees and the shareholders of the series as required by the
1940 Act.
10. Compliance with Applicable Law. Nothing contained herein shall be
deemed to require the Funds to take any action contrary to (a) the Agreement and
Declaration of Trust of the Trust, (b) the By-laws of the Trust, or (c) any
applicable statute or regulation. Nothing contained herein shall be deemed to
relieve or deprive the Trustees of their responsibility for and control of the
conduct of the affairs of the Trust or the Funds.
11. Liability. (a) In the absence of willful misfeasance, bad faith or
gross negligence on the part of the Adviser, or reckless disregard by the
Adviser of its obligations or duties hereunder, the Adviser shall not be subject
to liability to the Trust or any Fund or its shareholders for any act or
omission in the course of or in connection with rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
(b) No provision of this Agreement shall be construed to
protect any Trustee or officer of the Trust, or any director or officer of the
Adviser, from liability to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence on the part of
such person, or reckless disregard by such person of obligations or duties
hereunder.
(c) A copy of the Trust's Agreement and Declaration of Trust
is on file with the Secretary of the Commonwealth of Massachusetts, and notice
is hereby given that this Agreement is executed on behalf of the Trustees as
Trustees and not individually. The Adviser acknowledges and agrees that the
obligations of a Fund hereunder are not personally binding upon any of the
Trustees or shareholders of the Fund but are binding only upon property of that
Fund and no other.
12. Term of Agreement. This Agreement shall become effective on the
date above written with respect to each Fund listed on Schedule A hereto on such
date and shall continue in effect for two years from such date unless sooner
terminated as hereinafter provided. With respect to each series added by
execution of a new Schedule A, this Agreement shall become effective on the date
of such execution and shall remain in effect for two years after such execution
unless sooner terminated as hereinafter provided. Thereafter, this Agreement
shall continue in effect with respect to each Fund from year to year so long as
such continuation is approved at least annually for each Fund by (i) the
Trustees or by the vote of a majority of the outstanding voting securities of
the Fund, and (ii) the vote of a majority of the Disinterested Trustees, with
such vote being cast in person at a meeting called for the purpose of voting on
such approval.
13. Termination. This Agreement may be terminated with respect to any
Fund at any time without payment of any penalty (a) by the Trustees or by vote
of a majority of the outstanding voting securities of the Fund, upon delivery of
<PAGE>
sixty (60) days' written notice to the Adviser, or (b) by the Adviser upon sixty
(60) days' written notice to the Fund. Termination of this Agreement with
respect to one Fund shall not affect the continued effectiveness of this
Agreement with respect to any other Fund. This Agreement shall terminate
automatically in the event of its assignment.
14. Amendment of Agreement. This Agreement may only be modified or
amended by mutual written agreement of the parties hereto.
15. No Waiver. The waiver by any party of any breach of or default
under any provision or portion of this Agreement shall not operate as or be
construed to be a waiver of any subsequent breach or default.
16. Use of Name. In consideration of the execution of this Agreement,
the Adviser hereby grants to the Trust the right to use the name "Conseco" as
part of its name and the names of the Funds. The Trust agrees that in the event
this Agreement is terminated, it shall immediately take such steps as are
necessary to amend its name to remove the reference to "Conseco."
17. Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Indiana, except insofar as the 1940
Act may be controlling.
18. Definitions. For purposes of application and operation of the
provisions of this Agreement, the terms "majority of the outstanding voting
securities, "interested persons," and "assignment" shall have the meaning as set
forth in the 1940 Act. In addition, when the effect of a requirement of the 1940
Act reflected in any provision of this Agreement is modified, interpreted or
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
19. Severability. The provisions of this Agreement shall be considered
severable and if any provision of this Agreement is deemed to be invalid or
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect any other provision of this Agreement which is valid.
20. Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
ATTEST: CONSECO FUND GROUP,
/s/ William P. Latimer, Esq. By: /s/ Maxwell E. Bublitz
- ------------------------------ --------------------------------
William P. Latimer, Esq. Maxwell E. Bublitz
President
ATTEST: CONSECO CAPITAL MANAGEMENT, INC.
/s/ William P. Latimer, Esq. By: /s/ Maxwell E. Bublitz
- ------------------------------ --------------------------------
William P. Latimer, Esq. Maxwell E. Bublitz
President
6
<PAGE>
CONSECO FUND GROUP
INVESTMENT ADVISORY AGREEMENT
SCHEDULE A
Series Annual Fee
------ ----------
Conseco 20 Fund .70%
High Yield Fund .70%
International Fund 1.00%
AMENDED AND RESTATED
PRINCIPAL UNDERWRITING AGREEMENT
BETWEEN CONSECO FUND GROUP
AND
CONSECO EQUITY SALES, INC.
THIS PRINCIPAL UNDERWRITING AGREEMENT is entered into as of this 2nd day
of January, 1997, by and between Conseco Fund Group (the "Trust"), a
Massachusetts business trust, and Conseco (formerly GARCO) Equity Sales, Inc., a
Texas corporation (the "Underwriter"), and is amended as of December 31, 1997.
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end diversified management investment
company, and its shares are registered pursuant to the Securities Act of 1933
(the "1933 Act");
WHEREAS, the Trust has established several separate series of shares, each
of which represents a separate diversified portfolio of investments, and may
establish additional series of shares (each series now or hereafter listed on
Schedule A hereto, as such schedule may be amended from time to time, shall be
referred to herein as a "Fund");
WHEREAS, the Trust has issued shares of each Fund in one or more classes
(each a "Class"), and has adopted Plans of Distribution and Service (the
"Plans") pursuant to Rule 12b-1 under the 1940 Act with respect to certain of
those Classes (each a "12b-1 Class");
WHEREAS, the Underwriter is registered as a broker-dealer under the
Securities Exchange Act of 1934 (the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD");
WHEREAS, the Trust desires to retain the Underwriter to act as the Trust's
principal underwriter in connection with the offering and sale of shares of each
Fund and to furnish certain other services; and
WHEREAS, the Underwriter is willing to act as principal underwriter and to
furnish such services pursuant to the terms and conditions set forth herein;
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties mutually agree as follows:
1. Employment; Duties Of The Underwriter.
-------------------------------------
(a) The Trust hereby employs the Underwriter, and the Underwriter
hereby accepts employment, as the principal underwriter and exclusive sales
agent in connection with the offering and sale of the shares of each Fund. It is
understood, however, that such employment does not preclude sales made directly
by the Trust or through its transfer agent as set forth in the Trust's
Registration Statement. As used herein, the term "Registration Statement" shall
mean the registration statement most recently filed by the Trust under the 1933
Act and the 1940 Act, including any amendments or supplements thereto. The
Underwriter agrees to use its best efforts to promote the sale of the Funds'
shares. The Underwriter is not obligated to sell any specific number of shares.
(b) The Underwriter shall hold itself available to receive
purchase and redemption orders for shares of each Fund and to accept such orders
on behalf of the Trust. The Underwriter shall promptly notify the Trust or its
transfer agent of all orders received. Orders shall be deemed effective at the
time and in the manner set forth in the Registration Statement.
(c) The Trust reserves the right at all times to suspend or limit
the public offering of the shares of any or all Funds (or of any or all Classes
thereof) upon written notice to the Underwriter. The Trust and the Underwriter
each has the right to reject any order in whole or in part.
(d) The Underwriter shall provide or obtain certain shareholder
services, including, but not limited to, maintaining account records for
shareholders; answering inquiries relating to shareholders' accounts, the
policies of the Funds and the performance of their investments; providing
assistance and handling transmission of funds in connection with purchase,
redemption and exchange orders for shares; providing assistance in connection
with changing account setups and enrolling in various optional services; and
producing and disseminating shareholder communications or servicing materials.
The Underwriter may pay compensation and expenses, including overhead, salaries,
and telephone and other communications expenses, to Authorized Dealers (as
defined below) and employees who provide such services.
(e) The Underwriter in its discretion may enter into agreements
with such brokers, dealers or other financial intermediaries ("Authorized
Dealers") as it may select regarding the distribution of Fund shares and/or the
servicing of shareholder accounts. To the extent required by applicable law,
each Authorized Dealer shall be appropriately registered and qualified to carry
out its duties under its agreement with the Underwriter.
2. INDEPENDENT CONTRACTOR STATUS; SERVICES NOT EXCLUSIVE. The Underwriter
shall, for all purposes herein, be deemed to be an independent contractor. The
services to be rendered by the Underwriter pursuant to the provisions of this
Agreement are not to be deemed exclusive, and the Underwriter shall therefore be
free to render similar or different services to others; PROVIDED THAT, its
ability to render the services described herein shall not be impaired thereby.
2
<PAGE>
3. FURNISHING OF INFORMATION. Each Fund shall keep the Underwriter fully
informed with regard to its affairs. Each Fund shall furnish the Underwriter at
least annually with audited financial statements of its books and accounts
certified by its independent public accountants. In addition, from time to time,
each Fund shall furnish such additional financial or other information as the
Underwriter may reasonably request.
4. OFFERING PRICE. Each Class of Fund shares shall be offered at a price
equivalent to its net asset value per share (determined in the manner and at the
time or times set forth in the Registration Statement) plus any applicable sales
charge. On each day on which the New York Stock Exchange ("NYSE") is open for
business, the Trust shall furnish (or arrange for another person to furnish) the
Underwriter with each Class' net asset value per share.
5. COMPENSATION.
(a) As compensation for its activities under this Agreement with
respect to any Class of Fund shares with an initial sales charge, the
Underwriter shall receive the sales charge, if any, imposed on purchases of
shares of that Class. The amount of the sales charge shall be calculated in
accordance with the Registration Statement. The Distributor is authorized to
collect the gross proceeds derived from the sale of such shares, remit the net
asset value thereof to the Trust and retain the initial sales charge.
(b) As compensation for its activities under this Agreement with
respect to any Class of Fund shares with a contingent deferred sales charge, the
Underwriter shall receive the sales charge, if any, imposed on redemptions of
shares of that Class. The amount of the sales charge shall be determined in
accordance with the Registration Statement.
(c) As additional compensation, the Underwriter shall receive a
distribution and service fee with respect to each 12b-1 Class at the rate set
forth in the applicable Plan, as such Plan may be amended from time to time.
(d) The Underwriter may reallow to Authorized Dealers any or all
of the initial sales charges, contingent deferred sales charges, or distribution
and service fees which it is paid under this Agreement; provided, however, that
the Distributor may not make payments to any Authorized Dealer for shareholder
servicing in an amount in excess of .25% of the average annual net asset value
of the shares owned by clients of such Authorized Dealer.
6. PURCHASES FOR UNDERWRITER'S OWN ACCOUNT. The Underwriter shall not
purchase shares for its own account for the purpose of resale to the public, but
the Underwriter may purchase shares for its own account only upon written
assurance that the purchase is for investment purposes and that the shares shall
not be resold except through redemption by the Trust.
7. ALLOCATION OF EXPENSES. (a) Each Fund will pay all fees and expenses
in connection with (i) preparing audited and certified financial statements;
(ii) registering and maintaining the registration of its shares under applicable
federal and state securities laws; and (iii) preparing, printing and
3
<PAGE>
distributing prospectuses and statements of additional information, any
supplements thereto, reports, and other communications that are sent to existing
shareholders.
(b) The Underwriter shall pay (or reimburse) all fees and expenses of each
Fund in connection with (i) printing and distributing additional copies of
prospectuses, statements of additional information, any supplements thereto,
reports, and other communications for other than existing shareholders used to
offer shares to the public; and (ii) preparing, printing and distributing all
advertising and sales literature relating to the Fund.
(c) The Underwriter shall pay all of its own expenses in connection with
its services under this Agreement and may pay the salaries and expenses of
Authorized Dealers or employees who engage in or support the distribution of
Fund shares or who service shareholder accounts.
8. REPORTS OF UNDERWRITER. The Underwriter shall prepare, at least
quarterly, reports for the Trustees showing expenditures under this Agreement
and the purposes for which such expenditures were made.
9. CONDUCT OF BUSINESS. The Trust authorizes the Underwriter to provide
only such information and to make only such statements and representations as
permitted in accordance with federal and state securities laws and applicable
rules of self-regulatory organizations.
10. ADDITIONAL FUNDS. In the event that the Trust establishes one or more
series of shares with respect to which it desires to have the Underwriter render
services under this Agreement, it shall so notify the Underwriter in writing. If
the Underwriter agrees in writing to provide said services, such series of
shares shall become a Fund hereunder upon execution of a new Schedule A and
approval by the Trustees.
11. LIABILITY. In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Underwriter or reckless disregard by the
Underwriter of its obligations or duties hereunder, the Underwriter shall not be
subject to liability to the Trust or any Fund or its shareholders for any act or
omission in the course of or in connection with rendering services hereunder.
12. TERM OF AGREEMENT. This Agreement shall become effective on the date
above written and shall continue in effect for two years from such date unless
sooner terminated as hereinafter provided. Thereafter this Agreement shall
continue in effect with respect to each Fund from year to year so long as such
continuation is approved at least annually for each Fund by (i) the Trustees or
by the vote of a majority of the outstanding voting securities of the Fund and
(ii) the vote of a majority of the Trustees of the Trust who are not parties to
this Agreement or interested persons of any such party ("Disinterested
Trustees") and by a majority of those Disinterested Trustees who have no direct
or indirect financial interest in any Plan or this Agreement. ("Rule 12b-1
Trustees"), with such vote being cast in person at a meeting called for the
purpose of voting on such approval.
13. TERMINATION. This Agreement may be terminated with respect to any
Fund at any time without payment of any penalty (a) by the Trustees, by vote of
4
<PAGE>
a majority of the outstanding voting securities of the Fund, or by the vote of a
majority of the Rule 12b-1 Trustees, upon delivery of sixty (60) days' written
notice to the Underwriter, or (b) by the Underwriter upon sixty (60) days'
written notice to the Fund. Termination of this Agreement with respect to one
Fund shall not affect the continued effectiveness of this Agreement with respect
to any other Fund. This Agreement shall terminate automatically in the event of
its assignment.
14. ENTIRE AGREEMENT; AMENDMENT. This Agreement represents the entire
agreement between the parties hereto and supersedes any prior agreement between
the parties pertaining to the subject matter hereof, whether oral or written.
This Agreement may only be modified or amended by mutual written agreement of
the parties hereto.
15. NO WAIVER. The waiver by any party of any breach of or default under
any provision or portion of this Agreement shall not operate as or be construed
to be a waiver of any subsequent breach or default.
16. DEFINITIONS. For purposes of application and operation of the
provisions of this Agreement, the terms "assignment," "interested persons" and
"majority of the outstanding voting securities" shall have the meanings set
forth in the 1940 Act. In addition, when the effect of a requirement of the 1940
Act reflected in any provision of this Agreement is modified, interpreted or
relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
17. SEVERABILITY. The provisions of this Agreement shall be considered
severable and if any provision of this Agreement is deemed to be invalid or
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect any other provision of this Agreement which is valid.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute one and
the same instrument.
19. NOTICES. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed postage prepaid to the other party at the
address such other party may designate from time to time for the receipt of such
notices.
20. APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Indiana, except insofar as the 1940 Act
may be controlling.
21. LIMITATIONS OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS. A copy of
the Agreement and Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts and notice is hereby given that
this Agreement is executed on behalf of the Trustees as Trustees, and not
individually. The Underwriter acknowledges and agrees that the obligations of a
Fund hereunder are not binding upon any of the Trustees or shareholders of the
Fund personally but are binding only upon the assets and property of that Fund
and no other.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
CONSECO FUND GROUP
ATTEST: By: /s/ Gregory J. Hahn
-----------------------------
Gregory J. Hahn
Vice President
__________________________________
CONSECO EQUITY SALES, INC.
ATTEST:
By: /s/ L. Gregory Gloeckner
-----------------------------
L. Gregory Gloeckner
__________________________________ President
6
<PAGE>
CONSECO FUND GROUP
AMENDED AND RESTATED PRINCIPAL UNDERWRITING AGREEMENT
SCHEDULE A
SERIES
Conseco Equity Fund
Conseco Asset Allocation Fund
Conseco Fixed Income Fund
Conseco 20 Fund
Conseco High Yield Fund
Conseco International Fund
7
AMENDED AND RESTATED ADMINISTRATION AGREEMENT
BETWEEN CONSECO FUND GROUP
AND
CONSECO SERVICES LLC
THIS ADMINISTRATION AGREEMENT is entered into as of this 2nd day of
January, 1997, by and between Conseco Fund Group (the "Trust"), a Massachusetts
business trust having its principal office and place of business at 11825 N.
Pennsylvania St., Carmel, Indiana, and Conseco Services LLC (the
"Administrator"), an Indiana limited liability company having its principal
office and place of business at 11815 N. Pennsylvania St., Carmel, Indiana, and
is amended as of December 31, 1997.
WITNESSETH:
WHEREAS, the Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end diversified management investment
company;
WHEREAS, the Trust has established several separate series of shares, each
of which represents a separate portfolio of investments, and may establish
additional series of shares (each series now or hereafter listed on Schedule A
hereto, as such schedule may be amended from time to time, shall be referred to
herein as a "Fund"); and
WHEREAS, the Trust desires to retain the administrator to provide
administrative services to each Fund, and the Administrator is willing to
provide said services directly or through other entities;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties mutually agree as follows:
1. Employment; Duties Of The Administrator
---------------------------------------
1.1 The Trust hereby employs the Administrator as administrator of each Fund,
and the Administrator agrees to provide the services set forth herein in
return for the compensation under Paragraph 2.
1.2 Subject to the supervision and direction of the Board of Trustees of the
Trust (the "Trustees"), the Administrator shall supervise each Fund's
business and affairs and shall provide the services required for the
effective administration of each Fund to the extent not otherwise provided
by employees, agents or contractors of the Trust. These services shall
include: (i) furnishing, without cost to each Fund, such office space,
<PAGE>
equipment, facilities and personnel as needed in connection with the
Fund's operations, (ii) supervising the preparation and filing of all
documents required for compliance by each Fund with the federal and state
securities laws, (iii) monitoring and reporting on compliance by each Fund
with its investment policies and restrictions, (iv) furnishing clerical
and bookkeeping services as needed by each Fund in connection with its
operation (including establishing appropriate expense accruals,
maintaining expense files and coordinating payment of invoices), (v)
maintaining the books and records required by the 1940 Act, (vi) fund
accounting, (vii) assisting in the preparation and distribution of annual
and other reports to shareholders of each Fund, (viii) monitoring and
reporting on compliance with NASD rules, (ix) monitoring and reporting on
compliance with applicable Internal Revenue Code provisions and
regulations, (x) supervising the preparation and filing of any federal,
state and local income tax returns, (xi) preparing for meetings of the
Trustees and shareholders, (xii) permitting its directors, officers and
employees to serve, without compensation from the Trust or each Fund, as
Trustees or officers of the Trust, (xiii) overseeing the determination and
publication of each Fund's net asset value per share in accordance with
the Fund's policies, and (xiv) overseeing relations with, and the
performance of, agents engaged by the Trust, such as its transfer agent,
custodian, independent accountants and legal counsel. Nothing contained
herein shall be deemed to relieve or deprive the Trustees of their
responsibility for and control of the conduct of the affairs of the Trust
or the Funds.
1.3 The administrative services provided hereunder will exclude (i) portfolio
custodial services provided by the Trust's custodian, (ii) transfer agency
services provided by the Trust's transfer agent, (iii) distribution
services provided by the distributor of the Trust's shares, Conseco Equity
Sales, Inc., and (iv) any administrative services provided by the Trust's
investment adviser pursuant to its investment advisory agreements with the
Trust.
2. Administration Fees
-------------------
2.1 As compensation for the services rendered and the expenses assumed by the
Administrator pursuant to this Agreement, each Fund shall pay the
Administrator a fee computed at the annual rate set forth on Schedule A,
as such schedule may be amended from time to time.
2.2 The administration fee shall be accrued daily by each Fund and paid to the
Administrator at the end of each calendar month. In the case this
Agreement becomes effective or terminates with respect to any Fund before
the end of any month, the administration fee for that month shall be
calculated on the basis of the number of business days during which it is
in effect for that month.
3. Expenses
--------
Each Fund shall bear all expenses of its operation (including its
proportionate share of the general expenses of the Trust) not specifically
assumed by the Administrator. Expenses borne by each Fund shall include,
but are not limited to, (i) organizational and offering expenses of the
Fund and expenses incurred in connection with the issuance of shares of
the Fund; (ii) fees of the Trust's custodian and transfer agent; (iii)
expenditures in connection with meetings of shareholders and Trustees,
2
<PAGE>
other than those called solely to accommodate the Administrator; (iv)
compensation and expenses of Trustees who are not interested persons of
the Trust or the Administrator ("Disinterested Trustees"); (v) the costs
of any liability, uncollectible items of deposit and other insurance or
fidelity bond; (vi) the cost of preparing, printing, and distributing
prospectuses and statements of additional information, any supplements
thereto, proxy statements, and reports for existing shareholders; (vii)
legal, auditing, and accounting fees; (viii) trade association dues; (ix)
filing fees and expenses of registering and maintaining registration of
shares of the Fund under applicable federal and state securities laws; (x)
brokerage commissions; (xi) taxes and governmental fees; and (xii)
extraordinary and non-recurring expenses.
4. Representations And Warranties Of The Administrator And The Trust
-----------------------------------------------------------------
4.1 The Administrator represents and warrants to the Trust that:
(a) It is a limited liability company duly organized and existing, in
good standing, under the laws of the State of Indiana.
(b) It is duly qualified to carry on its business in the State of
Indiana.
(c) It is empowered under applicable laws and by its Charter and By-Laws
to enter into and perform this Agreement.
(d) All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
(e) It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under
this Agreement.
4.2 The Trust represents and warrants to the Administrator that:
(a) It is a business trust duly organized and existing, in good standing,
under the laws of the Commonwealth of Massachusetts.
(b) It is empowered under applicable laws and by its Agreement and
Declaration of Trust and By-Laws to enter into and perform this
Agreement.
(c) All corporate proceedings required by said Agreement and Declaration
of Trust and By-Laws have been taken to authorize it to enter into
and perform this Agreement.
(d) A registration statement under the Securities Act of 1933, as
amended, and the 1940 Act is currently effective and will remain
effective, and appropriate securities filings have been made and
will continue to be made, with respect to all shares of the Funds
being offered for sale.
3
2
<PAGE>
5. Confidentiality
---------------
Subject to the duty of the Trust or the Administrator to comply with
applicable law, each party agrees, on its own behalf and on behalf of its
employees, agents and contractors, to treat as confidential all
information with respect to the other party received pursuant to this
Agreement.
6. Delegation Of Duties
--------------------
The Administrator may delegate to a sub-administrator the performance of
any or all of its duties hereunder with respect to one or more Funds. The
Administrator shall be responsible to the Trust and the Funds for the acts
and omissions of any sub-administrator to the same extent as it is for its
own acts and omissions. The Administrator shall compensate any
sub-administrator retained pursuant to this Agreement out of the fees it
receives pursuant to Paragraph 2 above.
7. Liability
---------
7.1 The Administrator and its officers, directors or employees shall not be
liable for, and each Fund shall indemnify and hold the Administrator
harmless from, any and all losses, damages, or expenses resulting from any
action taken or omitted to be taken by the Administrator hereunder, except
a loss, damage or expense resulting from willful misfeasance, bad faith or
negligence of the Administrator or that of its officers, directors or
employees or the reckless disregard by the Administrator or its officers,
directors or employees of obligations and duties hereunder. Nothing herein
shall in any way constitute a waiver or limitation of any rights which may
exist under any federal securities laws.
7.2 A copy of the Trust's Agreement and Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts, and notice is hereby
given that this Agreement is executed on behalf of the Trustees as
Trustees and not individually. The Administrator acknowledges and agrees
that the obligations of a Fund hereunder are not binding upon any of the
Trustees or shareholders of the Fund personally but are binding only upon
the assets and property of that Fund and no other.
8. Fund Records
------------
In compliance with the requirements of Rule 31a-3 under the 1940 Act, the
Administrator agrees that all records which it maintains on behalf of the
Trust are the property of the Trust, will be preserved for the periods
prescribed by Rule 31a-2 under the 1940 Act, and will be surrendered
promptly to the Trust upon request.
9. Additional Funds
----------------
In the event that the Trust establishes one or more series of shares with
respect to which it desires to have the Administrator render services
under this Agreement, it shall so notify the Administrator in writing. If
the Administrator agrees in writing to provide said services, such series
4
3
<PAGE>
of shares shall become a Fund hereunder upon execution of a new Schedule A
and approved by the Trustees.
10. Term Of Agreement
-----------------
This Agreement, as amended, shall become effective on the date above
written and shall continue in effect for two years from such date unless
sooner terminated as hereinafter provided. Thereafter, this Agreement
shall continue in effect with respect to each Fund from year to year so
long as such continuation is approved at least annually for each Fund by
(i) the Trustees or by the vote of a majority of the outstanding voting
securities of the Fund and (ii) the vote of a majority of the
Disinterested Trustees, with such vote being cast in person at a meeting
called for the purpose of voting on such approval.
11. Termination
-----------
This Agreement may be terminated by either party upon sixty (60) days'
prior written notice to the other. Termination of this Agreement with
respect to one Fund shall not affect the continued effectiveness of this
Agreement with respect to any other Fund.
12. Amendment
---------
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by the Trustees.
13. Assignment
----------
Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the other
party. This Agreement shall inure to the benefit of and be binding upon
the parties and their respective permitted successors and assigns.
14. Applicable Law
--------------
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the State of Indiana, except
insofar as the 1940 Act may be controlling.
15. DEFINITIONS
------------
As used in this Agreement, the terms "majority of the outstanding voting
securities," "interested persons," and "assignment" shall have the meaning
as set forth in the 1940 Act. In addition, when the effect of a
requirement of the 1940 Act reflected in any provision of this Agreement
is modified, interpreted or relaxed by a rule, regulation or order of the
Securities and Exchange Commission, whether of special or of general
application, such provision shall be deemed to incorporate the effect of
such rule, regulation or order.
5
4
<PAGE>
16. Severability
------------
The provisions of this Agreement shall be considered severable and if any
provision of this Agreement is deemed to be invalid or contrary to any
existing or future law, such invalidity shall not impair the operation of
or affect any other provision of this Agreement which is valid.
17. Merger Of Agreement
-------------------
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
18. Counterparts
------------
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
CONSECO FUND GROUP
ATTEST: By: /s/ Gregory J. Hahn
------------------------------
/s/ William P. Latimer Gregory J. Hahn
- ------------------------------ Vice President
William P. Latimer
CONSECO SERVICES LLC
ATTEST: By: /s/ Thomas J. Killen
--------------------------------
Thomas J. Killen
President
/s/ Karl W. Kindig
- ------------------------------
Karl W. Kindig
<PAGE>
CONSECO FUND GROUP
AMENDED AND RESTATED ADMINISTRATION AGREEMENT
SCHEDULE A
SERIES ANNUAL FEE
------ ----------
Conseco Equity Fund .20%
Conseco Asset Allocation Fund .20%
Conseco Fixed Income Fund .20%
Conseco 20 Fund .20%
Conseco High Yield Fund .20%
Conseco International Fund .75%
AGREEMENT AMONG
AMR INVESTMENT SERVICES TRUST
AMR INVESTMENT SERVICES, INC.
and
CONSECO FUND GROUP
CONSECO CAPITAL MANAGEMENT, INC.
THIS AGREEMENT is made and entered into as of the 10th day of December,
1997, by and among AMR Investment Services Trust ("AMR Trust"), AMR Investment
Services, Inc. ("AMR"), Conseco Fund Group ("Conseco Trust") and Conseco Capital
Management, Inc. ("Adviser").
WHEREAS, the International Equity Portfolio ("Portfolio") is a series
of AMR Trust and the International Fund ("Fund") is a series of Conseco Trust;
WHEREAS, the Portfolio and the Fund are each a series of separate
open-end management investment companies and each have the same investment
objectives and substantially the same investment policies;
WHEREAS, AMR serves as the manager of the Portfolio and Adviser and its
affiliates serve as the investment adviser, administrator, sponsor and
distributor of the Fund;
WHEREAS, the Fund desires to invest all of its investable assets in the
Portfolio in exchange for a beneficial interest in the Portfolio (the
"Investment") on the terms and conditions set forth in this Agreement; and
WHEREAS, the Portfolio believes that accepting the Investment is in the
best interests of the Portfolio and that the interests of existing investors in
the Portfolio will not be diluted as a result of its accepting the Investment;
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein made and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows.
<PAGE>
ARTICLE I
THE INVESTMENT
1.1 Agreement to Effect the Investment. The Fund agrees to assign,
transfer and deliver all of the Fund's investable assets ("Assets") to the
Portfolio at each Closing (as hereinafter defined). The Portfolio agrees in
exchange therefor to issue to the Fund a beneficial interest ("Interest") in the
Portfolio equal in value to the net value of the Assets of the Fund conveyed to
the Portfolio on that date of Closing, which Interest shall be fully redeemable
in accordance with the Investment Company Act of 1940, as amended ("1940 Act")
and the AMR Trust's registration thereunder.
ARTICLE II
CLOSING AND CLOSING DATE
2.1 Time of Closing. The conveyance of the Assets in exchange for the
Interest, as described in Article I, together with related acts necessary to
consummate such transactions, shall occur initially on the date the Fund
commences an offering of its shares to the public and at each subsequent date as
the Fund desires to make a further Investment in the Portfolio (each, a
"Closing"). All acts occurring at any Closing shall be deemed to occur
simultaneously as of the last daily determination of the Portfolio's net asset
value on the date of Closing.
2.2 Related Closing Matters. On each date of Closing, the Conseco
Trust, on behalf of the Fund, shall authorize the Fund's custodian to deliver
all of the Assets held by such custodian to the Portfolio's custodian. The
Fund's and the Portfolio's custodians shall acknowledge, in a form acceptable to
the other party, their respective delivery and acceptance of the Assets. The
Portfolio shall deliver to the Conseco Trust evidence acceptable to the Conseco
Trust of the Fund's ownership of the Interest. In addition, each party shall
deliver to each other party such bills of sale, checks, assignments, securities
instruments, receipts or other documents as such other party or its counsel may
reasonably request. Each of the representations and warranties set forth in
Article III shall be deemed to have been made anew on each date of Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
<PAGE>
3.1 The Conseco Trust and Adviser. The Conseco Trust and Adviser each
represents and warrants to AMR Trust and AMR that:
(a) Organization. The Conseco Trust is a trust duly organized,
validly existing and in good standing under the laws of Massachusetts, the Fund
is a duly and validly designated series of the Conseco Trust, and the Conseco
Trust and the Fund have the requisite power and authority to own their property
and conduct their business as now being conducted and as proposed to be
conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by the Conseco Trust and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Conseco Trust and the Fund and no other action or proceeding is
necessary for the execution and delivery of this Agreement by the Conseco Trust,
the performance by the Conseco Trust of its obligations hereunder and the
consummation by the Conseco Trust of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Conseco Trust and
constitutes a legal, valid and binding obligation of the Conseco Trust in
respect of the Fund, and is enforceable against them in accordance with its
terms.
(c) Authorization of Investment. The Investment has been duly
authorized by all necessary action on the part of the Board of Trustees of the
Conseco Trust.
(d) No Bankruptcy Proceedings. Neither the Conseco Trust nor
the Fund is under the jurisdiction of a court in a proceeding under Title 11 of
the United States Code (the "Bankruptcy Code") or similar case within the
meaning of Section 368(a)(3)(A) of the Bankruptcy Code.
(e) Fund Assets. The Fund's Assets will, at the initial
Closing, consist solely of cash.
(f) Fiscal Year. The fiscal year end for the Fund is October
31.
(g) Auditors. The Conseco Trust has appointed Coopers &
Lybrand as the Fund's independent public accountants to certify the Fund's
financial statements in accordance with Section 32 of the 1940 Act.
(h) Registration Statements. The Conseco Trust and Adviser (1)
have reviewed the Portfolio's registration statement on Form N-1A, as filed with
the Securities and Exchange Commission ("SEC"), and the Conseco Trust
<PAGE>
understands and agrees to the Portfolio's policies and methods of operation as
described therein, and (2) have provided to AMR Trust and AMR the Trust's most
recent registration statement on Form N-1A, as filed with the SEC, and all
exhibits contained or incorporated therein.
(i) Errors and Omissions Insurance Policy. The Conseco Trust
has in force an errors and omissions liability insurance policy insuring the
Fund against loss up to at least $2,000,000 for negligence or wrongful acts.
(j) SEC Filings. The Conseco Trust has duly filed all forms
and other documents (collectively, "SEC Filings") required to be filed under the
Securities Act of 1933, as amended ("1933 Act"), the Securities Exchange Act of
1934 ("1934 Act") and the 1940 Act (collectively, the "Securities Laws") in
connection with the registration of the Fund shares, any meetings of the Fund
shareholders and its registration as an investment company. The SEC Filings
regarding the Fund were prepared in accordance with the requirements of the
Securities Laws, as applicable, and the rules and regulations of the SEC
thereunder, and do not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
(k) 1940 Act Registration. The Conseco Trust is duly
registered as an open-end management investment company under the 1940 Act and
the Fund and its shares are registered or qualified in any states where such
registration or qualification is necessary and such registrations or
qualifications are in full force and effect.
3.2 The Portfolio and AMR. The Portfolio and AMR each represents and
warrants to the Conseco Trust and Adviser that:
(a) Organization. AMR Trust is a trust duly organized, validly
existing and in good standing under the common law of the State of New York, the
Portfolio is a duly and validly designated series of AMR Trust, and AMR Trust
and the Portfolio have the requisite power and authority to own their property
and conduct their business as now being conducted and as proposed to be
conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by AMR Trust on behalf of the Portfolio and the consummation of
<PAGE>
the transactions contemplated hereby have been duly authorized by all necessary
action on the part of AMR Trust by its Board of Trustees and no other action or
proceeding is necessary for the execution and delivery of this Agreement by AMR
Trust, the performance by AMR Trust of its obligations hereunder and the
consummation by AMR Trust of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by AMR Trust and constitutes a
legal, valid and binding obligation of AMR Trust enforceable against it in
accordance with its terms.
(c) Authorization of Issuance of Interest. The issuance by the
Portfolio of the Interest in exchange for the Investment by the Fund of its
Assets has been duly authorized by all necessary action on the part of the Board
of Trustees of AMR Trust. When issued in accordance with the terms of this
Agreement, the Interest will be validly issued, fully paid and non-assessable by
the Portfolio.
(d) No Bankruptcy Proceedings. Neither AMR Trust nor the
Portfolio is under the jurisdiction of a court in a proceeding under Title 11 of
the Bankruptcy Code or similar case within the meaning of Section 368(a)(3)(A)
of the Bankruptcy Code.
(e) Fiscal Year. The fiscal year end of the Portfolio is
October 31.
(f) Auditors. The Portfolio has appointed Ernst & Young LLP as
the Portfolio's independent public accountants to certify the Portfolio's
financial statements in accordance with Section 32 of the 1940 Act.
(g) Registration Statement. AMR Trust and AMR have reviewed
the Conseco Trust's registration statement on Form N-1A which were provided to
the AMR Trust and AMR pursuant Section 3.1(h) of this Agreement to the extent
that such registration statement and exhibits relate to the Fund.
(h) Errors and Omissions Insurance Policy. AMR Trust and AMR
have in force an errors and omissions liability insurance policy insuring the
Portfolio against loss up to at least $10,000,000 for negligence or wrongful
acts.
(i) SEC Filings. AMR Trust has duly filed all SEC Filings
required to be filed with the SEC pursuant to the 1934 Act and the 1940 Act in
connection with any meetings of its investors and its registration as an
investment company. Beneficial interests in the Portfolio are not required to be
registered under the 1933 Act because such interests are offered solely in
private placement transactions that do not involve any "public offering" within
<PAGE>
the meaning of Section 4(2) of the 1933 Act. The SEC Filings regarding the
Portfolio were prepared in accordance with the requirements of the Securities
Laws, as applicable, and the rules and regulations of the SEC thereunder, and do
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(j) 1940 Act Registration. AMR Trust is duly registered as an
open-end management investment company under the 1940 Act and such registration
is in full force and effect.
(k) Tax Status. The Portfolio is taxable as a partnership
under the Internal Revenue Code of 1986, as amended (the "Code").
3.3 AMR. AMR represents and warrants to the Conseco Trust and Adviser
that:
(a) Organization. AMR is a Delaware corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority to conduct its business as
now being conducted.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by AMR have been duly authorized by all necessary action on the
part of AMR and no other action or proceeding is necessary for the execution and
delivery of this Agreement by AMR. This Agreement has been duly executed and
delivered by AMR and constitutes a legal, valid and binding obligation of AMR.
(c) Advisers Act. AMR is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act").
3.4 Adviser. Adviser represents and warrants to the AMR Trust and AMR
that:
(a) Organization. Adviser is a corporation validly existing
and in good standing under the laws of Delaware and has the requisite power and
authority to conduct its business as now being conducted.
(b) Authorization of Agreement. The execution and delivery of
this Agreement by Adviser have been duly authorized by all necessary action on
<PAGE>
the part of Adviser and no other action or proceeding is necessary for the
execution and delivery of this Agreement by Adviser. This Agreement has been
duly executed and delivered by Adviser and constitutes a legal, valid and
binding obligation of Adviser.
ARTICLE IV
COVENANTS
4.1 The Conseco Trust and Adviser. The Conseco Trust and Adviser
covenant as follows:
(a) Advance Review of Certain Documents. Either the Conseco
Trust or Adviser will furnish to AMR Trust and AMR, at least five business days
prior to filing or first use, as the case may be, with a draft of any amendment
or supplement to its Form N-1A registration statement to the extent that such
document relates to the Fund. Any proposed advertisement or sales literature
relating to the Fund will be furnished to AMR Trust and AMR by the party
responsible for preparing such materials at least two business days prior to the
filing of such materials with appropriate regulators or first use, whichever is
sooner. The Conseco Trust and Adviser will include in all such materials which
relate to the Fund any disclosures that may be required by law, and will include
in all such materials any material comments reasonably made by AMR or AMR Trust
prior to such filing or first use. However, AMR and AMR Trust will not be liable
for any errors or omissions in such documents, whether or not they make any
objection thereto, except to the extent such errors or omissions result from
information provided by AMR or AMR Trust. The Conseco Trust and Adviser will not
make any other written or oral representation for general publication about the
AMR Trust or AMR without their prior written consent.
(b) Tax Status. The Fund will qualify for treatment as a
regulated investment company under Subchapter M of the Code for all fiscal
periods of the Fund and Portfolio during which this Agreement is in effect,
except to the extent a failure to so qualify may result from any action or
omission of the Portfolio.
(c) Investment Securities. The Fund will own no investment
security other than its Interest in the Portfolio.
(d) Proxy Voting. If requested to vote on matters pertaining
to AMR Trust or the Portfolio, the Fund will (1) call a timely meeting of
shareholders of the Fund for the purpose of seeking instructions from
<PAGE>
shareholders regarding such matters, (2) vote the Fund's Interest proportionally
as instructed by Fund shareholders, and (3) vote the Fund's Interest with
respect to the shares held by Fund shareholders who do not give voting
instructions in the same proportion as the shares of Fund shareholders who do
give voting instructions.
(e) Auditors. As long as the Fund's independent public
accountants differ from those of the Portfolio, the Fund shall be responsible
for any reasonable costs and expenses associated with the need for the
Portfolio's independent public accountants to provide information to the Fund's
independent public accountants.
4.2 Indemnification by Adviser.
---------------------------
(a) Indemnification. Adviser will indemnify and hold harmless
AMR Trust, the Portfolio, AMR and their respective trustees, directors, officers
and employees and each other person who controls AMR Trust, the Portfolio or
AMR, as the case may be, within the meaning of Section 15 of the 1933 Act (each
a "Covered Person" and collectively "Covered Persons"), against any and all
losses, claims, demands, damages, liabilities and expenses (each a "Liability"
and collectively the "Liabilities") (including, unless Adviser elects to assume
the defense pursuant to paragraph (b), the reasonable cost of investigating and
defending against any claims therefor and any counsel fees incurred in
connection therewith), joint or several, which:
(1) arise out of any misstatement of a material fact or an omission of
a material fact provided by Adviser in the Conseco Trust's registration
statement (including amendments and supplements thereto) or in
advertisements or sales literature prepared by Adviser or an affiliate
of Adviser on behalf of the Conseco Trust, other than a misstatement or
omission arising from information provided by AMR Trust, the Portfolio
or AMR;
(2) result from the failure of any representation or warranty made by
Adviser to be accurate when made or the failure of such parties to
perform any covenant contained herein or otherwise to comply with the
terms of this Agreement; or
(3) arise out of any unlawful or negligent act or omission by Adviser
or any director, officer, employee or agent of Adviser;
provided, however, that in no case shall Adviser be liable with respect to any
claim made against any Covered Person unless the Covered Person shall have
<PAGE>
notified Adviser in writing of the nature of the claim within a reasonable time
after the summons, other first legal process or formal or informal initiation of
a regulatory investigation or proceeding shall have been served upon or provided
to a Covered Person, or any federal, state or local tax deficiency has come to
the attention of Adviser, the Portfolio or a Covered Person. Failure to notify
Adviser of such claim shall not relieve it from any liability that it may have
to any Covered Person otherwise than on account of the indemnification contained
in this Section.
(b) Assumption of Defense. Adviser is entitled to participate
at its own expense in the defense or, if it so elects, to assume the defense of
any suit brought to enforce any such liability, but, if Adviser elects to assume
the defense, such defense shall be conducted by legal counsel acceptable to the
applicable Covered Persons, which acceptance shall not be unreasonably withheld
or delayed. In the event Adviser elects to assume the defense of any such suit
and retain such counsel, each Covered Person and any other defendant or
defendants may retain additional counsel, but shall bear the fees and expenses
of such counsel unless (1) Adviser shall have specifically authorized the
retaining of such counsel or (2) the parties to such suit include any Covered
Person and Adviser, and any such Covered Person has been advised by counsel that
one or more legal defenses may be available to it that may not be available to
Adviser, in which case Adviser shall not be entitled to assume the defense of
such suit notwithstanding its obligation to bear the fees and expenses of such
counsel. Adviser shall not be liable to indemnify any Covered Person for any
settlement of any claim affected without Adviser' written consent, which consent
shall not be unreasonably withheld or delayed. The indemnities set forth in
paragraph (a) will be in addition to any liability that the Adviser might
otherwise have to a Covered Person.
4.3 AMR and AMR Trust. AMR and AMR Trust, on behalf of the
Portfolio, covenants as follows:
(a) Advance Review of Certain Documents. AMR and AMR Trust
will furnish to the Conseco Trust or Adviser, at least five business days prior
to filing or first use, as the case may be, with a draft of any amendment or
supplement to its Form N-1A registration statement to the extent that such
document relates to any material change concerning the Portfolio. AMR and AMR
Trust will not make any written or oral representation for general publication
about the Conseco Trust, Fund or Adviser without their prior written consent.
<PAGE>
(b) Tax Status. The Portfolio will qualify to be taxed as a
partnership under the Code for all periods during which this Agreement is in
effect, except to the extent that the failure to so qualify results in whole or
in part from any action or omission of the Fund.
(c) Availability of Interests. Conditional upon the Conseco
Trust complying with the terms of this Agreement, the Portfolio shall permit the
Fund to make additional Investments in the Portfolio on each business day on
which shares of the Fund are sold to the public; provided, however, that the
Portfolio may refuse to permit the Fund to make additional Investments in the
Portfolio on any day on which (1) the Portfolio has refused to permit all other
investors in the Portfolio to make additional Investments in the Portfolio or
(2) the Trustees of the Portfolio have reasonably determined that permitting
additional Investments by the Fund in the Portfolio could constitute a breach of
their fiduciary duties to the Portfolio.
4.4 Indemnification by AMR.
-----------------------
(a) Indemnification. AMR will indemnify and hold harmless the
Conseco Trust, the Fund, Adviser, their respective trustees, directors, officers
and employees and each other person who controls the Conseco Trust, the Fund or
Adviser, as the case may be, within the meaning of Section 15 of the 1933 Act
(each a "Covered Person" and collectively, "Covered Persons"), against any and
all losses, claims, demands, damages, liabilities and expenses (each a
"Liability" and collectively the "Liabilities") (including, unless AMR elects to
assume the defense pursuant to paragraph (b), the reasonable costs of
investigating and defending against any claims therefor and any counsel fees
incurred in connection therewith), joint or several, including liabilities
incurred directly by the Conseco Trust, the Fund or Adviser or indirectly by the
Conseco Trust, the Fund or Adviser through the Fund's Investment in the
Portfolio, which
(1) arise out of or are based upon any Securities Laws, any other
statute or common law or are incurred in connection with or as a result
of any formal or informal administrative proceeding or investigation by
a regulatory agency, insofar as such Liabilities arise out of or are
based upon the ground or alleged ground that any direct or indirect
omission or commission by AMR or the Portfolio (either during the
course of its daily activities or in connection with the accuracy of
its representations or its warranties in this Agreement) caused or
<PAGE>
continues to cause the Adviser, the Conseco Trust or the Fund to
violate any federal or state securities laws or regulations or any
other applicable domestic or foreign law or regulations or common law
duties or obligations, but only to the extent that such Liabilities do
not arise out of and are not based upon an omission or commission of
the Conseco Trust, Fund or Adviser;
(2) arise out of the Portfolio or AMR having caused the Conseco Trust
or the Fund to fail to qualify as a regulated investment company under
the Code;
(3) arise out of any misstatement of a material fact or an omission of
a material fact in the AMR Trust's registration statement (including
amendments and supplements thereto) or included at the request of AMR
or the Portfolio in advertising or sales literature used by the Fund,
other than a misstatement of a material fact or an omission arising
from information provided by the Conseco Trust, Fund or Adviser;
(4) result from the failure of any representation or warranty made by
the AMR Trust, the Portfolio or AMR to be accurate when made or the
failure of such parties to perform any covenant contained herein or
otherwise to comply with the terms of this Agreement; or
(5) arise out of any unlawful or negligent act or omission by the
Portfolio, AMR or any director, trustee, officer, employee or agent of
such persons;
provided, however, that in no case shall AMR be liable with respect to any claim
made against any such Covered Person unless such Covered Person shall have
notified AMR in writing of the nature of the claim within a reasonable time
after the summons, other first legal process or formal or informal initiation of
a regulatory investigation or proceeding shall have been served upon or provided
to a Covered Person or any federal, state or local tax deficiency has come to
the attention of the Conseco Trust, Adviser or a Covered Person. Failure to
notify AMR of such claim shall not relieve it from any liability that it may
have to any Covered Person otherwise than on account of the indemnification
contained in this paragraph.
(b) Assumption of Defense. AMR is entitled to participate at
its own expense in the defense or, if it so elects, to assume the defense of any
suit brought to enforce any such liability, but, if AMR elects to assume the
defense, such defense shall be conducted by legal counsel acceptable to the
applicable Covered Persons, which consent shall not be unreasonably withheld or
delayed. In the event AMR elects to assume the defense of any such suit and
retain such counsel, each Covered Person and any other defendant or defendants
in the suit may retain additional counsel but shall bear the fees and expenses
of such counsel unless (1) AMR shall have specifically authorized the retaining
<PAGE>
of such counsel or (2) the parties to such suit include any Covered Person and
AMR, and any such Covered Person has been advised by counsel that one or more
legal defenses may be available to it that may not be available to AMR, in which
case AMR shall not be entitled to assume the defense of such suit
notwithstanding the obligation to bear the fees and expenses of such counsel.
AMR shall not be liable to indemnify any Covered Person for any settlement of
any such claim effected without AMR's written consent, which consent shall not
be unreasonably withheld or delayed. The indemnities set forth in paragraph (a)
will be in addition to any liability that the AMR Trust in respect of the
Portfolio might otherwise have to a Covered Person.
4.5 In-Kind Redemption. If the Fund desires to withdraw or redeem all
of its Interests in the Portfolio, the Portfolio can effect such redemption "in
kind" and in such a manner that the securities delivered to the Fund's custodian
for the account of the Fund will mirror, as closely as practicable, the
composition of the Portfolio immediately prior to such redemption. No other
withdrawal or redemption of any Interest in the Portfolio will be satisfied by
means of an "in kind" redemption except in compliance with Rule 18f-1 under the
1940 Act.
4.6 Reasonable Actions. Each party covenants that it will, subject to
the provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and deliver
or cause to be executed and delivered all such assignments and other
instruments, take or cause to be taken such actions, and do or cause to be done
all things reasonably necessary, proper or advisable in order to consummate the
transactions contemplated by this Agreement and to carry out its intent and
purpose.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions Precedent. The obligations of each party to consummate
the transactions provided for herein shall be subject to (a) performance by such
other parties of all the obligations to be performed by the other parties
hereunder on or before each Closing, and (b) all representations and warranties
of the other parties contained in this Agreement being true and correct in all
material respects as of the date hereof and, except as they may be affected by
<PAGE>
the transactions contemplated by this Agreement, as of each date of Closing,
with the same force and effect as if made on and as of the time of such Closing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Notification of Certain Matters. Each party will give prompt notice
to the other parties of (a) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which would be likely to cause either (1) any
representation or warranty contained in this Agreement to be untrue or
inaccurate, or (2) any condition precedent set forth in Article V hereof to be
unsatisfied in any material respect at the time of any Closing and (b) any
material failure of a party or any trustee, director, officer, employee or agent
thereof to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by such person hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.1 shall not limit or otherwise
affect the remedies available, hereunder or otherwise, to the party receiving
such notice.
6.2 Access to Information. The Portfolio and the Fund shall afford each
other access at all reasonable times to such party's officers, employees and
agents and to all its relevant books and records and shall furnish each other
party with all relevant financial and other data and information as reasonably
requested; provided, however, that nothing contained herein shall obligate any
party to provide another party with access to their books and records as they
relate to any series of the Conseco Trust or AMR Trust other than the Fund or
the Portfolio respectively, except as may be required to comply with applicable
law or any provision of this Agreement.
6.3 Confidentiality. Each party agrees that it shall hold in strict
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable from public or published
information or trade sources) and shall ensure that its officers, employees and
authorized representatives do not disclose such information to others without
the prior written consent of the party from whom it was obtained, except if
disclosure is required by the SEC, any other regulatory body or the Fund's or
Portfolio's respective auditors, or in the opinion of counsel such disclosure is
required by law, and then only with as much prior written notice to the other
party as is practical under the circumstances.
6.4 Public Announcements. No party shall issue any press release or
otherwise make any public statements with respect to the matters covered by this
<PAGE>
Agreement without the prior consent of the other parties hereto, which consent
shall not be unreasonably withheld; provided, however, that consent shall not be
required if, in the opinion of counsel, such disclosure is required by law,
provided further, however, that the party making such disclosure shall provide
the other parties hereto with as much prior written notice of such disclosure as
is practical under the circumstances.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination.
(a) This Agreement may be terminated by the mutual agreement of
all parties.
(b) This Agreement may be terminated at any time by the Conseco Trust
by redeeming all of the Fund's Interests in the Portfolio.
(c) This Agreement may be terminated on not less than 60 days'
prior written notice by AMR or the AMR Trust to the Fund and Adviser.
(d) This Agreement may be terminated immediately at any time upon
written notice to the other parties in the event that formal proceedings are
instituted against another party to this Agreement by the SEC or any other
regulatory body relating to the Fund or the Portfolio, provided that the
terminating party has a reasonable belief that the institution of the proceeding
is not without foundation and will have a material adverse impact on the
terminating party.
(e) The indemnification obligations in Article IV shall survive the
termination of this Agreement.
7.2 Amendment. This Agreement may be amended, modified or supplemented
at any time in such manner as may be mutually agreed upon in writing by the
parties.
7.3 Waiver. At any time prior to any Closing, any party may (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein.
<PAGE>
ARTICLE VIII
DAMAGES
8.1 Damages. The parties agree that, if this Agreement is breached, the
remedy of money damages would not be adequate and agree that injunctive relief
would be the appropriate relief.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications given or made
pursuant hereto shall to in writing and shall be deemed to have been duly given
or made when actually received in person or by fax, or three days after being
sent by certified or registered United States mail, return receipt requested,
postage prepaid, addressed as follows:
If to AMR or AMR Investment Services, Inc.
AMR Trust: 4333 Amon Carter Boulevard, MD-5645
Fort Worth, Texas 76155
Attn.: Barry Y. Greenberg, Esq.
Tel.: (817) 967-3514
Fax: (817) 967-0768
If to the Conseco Trust:
or the Fund
Conseco Services LLC
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attn: William Latimer
Tel: (317) 817-6863
Fax: (317) 817-6161
If to Adviser: Conseco Capital Management
11825 North Pennsylvania Street
Carmel, Indiana 46032
Attn: Greg Hahn
Cc: William Latimer
Tel: (317) 817-6323
Fax: (317) 817-6161
9.2 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
9.3 Headings. The headings and captions contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
<PAGE>
interpretation of this Agreement.
9.4 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
9.5 Entire Agreement. This Agreement and the agreements and other
documents delivered pursuant hereto set forth the entire understanding between
the parties concerning the subject matter of this Agreement and incorporate or
supersede all prior negotiations and understandings. There are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them relating to the subject matter of this Agreement other than those
set forth herein. No representation or warranty has been made by or on behalf of
any party to this Agreement (or any officer, director, trustee, employee or
agent thereof) to induce any other party to enter into this Agreement or to
abide by or consummate any transactions contemplated by any terms of this
Agreement, except representations and warranties expressly set forth herein.
9.6 Successors and Assignments. Each and all of the provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and, except as otherwise specifically provided in this Agreement, their
respective successors and assigns. Notwithstanding the foregoing, no party shall
make any assignment of this Agreement or any rights or obligations hereunder
without the written consent of all other parties. As used herein, the term
"assignment" shall have the meaning ascribed thereto in the 1940 Act.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
choice of law or conflicts of law provisions thereof.
9.8 Counterparts. This Agreement may be executed in any number of
counterparts, all of which shall constitute one and the same instrument, and any
<PAGE>
party hereto may execute this Agreement by signing one or more counterparts.
9.9 Third Parties. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give any person, other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
9.10 Interpretation. Any uncertainty or ambiguity existing herein shall
not presumptively be interpreted against any party, but shall be interpreted
according to the application of the rules of interpretation for arm's length
agreements.
9.11 Limitation of Liability. The parties acknowledge that the Conseco
Trust and AMR Trust have entered into this Agreement solely on behalf of the
Fund and Portfolio, respectively, and that no other series of Conseco Trust or
AMR Trust shall have any obligation hereunder with respect to any liabilities
arising hereunder. The parties further acknowledge and agree that the
obligations of the AMR Trust and Conseco Trust under this Agreement are not
personally binding upon any shareholder or trustee of the AMR Trust or Conseco
Trust, but bind only the property of the Portfolio and the Fund, respectively.
The Adviser and the Conseco Trust represent that they have notice of the
provisions of the Declaration of Trust of the AMR Trust disclaiming shareholder
liability for acts or obligations of the AMR Trust. AMR and the AMR Trust
represent that they have notice of the provisions of the Declaration of Trust of
the Conseco Trust disclaiming shareholder liability for acts or obligations of
the Conseco Trust.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the date
first written above.
AMR INVESTMENT SERVICES, INC.
By /s/ William F. Quinn
-----------------------------
Name: William F. Quinn
---------------------------
Title: President
--------------------------
AMR INVESTMENT SERVICES TRUST,
on behalf of itself and
the International Equity
Portfolio, a series thereof
By /s/ William F. Quinn
-----------------------------
Name: William F. Quinn
---------------------------
Title: President
--------------------------
CONSECO FUND GROUP,
on behalf itself and
the International Fund, a
series thereof
By /s/ Gregory J. Hahn
-----------------------------
Name: Gregory J. Hahn
---------------------------
Title: Senior Vice President
--------------------------
CONSECO CAPITAL MANAGEMENT, INC.
By /s/ Gregory J. Hahn
-----------------------------
Name: Gregory J. Hahn
---------------------------
Title: Senior Vice President
--------------------------
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D. C. 20036-1800
TELEPHONE 202-778-9000
April 27, 1998
Conseco Fund Group
11815 North Pennsylvania Street
Carmel, Indiana 46032
Ladies and Gentlemen:
You have requested our opinion, as counsel to Conseco Fund Group ("Trust"),
as to certain matters regarding the issuance of Shares of the Trust. As used in
this letter, the term "Shares" means the Class A, Class B, Class C and Class Y
shares of beneficial interest of the Conseco Fixed Income Fund, Conseco High
Yield Fund, Conseco Asset Allocation Fund, Conseco Equity Fund, Conseco
International Fund, and Conseco 20 Fund, each a separate series ("Series") of
the Trust, during the time that Post-Effective Amendment No. 6 to the Trust's
Registration Statement on Form N-1A ("PEA") is effective and has not been
superseded by another post-effective amendment.
As counsel to the Trust, we have participated in various matters relating
to the Trust. We have examined copies of the Agreement and the Trust's
Declaration of Trust and By-Laws, as now in effect, and the minutes of meetings
of the trustees of the Trust, and we are generally familiar with its affairs.
For certain matters of fact, we have relied upon representations of officers of
the Trust. Based on the foregoing, it is our opinion that an unlimited number of
Shares of each Series may be legally and validly issued in accordance with the
Trust's Agreement and Declaration of Trust and By-Laws and subject to compliance
with the Securities Act of 1933, the Investment Company Act of 1940 and
applicable state laws regulating the offer and sale of securities; and, when so
issued, the Shares will be legally issued, fully paid and non-assessable by the
Trust.
We express no opinion as to compliance with the Securities Act of 1933, the
Investment Company Act of 1940, or applicable state securities laws in
connection with the sale of Shares.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust. The
Declaration of Trust states that that persons seeking to subject shareholders to
any personal liability whatsoever, in tort, contract or otherwise, in connection
with the Trust property or affairs of the Trust, shall look solely to the Trust
for satisfaction of their claims. It also requires that notice of such
disclaimer be given in any written instrument creating an obligation of the
Trust, but that the omission of such recital shall not operate to impose
personal liability on any of the shareholders of the Trust. The Declaration of
Trust further provides for indemnification from the assets of the applicable
Series for all loss and expense of any shareholder held personally liable for
the obligations of the Trust or a particular Series by virtue of ownership of
shares of such Series. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which the
Trust or applicable Series would be unable to meet its obligations.
<PAGE>
Conseco Fund Group
April 27, 1998
Page 2
We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 6 to the Trust's Registration Statement on Form
N-1A. We also consent to the reference to our firm under the caption "Legal
Counsel" in the Statement of Additional Information filed as part of the
Registration Statement.
Sincerely,
KIRKPATRICK & LOCKHART LLP
By: /s/ Donald W. Smith
-------------------------------------
Donald W. Smith
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 6 to the
Registration Statement of Conseco Fund Group (the "Fund") on Form N-1A (File No.
333-13185) of our report dated February 23, 1998, on our audit of the financial
statements and financial highlights of the Fund, which report is included in the
Annual Report to Shareholders for the year ended December 31, 1997, which is
incorporated by reference in the Post-Effective Amendment to the Registration
Statement. We also consent to the reference to our Firm under the caption
"Independent Accountants."
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Indianapolis, Indiana
April 29, 1998
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Independent Public
Accountants/Auditors" and "Financial Statements" and to the use of our report on
the financial statements of AMR Investment Services Trust-International Equity
Portfolio dated December 19, 1997 in the Registration Statement (Form N-1A) of
Conseco Fund Group filed with the Securities and Exchange Commission in this
Post-Effective Amendment No. 6 to the Registration Statement under the
Securities Act of 1933 (File No. 333-13185) and this Amendment No. 7 under the
Investment Company Act of 1940 (File No. 811-07839).
By: /s/ Ernst & Young LLP
--------------------------
ERNST & YOUNG LLP
Dallas, Texas
April 27, 1998
PLAN OF DISTRIBUTION AND SERVICE
PURSUANT TO RULE 12B-1
CONSECO FUND GROUP
DECEMBER 31, 1997
WHEREAS, Conseco Fund Group (the "Trust"), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended (the "1940
Act"), as an open-end management investment company;
WHEREAS, the Trust has established several separate series of shares, each
of which represents a separate portfolio of investments, and may establish
additional series of shares (each series of the Trust shall be referred to
herein as a "Fund"); and
WHEREAS, the Trust is authorized to issue shares of each Fund in one or
more classes (each a "Class").
WHEREAS, the Trust has engaged Conseco Equity Sales, Inc. (the
"Distributor") as distributor of the shares of the Funds pursuant to an Amended
and Restated Principal Underwriting Agreement dated as of January 2, 1997, as
amended December 23, 1997; and
WHEREAS, the Trust desires to adopt a Plan of Distribution and Service
(the "Plan") pursuant to Rule 12b-1 under the 1940 Act with respect to those
Classes of the Funds listed on Schedule A hereto, as such schedule may be
amended from time to time, (each a "Designated Class" and collectively the
"Designated Classes") and the Board of Trustees of the Trust (the "Trustees")
has determined that there is a reasonable likelihood that adoption of this Plan
will benefit the Trust, each Fund and the shareholders of each Designated Class
thereof.
NOW, THEREFORE, the Trust, with respect to each Designated Class, hereby
adopts this Plan in accordance with Rule 12b-1, on the following terms and
conditions:
1. Each Fund shall pay to the Distributor, as compensation for
distributing each Designated Class's shares and for servicing
shareholder accounts, a fee for each Designated Class computed at the
annual rate set forth on Schedule A hereto, as such schedule may be
amended from time to time. The fees shall be payable regardless of
whether those fees exceed or are less than the actual expenses incurred
by the Distributor with respect to that Designated Class in a
particular year. Such compensation shall be calculated and accrued
daily and paid monthly or at such other intervals as the Trustees may
determine.
<PAGE>
2. (a) As principal underwriter of each Designated Class's shares, the
Distributor may spend such amounts as it deems appropriate on any
activities or expenses primarily intended to result in the sale
of such shares, including, but not limited to, compensation to
employees of the Distributor; compensation to the Distributor and
to brokers, dealers or other financial intermediaries that have a
Selling Group Agreement in effect with the Distributor
("Authorized Dealers"); expenses of the Distributor and
Authorized Dealers, including overhead, salaries, and telephone
and other communication expenses; the printing of prospectuses,
statements of additional information, and reports for other than
existing shareholders; and the preparation, printing, and
distribution of sales literature and advertising materials.
(b) The Distributor may spend such amounts as it deems appropriate on
the servicing of shareholder accounts, including, but not limited
to, maintaining account records for shareholders; answering
inquiries relating to shareholders' accounts, the policies of the
Funds and the performance of their investments; providing
assistance and handling transmission of funds in connection with
purchase, redemption and exchange orders for shares; providing
assistance in connection with changing account setups and
enrolling in various optional services; and producing and
disseminating shareholder communications or servicing materials;
and may pay compensation and expenses, including overhead,
salaries, and telephone and other communications expenses, to
Authorized Dealers and employees who provide such services.
3. This Plan shall not take effect with respect to any Class of a Fund
until the Plan, together with any related agreement(s), has been
approved for that Class of the Fund by votes of a majority of both (a)
the Trustees and (b) those Trustees who are not "interested persons" of
the Trust (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or any
agreements related to the Plan (the "Rule 12b-1 Trustees") cast in
person at a meeting called for the purpose of voting on the Plan and
such related agreement(s); and only if the Trustees who approve the
Plan have reached the conclusion required by Rule 12b-1(e) with respect
to that Class's shares.
4. This Plan shall remain in effect for one year from the date above written
and shall continue in effect with respect to each Designated Class
thereafter so long as such continuance is specifically approved at least
annually in the manner provided for approval of this Plan in paragraph 3.
5. The Distributor shall provide to the Trustees and the Trustees shall
review, at least quarterly, a written report of the amounts expended by
the Distributor under the Plan and the purposes for which such
expenditures were made.
6. This Plan may be terminated with respect to any Designated Class at any
time by vote of a majority of the Rule 12b-1 Trustees or by vote of a
majority of the outstanding voting securities (as defined in the 1940 Act)
of that Designated Class, voting separately from any other Class.
2
<PAGE>
7. This Plan may not be amended to increase materially the amount of
compensation payable by any Designated Class under paragraph 1 hereof
unless such amendment is approved by a vote of a majority of the
outstanding voting securities (as defined in the 1940 Act) of that
Designated Class, voting separately from any other Class. No material
amendment to the Plan shall be made unless approved in the manner provided
in paragraph 3 hereof.
8. While this Plan is in effect, the selection and nomination of Trustees who
are not "interested persons" of the Trust (as defined in the 1940 Act)
shall be committed to the discretion of the Trustees who are themselves
not such interested persons.
9. The Trust shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 5 hereof, for a period of not
less than six years from the date of the Plan, any such agreement, or any
such report, as the case may be, the first two years in an easily
accessible place.
IN WITNESS WHEREOF, the Trust has executed this Plan as of the day and
year first above written.
CONSECO FUND GROUP
By: /s/ Gregory J. Hahn
--------------------------
Gregory J. Hahn
Vice President
3
<PAGE>
SCHEDULE A
SERIES ANNUAL FEE
------ ----------
Conseco 20 Fund
Class A 0.50%
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco High Yield Fund
Class A 0.50%
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco International Fund
Class A 0.50%
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco Equity Fund
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco Asset Allocation Fund
Class B 1.00%
Class C 1.00%
Class S 0.25%
Conseco Fixed Income
Class B 1.00%
Class C 1.00%
Class S 0.25%
4
CONSECO FUND GROUP
SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
December 31, 1997
WHEREAS, Conseco Fund Group, a Massachusetts business trust (the
"Trust"), engages in business as an open-end management investment company;
WHEREAS, the Trust issues shares of beneficial interest in separate
series, with shares of each series representing interests in a separate
portfolio of securities and other assets (the Trust's series together with all
other such series subsequently established by the Trust are referred to herein
individually as a "Series" and collectively as the "Series");
WHEREAS, the Trust has designated for each Series certain separate
classes of shares, as set forth on Schedule A hereto (each a "Class"); and
WHEREAS, the Trustees of the Trust, including a majority of the
Trustees who are not interested persons of the Trust (as defined in the
Investment Company Act of 1940, as amended ("1940 Act") ("Non-interested
Trustees")), having been furnished with and having evaluated information
reasonably necessary to evaluate this Second Amended and Restated Multiple Class
Plan Pursuant to Rule 18f-3 ("Plan"), have determined in the exercise of their
reasonable business judgment that the Plan is in the best interests of each
class of each Series individually, and each Series and the Trust as a whole;
NOW, THEREFORE, the Trust hereby adopts this Plan on behalf of its
Series set forth on Schedule A hereto.
Section 1. Class Differences.
Each Class of a Series shall represent an equal pro
rata interest in the same portfolio of investments of that
Series and, except as otherwise set forth in this Plan, shall
differ solely with respect to : (i) distribution, service and
other charges and expenses as provided for in Sections 2 and 3
of this Plan; (ii) the exclusive voting rights of each Class
on matters submitted to shareholders that relate solely to
that Class; (iii) the separate voting rights of each Class on
matters submitted to shareholders in which the interests of
one Class differ from the interests of another Class, (iv)
such differences relating to eligible investors as may be set
forth in the prospectuses and statements of additional
information of each Series, as the same may be amended or
supplemented from time to time (each a "Prospectus" and "SAI"
and collectively, the "Prospectus" and "SAI"); (v) the
designation of each Class; (vi) exchange privileges; and (vii)
conversion features.
<PAGE>
Section 2. Distribution and Service Arrangements.
Class A shares shall be subject to an initial sales
charge. The initial sales charge shall be reduced or waived
for certain eligible purchasers and for certain large volume
purchases. Class A shares shall be charged annual distribution
and service fees under a Distribution and Service Plan adopted
pursuant to Rule 12b-1 under the 1940 Act. The amount of the
initial sales charge, and the amount of fees under the
Distribution and Service Plan pertaining to the Class A
shares, are set forth on Schedule B hereto. Class A shares
shall not be subject to a contingent deferred sales charge.
Class B shares shall not be subject to an initial
sales charge, but shall be subject to a contingent deferred
sales charge and shall be charged annual distribution and
service fees under a Distribution and Service Plan adopted
pursuant to Rule 12b-1 under the 1940 Act. The amount of and
the provisions related to the contingent deferred sales
charge, and the amount of fees under the Distribution and
Service Plan pertaining to the Class B shares, are set forth
on Schedule B hereto.
Class C shares shall not be subject to an initial
sales charge, but shall be subject to a contingent deferred
sales charge and shall be charged annual distribution and
service fees under a Distribution and Service Plan adopted
pursuant to Rule 12b-1 under the 1940 Act. The amount of and
the provisions related to the contingent deferred sales
charge, and the amount of fees under the Distribution and
Service Plan pertaining to the Class C shares, are set forth
on Schedule B hereto.
Class S shares shall not be subject to an initial
sales charge, but shall be charged annual distribution and
service fees under a Distribution and Service Plan adopted
pursuant to Rule 12b-1 under the 1940 Act. The amount of fees
under the Distribution and Service Plan pertaining to the
Class S shares is set forth on Schedule B hereto.
Class Y shares shall be offered without imposition of
an initial sales charge or contingent deferred sales charge
and are not subject to any distribution or service fees. Class
Y shares shall be offered only to those institutional and
individual investors meeting the eligibility requirements set
forth in the Prospectus and SAI.
2
<PAGE>
Section 3. Expense Allocation.
(a) Class Expenses.
Certain expenses may be attributable to a particular
Class ("Class Expenses"). Class Expenses shall be allocated
exclusively to the particular Class to which they are
attributable. In addition to the distribution and service fees
described in Section 2 above, Class Expenses may include, but
are not limited to, (a) expenses associated with the addition
of classes of shares to the Trust (to the extent that the
expenses were not fully accrued prior to the issuance of the
new classes of shares); (b) expenses of administrative
personnel and services required to support the shareholders of
a specific Class; (c) litigation or other legal expenses
relating to a specific Class of shares; (d) Trustees' fees or
expenses incurred as a result of issues relating to a specific
Class of shares, (e) accounting expenses relating to a
specific Class of shares; and (f) transfer agency fees and
expenses.
Expenses attributable to a Series other than Class
Expenses shall be allocated to each Class based on its net
asset value relative to the net asset value of the Series.
Section 4. Conversion Feature.
Class B shares shall automatically convert to Class A
shares after a specified period of time after the date of
purchase, based on the relative net asset value of each such
Class without imposition of any sales charge, fee or other
charge, as set forth in Schedule C. No other Class shall be
subject to any automatic conversion feature.
Section 5. Exchange Privilege.
Shares of a Class may be exchanged only for shares of
the same Class of another Series, or for shares of the
Federated Money Market Fund, as set forth in the Prospectus.
Section 6. Additional Information.
The Prospectus and SAI contain additional information
about each Class and the Series' multiple class structure.
This Plan is subject to the terms of the Prospectus and SAI;
provided, however, that none of the terms set forth in the
Prospectus and SAI shall be inconsistent with the terms of
this Plan.
3
<PAGE>
Section 7. Term and Termination.
(a) The Series.
This Plan shall become effective with respect to each Series
as set forth on Schedule A hereto, and shall continue in
effect with respect to the Classes of each such Series until
terminated in accordance with the provisions of Section 7(b)
hereof.
(b) Termination.
This Plan may be terminated at any time with respect
to the Trust or any Series or Class thereof, as the case may
be, by vote of a majority of both the Trustees of the Trust
and the Non-Interested Trustees. The Plan may remain in effect
with respect to the Trust or any Series or Class thereof even
if it has been terminated in accordance with this Section 7(b)
with respect to any other Series or Class of the Trust.
Section 8. Amendments.
Before any material amendment to this Plan affecting
the Trust or any Series or Class thereof, a majority of both
the Trustees of the Trust and the Non-Interested Trustees
shall find that the amendment is in the best interests of each
Class of each Series individually and each Series and the
Trust as a whole.
4
<PAGE>
CONSECO FUND GROUP
SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
SCHEDULE A
Name of Series & Classes Date Subject to Plan
Conseco Equity Fund December 5, 1996
Class A, Class B, Class C, Class S, (Amended and Restated as of December 31,
and Class Y 1997)
Conseco Asset Allocation Fund December 5, 1996
Class A, Class B, Class C, Class S, (Amended and Restated as of December 31,
and Class Y 1997)
Conseco Fixed Income Fund December 5, 1996
Class A, Class B, Class C, Class S, (Amended and Restated as of December 31,
and Class Y 1997
Conseco 20 Fund December 31, 1997
Class A, Class B, Class C, Class S,
and Class Y
Conseco High Yield Fund December 31, 1997
Class A, Class B, Class C, Class S,
and Class Y
Conseco International Fund December 31, 1997
Class A, Class B, Class C, and
Class Y
5
<PAGE>
CONSECO FUND GROUP
SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
SCHEDULE B
1. Class A
-------
Initial Sales Charge - Class A Shares. The offering price of Class A
shares is net asset value plus a varying sales charge depending on the amount
invested. The maximum initial sales charge imposed on purchases of Class A
shares is 5% of the offering price. The sales charge applicable to Class A
shares is determined as follows:
Sales Charge
As % of Public As % of Net
Offering Price Amount Invested
-------------- ---------------
On purchases of:
$500 - 50,000 5.75% 6.10%
$50,000 - 100,000 4.50% 4.71%
$100,000 - 250,000 3.50% 3.63%
$250,000 - 500,000 2.50% 2.56%
Over $500,000 None None
Amount of Distribution and Service Plan Fees. Class A shares of each
Series except the Conseco Fixed Income Fund are subject to distribution and
service fees at a rate of up to 0.50% of the average daily net assets of that
Class. Class A shares of the Conseco Fixed Income Fund are subject to
distribution and service fees at an annual rate of up to 0.65% of the average
daily net assets of that Class.
2. Class B
-------
Contingent Deferred Sales Charge - Class B Shares. A contingent
deferred sales charge is imposed upon redemptions of Class B shares within six
years of their purchase. The contingent deferred sales charge is a percentage of
(1) the net asset value of the shares at the time of purchase or (2) the net
asset value of the shares at the time of redemption, whichever is less. The
contingent deferred sales charge is determined as follows:
<PAGE>
Redemption During Contingent Deferred Sales Charge
- ----------------- --------------------------------
1st year since purchase 5%
2nd year since purchase 4%
3rd year since purchase 3%
4th year since purchase 3%
5th year since purchase 2%
6th year since purchase 1%
7th year since purchase 0%
8th year since purchase 0%
The contingent deferred sales charge will not apply to shares acquired by the
reinvestment of dividends or capital gains distributions.
In determining the applicability and rate of any contingent deferred
sales charge, Class B shares acquired through reinvestment of dividends and
capital gains distributions will be redeemed first, followed by the Class B
shares held by the shareholder for the longest period of time. The contingent
deferred sales charge, if any, upon redemption of Class B shares acquired
through an exchange will be calculated based on the original purchase date of
the Class B shares exchanged.
Waiver of the Contingent Deferred Sales Charge. The contingent deferred
sales charge on Class B shares shall be waived in connection with: (a) any
partial or complete redemption in connection with a distribution without federal
tax income penalty under a tax-qualified retirement plan, upon separation from
service and attaining age 55; (b) any partial or complete redemption in
connection with a qualifying loan or hardship withdrawal from a tax-qualified
retirement plan, eligible 457 plan, or 403(b)(7) plan; (c) any complete
redemption in connection with a distribution from a tax-qualified retirement
plan, eligible 457 plan, or 403(b)(7) plan in connection with termination of
employment or termination of the employer's plan; (d) any redemption resulting
from a tax-free return of an excess contribution from a tax-qualified retirement
plan, IRA, savings incentive match plan for an employee ("SIMPLE" plan),
eligible 457 plan, or 403(b)(7) plan; (e) mandated minimum distributions from a
tax-qualified retirement plan, IRA, SIMPLE plan, eligible 457 plan, or 403(b)
plan; (f) substantially equal periodic payments as defined in Section 72(t) of
the Code; (g) any partial or complete redemption following death or disability
of a shareholder (including one who owns the shares as joint tenant with his
spouse), provided the redemption is requested within one year of the death or
initial determination of disability (as defined in Section 72(m) of the Code);
(h) redemptions under a Fund's Systematic Withdrawal Plan (investors may not
withdraw annually more than 12% of the value of their account under the
Systematic Withdrawal Plan); (i) redemptions in connection with investments
7
<PAGE>
related to a bona fide medical savings account; (j) redemptions in connection
with distributions from a Roth IRA or Roth Conversion IRA that are qualified
distributions under the Code; (k) redemptions in connection with distributions
from an Education IRA that are used for qualified higher education expenses
under the Code or which are required by the Code to be distributed; and (1)
redemptions from an account established under a wrap fee or asset allocation
program where the accountholder pays the sponsor an asset-based fee.
Amount of Distribution and Service Plan Fees. Class B shares of a
Series are subject to distribution and service fees at an annual rate of up to
1.00% of the average daily net assets of that Class.
3. Class C
-------
Contingent Deferred Sales Charge - Class C Shares. Class C shares held
for less than one year are subject to a contingent deferred sales charge on
redemptions in an amount equal to 1% of the lower of (1) the net asset value of
the shares at the time of purchase or (2) the net asset value of the shares at
the time of redemption. Class C shares held one year or longer are not subject
to this contingent deferred sales charge. The contingent deferred sales charge
also will not apply to shares acquired by the reinvestment of dividends or
capital gains distributions. The order in which Class C shares are redeemed will
be determined as described for Class B shares in Schedule C hereto. In addition,
the provisions for waiving the contingent deferred sales charge shall be those
set forth for Class B shares in Schedule C hereto.
The contingent deferred sales charge, if any, upon redemption of Class
C shares acquired through an exchange and held less than one year will be
calculated based on the original purchase date of the Class C shares exchanged.
Amount of Distribution and Service Plan Fees. Class C shares of a
Series are subject to distribution and service fees at an annual rate of up to
1.00% of the average daily net assets of that Class.
4. Class S
-------
Amount of Distribution and Service Plan Fees. Class S shares of a
Series are subject to distribution and service fees at an annual rate of up to
0.25% of the average daily net assets of that Class.
8
<PAGE>
CONSECO FUND GROUP
SECOND AMENDED AND RESTATED MULTIPLE CLASS PLAN
PURSUANT TO RULE 18f-3
SCHEDULE C
Conversion Feature - Class B Shares. Class B shares will automatically
convert to a number of Class A shares of equal dollar value eight years after
purchase. No initial sales charge or other charge is imposed at conversion. When
Class B shares convert, a pro rata amount of Class B shares that were acquired
by the reinvestment of dividends and capital gains distributions will also
convert to Class A shares.
9