As Filed With The Securities And Exchange Commission on March 12, 1999
File Nos. 333-13185
811-7839
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [11]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [12]
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. KOVACS, 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)
<PAGE>
CONSECO FUND GROUP
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Convertible Securities Fund
Conseco Balanced 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
CONTENTS OF REGISTRATION STATEMENT:
- -----------------------------------
o Part A - Prospectus, Class A , B and C
Prospectus, Class Y
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
<PAGE>
[front cover]
<PAGE>
CONSECO FUND GROUP
March 12, 1999 Prospectus
Class A, B and C Shares
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Convertible Securities Fund
Conseco Balanced Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved of these securities or determined whether this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS
THE FUNDS
General Information About the Funds
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Convertible Securities Fund
Conseco Balanced Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
PRIMARY RISK CONSIDERATIONS
FEES AND EXPENSES
MANAGEMENT
YOUR ACCOUNT
Choosing a Share Class
Determining Share Price
Buying Shares
Selling Shares
Dividends and Distributions
Tax Considerations
Distribution and Service Plans
Administrative Fees
FINANCIAL HIGHLIGHTS
FOR MORE INFORMATION
<PAGE>
(Intro)
THE ADVISER'S INTEGRATED APPROACH TO MONEY MANAGEMENT
We believe that combining the knowledge and experience of both fixed income and
equity analysts leads to better security selection over time.
Whether selecting fixed income or equity securities, our analysts look for
companies with:
o Proven management teams
o Leading edge products
o Dominant market share positions
They then conduct a rigorous financial analysis of these companies, focusing on
such indicators as:
o Cost of capital
o Financial strength
o Spending plans
This analysis is used to select those securities deemed by the Adviser to be
most appropriate for each Fund's investment objective.
Because of the Adviser's active management style, our Funds generally have a
higher portfolio turnover rate than other funds and, therefore, may have higher
taxable distributions and increased trading costs which may impact performance.
There is no assurance that the Funds will achieve their investment
objectives. All of the Funds have the ability to change their investment
objectives without shareholder approval, although they do not currently intend
to do so. In addition, the value of your investment in any Fund will fluctuate,
which means that you may lose money.
(Sidebar)
A WORD ABOUT THE ADVISER
Conseco Capital Management, Inc. (CCM), or the "Adviser", provides investment
advice and management to each Fund. CCM manages more than $35.3 billion in
assets for an array of foundations, endowments, corporations, government
and union clients (as of 12/31/98).
Please note: Definitions for bold-faced words within the text can be found
directly following each Fund's Primary Risk Considerations.
<PAGE>
CONSECO FIXED INCOME FUND
Our fixed income fund offers investors a strong complement to traditional
savings accounts. The Fund provides a way to earn income from a portfolio of
bonds and other debt instruments. However, unlike traditional savings accounts,
the principal value of an investment in the Fund will fluctuate.
INVESTMENT OBJECTIVE
The Fund seeks to provide the highest level of income consistent with the
preservation of capital.
ADVISER'S STRATEGY
The Fund invests primarily in INVESTMENT GRADE DEBT SECURITIES.
The Adviser actively manages the portfolio to generate income, reduce risk, and
preserve or enhance total return.
Adhering to a strict buy/sell discipline, the Adviser seeks to enhance total
return by:
o Purchasing securities it believes are undervalued
o Selling securities it believes are overvalued or fully priced
To select securities, the Adviser utilizes:
o Independent FUNDAMENTAL ANALYSIS to evaluate the issuer of a security
o An analysis of the specific structure of the security
In an effort to achieve its investment objective, the Fund may invest
in debt securities issued by:
o Publicly or privately held companies in the U.S.
o Publicly or privately held companies overseas (primarily in YANKEE BONDS)
o The U.S. Government, its agencies and instrumentalities
o States and their political subdivisions issuing taxable MUNICIPAL
SECURITIES
o Foreign governments, their agencies and instrumentalities
The Fund may also invest in:
o Mortgage-backed debt securities
o Asset-backed debt securities
o RESTRICTED SECURITIES
In addition, the Fund may invest up to 15% of its assets in the following:
o Common and PREFERRED STOCKS
o Convertible bonds
o Debt securities carrying warrants or other rights to purchase equity
securities
Up to 10% of Fund assets may be invested in BELOW INVESTMENT GRADE SECURITIES,
commonly known as high-yield or "junk" bonds, which tend to fluctuate in price
to a greater extent than investment-grade debt securities.
<PAGE>
While the Fund may purchase debt securities of any MATURITY, it is anticipated
that the AVERAGE LIFE of the portfolio will be in the intermediate range -
between seven and 15 years - but may be shorter or longer depending on market
conditions.
PRIMARY RISKS
Credit risk
Interest rate risk
Market risk
Prepayment risk
Restricted securities risk
Municipal market risk
Foreign risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar)
INVESTMENT-GRADE DEBT SECURITIES
Considered especially creditworthy, these debt securities are either (i)
normally rated AAA to BBB- by Standard and Poor's Corporation or Aaa to Baa3 by
Moody's Investors Services, Inc., or (ii) if unrated, are deemed by the Advisor
to be of comparable credit quality.
FUNDAMENTAL ANALYSIS
A research technique that looks at a company's financial condition,
creditworthiness, management, and place in its industry to determine the
intrinsic value of the company's securities.
YANKEE BONDS
Dollar-denominated bonds issued in the U.S. by foreign banks and corporations.
MUNICIPAL SECURITIES
Bonds and other debt obligations issued by state and local governments. The
interest on the municipal securities in which the Fund invests typically is NOT
exempt from federal income tax.
RESTRICTED SECURITIES
Securities that are not registered with the Securities and Exchange Commission,
some of which may qualify to be sold directly to institutional investors
pursuant to Rule 144A under the Securities Act of 1933. Restricted securities
are generally illiquid; however, the Adviser focuses on those that are liquid,
i.e., easily convertible into cash.
PREFERRED STOCK Shares of a company that ordinarily do not have voting rights
but do have a stated dividend payment, as opposed to common stocks which
ordinarily do have voting rights but do not have a stated dividend payment.
BELOW INVESTMENT GRADE SECURITIES
These securities offer higher return potential in exchange for assuming greater
risk. Normally, they are rated BB+ or lower by Standard & Poor's Corporation or
Ba1 or lower by Moody's Investors Services, Inc. or, if unrated deemed by the
Adviser to be comparable credit.
<PAGE>
MATURITY
When the principal, or face value of a bond, must be repaid.
AVERAGE LIFE
The average number of years that each principal dollar will be outstanding,
before it is repaid .
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the performance of the Fund's Class A
shares has varied from year to year. The table compares the Fund's performance
over time to that of a broad measure of market performance. WHEN YOU CONSIDER
THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT
NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
Class A:
Year Return
-------------------------------
<S> <C>
1997 8.66%
1998 7.57%
</TABLE>
BEST QUARTER: 2Q97 3.21%
WORST QUARTER: 1Q97 0.19%
Class A total return is shown without the applicable sales load.
If the sales load was included, total return would have been lower.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)*
1 Year Since
Inception
--------------------------
<S> <C> <C>
Class A** (Inception 1/2/97) 2.19% 11.0%
Lehman Bros. Aggregate 8.69% 19.19%
Bond Index
</TABLE>
*Because Class B and Class C share do not have annual returns for a full
calendar year, Class B and Class C performance is not presented here.
**Class A share performance reflects the deduction of the maximum
sales load.
<PAGE>
CONSECO HIGH YIELD FUND
Our high-yield fund offers investors who can tolerate a greater degree of share
price volatility, the potential to receive a higher level of income than would
normally be earned from a portfolio of investment-grade debt securities.
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income, with a
secondary objective of capital appreciation.
ADVISER'S STRATEGY
Normally, the Adviser invests at least 65% of the Fund's assets in BELOW
INVESTMENT GRADE SECURITIES (those rated BB+/Ba1 or lower by independent rating
agencies).
Adhering to a strict buy/sell discipline, the Adviser seeks to enhance
total return by:
o Purchasing securities it believes are undervalued
o Selling securities it believes are overvalued or fully priced
To select securities, the Adviser utilizes:
o Independent FUNDAMENTAL ANALYSIS to evaluate the issuer of a security
o An analysis of the specific structure of the security
In an effort to achieve its investment objective, the Fund may invest in any
or all of the following:
o Corporate debt securities and PREFERRED STOCK
o ZERO COUPON BONDS and other deferred interest securities
o Mortgage-backed securities
o Asset-backed securities
o Convertible securities
o Restricted securities
o Taxable MUNICIPAL SECURITIES issued by states and their political
subdivisions
The Fund may also invest in:
o Cash or cash equivalents
o Money market instruments
o Securities issued or guaranteed by the U.S. government, its agencies,
and instrumentalities
In addition, the Fund may invest in the following:
o Common stocks and other equity securities
o Equity and debt securities of foreign issuers, including issuers in
emerging market
For defensive purposes or pending investment, the Fund may temporarily depart
from its objective and hold an unlimited amount of cash or money market
instruments. This could help the Fund avoid losses, but may mean lost
opportunities.
<PAGE>
PRIMARY RISKS
Credit risk
Interest rate risk
Market risk
Restricted Securities risk
Prepayment risk
Foreign risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar)
BELOW INVESTMENT GRADE SECURITIES See page 00.
FUNDAMENTAL ANALYSIS See page 00.
PREFERRED STOCK See page 00.
ZERO COUPON BONDS
These bonds are sold at a deep discount and do not pay periodic interest to
investors; instead, investors receive, at maturity, the difference between the
discounted price and the maturity value of the bond.
RESTRICTED SECURITIES See page 00.
MUNICIPAL SECURITIES See page 00.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how performance of the Fund's Class A shares
has varied from year to year. The table compares the Fund's performance
over time to that of a broad measure of market performance. WHEN YOU CONSIDER
THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT
NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE.
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
Class A:
Year Return
-------------------------------
1998 6.56%
BEST QUARTER: 1Q98 8.17%
WORST QUARTER: 3Q98 -5.56%
Class A total return is shown without the applicable sales load.
If the sales load was included, total return would have been lower.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)*
Since
Inception
------------------
<S> <C>
Class A** (Inception 1/1/98) 0.43%
Merrill Lynch High Yield Index 3.66%
</TABLE>
*Because Class B and Class C share do not have annual returns for a full
calendar year, Class B and Class C performance is not presented here.
**Class A share performance reflects the deduction of the maximum
sales load.
<PAGE>
CONSECO CONVERTIBLE SECURITIES FUND
Our convertible securities fund offers investors a way to pursue the benefits of
income and capital appreciation through a portfolio of securities
that are convertible into common stock.
INVESTMENT OBJECTIVE
The Fund seeks high total return through a combination of current income and
capital appreciation by investing primarily in convertible securities.
ADVISER'S STRATEGY
Normally, the Adviser invests at least 65% of the Fund's assets in CONVERTIBLE
SECURITIES. These are often of lower grade investment quality than other types
of investments. Therefore, at any give time, over 50% of the Fund's assets may
be invested in BELOW INVESTMENT GRADE SECURITIES.
Adhering to a strict buy/sell discipline, the Adviser seeks to enhance total
return by:
o Purchasing securities it believes are undervalued
o Selling securities it believes are overvalued or fully priced
To select securities, the Adviser utilizes:
o Independent FUNDAMENTAL ANALYSIS to evaluate of the issuer of a security
o An analysis of the specific structure of the security
In an effort to achieve its investment objective, the Fund may also invest in:
o Common stock
o Other securities convertible other than at the option of the holder
o Equity and debt securities of foreign issuers, including issuers based in
emerging markets
For defensive purposes, the Fund may temporarily depart from its investment
objective and invest without limitation in preferred stocks and investment grade
debt securities. This could help the Fund avoid losses but may mean lost
opportunities.
PRIMARY RISKS
Credit risk
Interest rate risk
Market risk
Restricted Securities risk
Foreign risk
Leverage risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
<PAGE>
(Sidebar)
CONVERTIBLE SECURITIES
Bonds, debentures, notes or preferred stock that are convertible into common
stock. Convertible securities have some unique return characteristics relative
to market fluctuations:
o When equity markets go up, they tend to rise in price
o When equity markets decline, they tend to decline relatively less in
price than stocks
Convertible securities have both an equity and a fixed income component.
Therefore,
o While the equity component is subject to fluctuations in value due to
activities of the issuing companies, and general market and economic
conditions;
o The fixed income component will be impacted by shifting interest rates
and changes in credit quality of the issuers.
FUNDAMENTAL ANALYSIS See page 00.
BELOW INVESTMENT GRADE SECURITIES See page 00.
Because the Fund is new it does not have performance to report.
<PAGE>
CONSECO BALANCED FUND
Our balanced fund offers investors the growth potential of stocks and the income
potential of bonds in one blended portfolio.
INVESTMENT OBJECTIVE
The Fund seeks high total investment return, consistent with the preservation of
capital and prudent investment risk.
ADVISER'S STRATEGY
Normally, the Fund invests approximately 50-65% of its assets in equity
securities, and the remainder in a combination of fixed income securities,
cash, or cash equivalents .
This balance may change:
o A much higher percentage of assets may be invested in equity securities,
if the Adviser considers conditions in the stock market to be
substantially more favorable than in the bond market.
o Conversely, if the Adviser considers conditions in the bond market to be
substantially more favorable than in the equity market, a much higher
percentage of assets may be invested in fixed income securities.
THE EQUITY PORTION OF THE PORTFOLIO
The Fund may invest in equity securities of domestic and foreign issuers. These
may include common and PREFERRED STOCKS, CONVERTIBLE SECURITIES and WARRANTS.
The Adviser intends for the equity portion of the Fund to be widely diversified
by size of company and industry.
The Adviser looks for securities that will provide the two elements of total
return:
o Price appreciation
o Income from dividends
In selecting equity securities, the Adviser considers the following factors:
o Growth trends of the stock - and its industry
o Significant purchases or sales of the stock by corporate insiders
o Recent changes in earnings per share and their deviations from analysts'
expectations
o Relative price-earnings ratios, as compared to industry peers and
earnings growth potential
o The stock's price movement
THE FIXED INCOME PORTION OF THE PORTFOLIO
Normally, the Fund will maintain at least 25% of the value of its assets in a
wide range of domestic and foreign debt securities, including non-U.S. dollar
denominated securities. The majority of foreign investments will be in YANKEE
BONDS.
The Adviser anticipates that bonds will be invested primarily in intermediate-
and/or long-term domestic debt securities.
<PAGE>
The Fund may also invest up to 25% of total assets in BELOW INVESTMENT GRADE
SECURITIES, which are not believed to involve undue risk to income or principal.
In general, however, these types of securities are issued by companies without
long track records of sales and earnings, or by those companies with
questionable credit strength. The lowest rating categories in which the Fund
will invest are CCC/Caa.
For defensive purposes, the Fund may temporarily depart from its investment
objective and invest without limitation in money market instruments. This could
help the Fund avoid losses but may mean lost opportunities.
PRIMARY RISKS
Market risk
Credit risk
Interest rate risk
Foreign risk
Leverage risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar)
PREFERRED STOCK See page 00.
CONVERTIBLE SECURITY See page 00.
WARRANTS
Contracts that allow the bearer to purchase shares for a specified price at a
future date.
YANKEE BONDS See page 00.
BELOW INVESTMENT GRADE SECURITIES See page 00.
[Enclose in shaded boxes]
ANTICIPATING A STOCK'S GROWTH POTENTIAL
Analysts employ two common measurements, earnings per share and price-earnings
ratio (P/E), to help them determine how much they may be paying for a company's
future earnings power. For example, the higher the P/E, the greater the
expectations are for a company's earnings to grow.
INTEREST RATES AND BOND MATURITIES
Bonds with longer maturities will be more affected by interest rate changes than
intermediate-term bonds. For example, if interest rates go down, the price of
long-term bonds will increase more rapidly than the price of intermediate-term
bonds.
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the performance of the Fund's Class A
shares has varied from year to year. The table compares the Fund's performance
over time to that of a broad measure of market performance. WHEN YOU CONSIDER
THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT
NECESSARILY AN INDICATION OF HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
Class A:
Year Return
-------------------------------
<S> <C>
1997 17.19%
1998 12.45%
</TABLE>
BEST QUARTER: 3Q97 13.89%
WORST QUARTER: 3Q98 -11.71%
Class A total return is shown without the applicable sales load.
If the sales load was included, total return would have been lower.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)*
1 Year Since
Inception
--------------------------
<S> <C> <C>
Class A** (Inception 1/2/97) 5.98% 24.20%
Lehman Bros. Aggregate 8.69% 19.19%
Bond Index
Standard & Poor's Midcap 19.11% 57.54%
400 Index
</TABLE>
*Because Class B and Class C share do not have annual returns for a full
calendar year, Class B and Class C performance is not presented here.
**Class A share performance reflects the deduction of the maximum
sales load.
<PAGE>
CONSECO EQUITY FUND
Our equity fund offers investors an opportunity to participate in the growth of
a variety of corporations by investing in a portfolio of common stocks.
INVESTMENT OBJECTIVE
The Fund seeks to provide a high equity total return, consistent with
preservation of capital and a prudent level of risk.
ADVISER'S STRATEGY
The Fund primarily invests in common stocks and other U.S. and foreign
securities with similar characteristics, including CONVERTIBLE SECURITIES and
WARRANTS.
Normally, the Fund will be widely diversified by industry and company, but will
focus on SMALL- AND MID-CAP COMPANIES.
The Adviser looks for securities that will provide the two elements of total
return:
o Price appreciation
o Income from dividends
In selecting equity securities, the Adviser considers the following factors:
o Growth trends of the stock's issuer and the industry it represents
o Significant purchases and sales of the stock by corporate insiders
o Recent changes in earnings per share and their deviations from analysts'
expectations
o Relative price-earnings ratios, as compared to industry peers and
earning growth potential
o The stock's historical price movement
For defensive purposes, the Fund may temporarily depart from its investment
objective and invest without limitation in money market instruments. This
could help the Fund avoid losses but may mean lost opportunities.
PRIMARY RISKS
Market risk
Liquidity and valuation risk
Small company risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar definitions)
CONVERTIBLE SECURITIES See page 00.
WARRANTS See page 00.
<PAGE>
[Enclose in shaded box]
SMALL- AND MID-CAP COMPANIES
Generally refers to companies in the earlier period of their growth
expectations, from start-ups to better established firms. While these companies
have potential for attractive long-term returns, their securities may involve
greater risks, and more volatility, than investments in larger companies with a
stronger competitive advantage. The Adviser's extensive research efforts can
play a greater role in selecting securities from this sector than from larger
companies.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the performance of the Fund's Class A
shares has varied from year to year. The table compares the Fund's
performance over time to that of a broad measure of market performance.
WHEN YOU CONSIDER THIS INFORMATION, PLEASE REMEMBER THAT THE FUND'S
PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF HOW
IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
Class A:
Year Return
-------------------------------
<S> <C>
1997 22.90%
1998 16.11%
</TABLE>
BEST QUARTER: 4Q98 28.09%
WORST QUARTER: 3Q98 -20.52%
Class A total return is shown without the applicable sales load.
If the sales load was included, total return would have been lower.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)*
1 Year Since
Inception
--------------------------
<S> <C> <C>
Class A** (Inception 1/2/97) 9.43% 34.50%
Standard & Poor's 500 28.57% 71.46%
Index
Standard & Poor's Midcap 19.11% 57.54%
400 Index
</TABLE>
*Because Class B and Class C share do not have annual returns for a full
calendar year, Class B and Class C performance is not presented here.
**Class A share performance reflects the deduction of the maximum
sales load.
<PAGE>
CONSECO INTERNATIONAL FUND
Our international fund offers investors a way to access some of the attractive
growth prospects of companies located outside of the United States.
INVESTMENT OBJECTIVE
The Fund seeks to realize long-term capital appreciation.
THE INTERNATIONAL FUND'S STRATEGY
Under normal circumstances, the Fund invests at least 80% of its assets in
common stocks and securities convertible into common stocks from at least three
different countries outside of the United States.
Currently, the eligible countries include:
AUSTRALIA DENMARK HONG KONG MEXICO PORTUGAL SWEDEN
AUSTRIA FINLAND IRELAND NETHERLANDS SINGAPORE SWITZERLAND
BELGIUM FRANCE ITALY NEW ZEALAND SOUTH KOREA UNITED KINGDOM
CANADA GERMANY JAPAN NORWAY SPAIN
The Fund will place a primary emphasis on identifying undervalued securities.
Generally, these will have most or all of the following characteristics:
o Above-average earnings growth potential
o A market price below perceived economic value
o Below average price-earnings ratio
o Below average price to book value ratio
o Above-average dividend yields
The Fund's investment advisers determine the growth earnings prospects of
companies based on a combination of internal and external research using
fundamental analysis and considering changing economic trends. The decision to
sell a stock is typically based on the belief that the company is no longer
considered undervalued or shows deteriorating fundamentals, or that better
investment opportunities exist in other stocks. The Fund's investment advisers
believe that this strategy will help the Fund outperform other investment styles
over the longer term while minimizing volatility and downside risk.
The Fund's investment advisers will consider potential changes in currency
exchange rates when choosing stocks. When it is believed that a foreign currency
may suffer a decline against the U.S. dollar, the Fund may trade forward foreign
currency contracts to hedge currency fluctuations of underlying stock positions
Under adverse market conditions, the Fund may, for temporary defensive purposes,
invest up to 100% of its assets in cash or cash equivalents, including
investment-grade short-term obligations. To the extent that the Fund invokes
this strategy, its ability to achieve its investment objective may be affected
adversely.
<PAGE>
PRIMARY RISKS
Currency risk
Foreign risk
Leverage risk
Market risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
Investing in international markets increases additional risks that need to be
considered:
o Currency exchange rate fluctuations
o Political and financial instability
o Less liquidity and greater volatility of foreign investments
o Lack of uniform accounting, auditing and financial reporting standards
o Less government regulation and supervision of foreign stock exchanges,
brokers and listed companies
o Increased price volatility
o Delays in transaction settlement in some foreign markets
o Adverse impact of euro conversion on the business or financial conditions
of companies in which Fund is invested.
(Enclose in shaded box)
THE FUND'S STRUCTURE
The Conseco International Fund seeks its investment objective by investing all
of its investable assets in the AMR Investment Services' Trust International
Equity Portfolio (the "Portfolio"), an investment company which has
substantially the same investment objective and policies as the Fund. AMR
Investment Services, Inc. (AMR) manages the "Portfolio." This type of structure
is commonly known as a "master feeder" structure (see the Statement of
Additional Information [SAI] for more details).
AMR undertakes the following activities in managing the "Portfolio":
o Selecting investment advisers
o Allocating assets among advisers
o Monitoring results
o Coordinating activities among investment advisers to ensure regulatory
compliance
<PAGE>
(Sidebar)
INVESTMENT GRADE DEBT SECURITIES See page 00.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the performance of the Fund's Class
A shares has varied from year to year.
The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
Class A:
Year Return
-------------------------------
<S> <C>
1998 9.80%
</TABLE>
BEST QUARTER: 4Q98 13.80%
WORST QUARTER: 3Q98 -15.78%
The Fund's year to date total return as of 12/31/98 was 5.46%.
Class A total return is shown without the applicable sales load.
If the sales load was included, total return would have been lower.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)*
Since
Inception
--------------------
<S> <C>
Class A** (Inception 1/2/98) 3.49%
Morgan Stanley Capital Int'l 20.33%
Europe, Australia, Far East
Index (EAFE)
</TABLE>
*Because Class B and Class C shares do not have annual returns for a full
calendar year, Class B and Class C performance is not presented here.
**Class A share performance reflects the deduction of the maximum
sales load.
<PAGE>
CONSECO 20 FUND
This focus Fund offers investors a way to capitalize on those equity selections
that the Adviser believes are the best through one concentrated portfolio.
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
ADVISER'S STRATEGY
Normally, the Fund will invest at least 65% of its assets in common stocks of
companies that the Adviser believes have above-average growth prospects.
The Fund is NON-DIVERSIFIED and will normally concentrate its investments in a
core position of approximately 20 to 30 common stocks. While the Fund invests in
securities issued by large-cap companies, a substantial portion of
these securities may be issued by SMALL- AND MID-CAP COMPANIES.
The Adviser looks for companies that demonstrate strong growth potential,
preferring:
o Companies whose earnings appear likely to continue in an upward direction
o Companies that demonstrate the ability to consistently grow their
earnings at a faster rate than their peer group
o Companies whose stocks appear to the Adviser to be undervalued in the
marketplace
In selecting equity securities, the Adviser considers the following factors:
o High return on invested capital
o Sound financial policies and a strong balance sheet
o Competitive advantages (including innovative products and services)
o Effective research, product development and marketing
o Stable, capable management
The Fund may also invest in any or all of the following:
o PREFERRED STOCK
o CONVERTIBLE SECURITIES
o WARRANTS
o Fixed income securities(when the Adviser believes they are more
attractive than stocks on a long-term basis)
If the Adviser believes that market conditions warrant a defensive
position, the Fund may temporarily depart from its investment objective and
invest without limitation in cash and short-term debt securities. This could
help the Fund avoid losses but may mean lost opportunities.
<PAGE>
PRIMARY RISKS
Concentration risk
Market risk
Small company risk
Liquidity and valuation risk
Foreign risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar)
NON-DIVERSIFIED
A fund is considered non-diversified if it does not limit by the percentage of
assets it may invest in any one issuer. The success or failure of one issuer
may cause the Fund to fluctuate more than it would in a diversified fund.
SMALL- AND MID-CAP COMPANIES See page 00.
PREFERRED STOCK See page 00.
CONVERTIBLE SECURITIES See page 00.
WARRANTS See page 00.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the performance of the Fund's Class
A shares has varied from year to year.
The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
Class A:
Year Return
-------------------------------
<S> <C>
1998 28.00%
</TABLE>
BEST QUARTER: 4Q98 29.69%
WORST QUARTER: 3Q98 -17.13%
Class A total return is shown without the applicable sales load.
If the sales load was included, total return would have been lower.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)*
Since
Inception
--------------------
<S> <C>
Class A** (Inception 1/2/98) 20.64%
Standard & Poor's 500 28.57%
Index
Standard & Poor's Midcap 19.11%
400 Index
</TABLE>
*Because Class B and Class C shares do not have annual returns for a full
calendar year, Class B and Class C performance is not presented here.
**Class A share performance reflects the deduction of the maximum
sales load.
<PAGE>
PRIMARY RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. The principal
risks of investing in the Funds are described below. Each Fund's exposure to
risk depends upon its specific investment profile. The amount and types of risk
vary depending on:
o The Fund's investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
CONCENTRATION RISK The risk that if a Fund has most of its investments in a few
securities or a single sector, its portfolio will be more susceptible to factors
adversely affecting issuers of those few securities or within that sector than
would a more diversified portfolio of securities.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise be unable to honor a financial obligation.
Securities rated below investment grade are especially susceptible to this risk.
CURRENCY RATE RISK
The risk that fluctuations in the exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment.
FOREIGN RISK
The risk that foreign issuers may be subject to foreign political and economic
instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital. In addition, there may be
changes in foreign governmental attitudes towards private investment, possibly
leading to nationalization, increased taxation or confiscation of investors'
assets. Investments in issuers located or doing business in emerging or
developing markets are especially susceptible to these risks.
INTEREST RATE RISK
The risk that changing interest rates may adversely affect the value of an
investment. With fixed income securities, an increase in interest rates
typically causes the value of those securities to fall, while a decline in
interest rates may produce an increase in the market value of those securities.
Because of this risk, an investment in a Fund that invests in fixed income
securities is subject to risk even if all the fixed income securities in the
Fund's portfolio are paid in full at maturity. Changes in interest rates will
affect the value of longer-term fixed income securities more than shorter-term
securities.
LEVERAGE RISK
The risk that borrowing, or some derivative investments, such as forward
commitment transactions, may multiply smaller market movements into large
changes in value.
<PAGE>
LIQUIDITY AND VALUATION RISKS
The risk that securities that were liquid when purchased by a Fund may become
temporarily illiquid (i.e., not be sold readily) and hard to value, especially
in declining markets.
MARKET RISK
The risk that the market value of a Fund's investments will fluctuate as the
stock and bond markets fluctuate. Market risk may affect a single issuer,
industry or section of the economy or may affect the market as a whole.
MUNICIPAL MARKET RISK
The risk that special factors may negatively affect the value of municipal
securities, and, as a result, a Fund's share price. These factors include
political or legislative changes, uncertainties related to the tax status of the
securities or the rights of investors in the securities. A Fund may invest in
municipal obligations that are related in such a way that an economic, business
or political development or change affecting one of these obligations would also
affect the other obligations.
PREPAYMENT RISK
The risk that issuers will prepay fixed rate obligations when interest rates
fall, forcing the Fund to re-invest in obligations with lower interest rates
than the original obligations.
RESTRICTED SECURITIES RISK
The risk that a buyer will be difficult to come by and selling price will need
to be less than originally anticipated because these restricted securities may
only be sold in privately negotiated transactions.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies. Smaller companies generally experience higher
growth rates and higher failure rates than do larger companies. The trading
volume of the securities of smaller companies is normally lower than that of
larger companies. The tendency of short-term changes in the demand for the
securities of smaller companies generally has a disproportionate effect on
their market price, tending to make prices rise more in response to buying
demand and fall more in response to selling pressure.
YEAR 2000
The Funds could be adversely affected by problems relating to the inability of
computer systems used by the Adviser and the Funds' other service providers to
recognize the year 2000. While year 2000-related computer problems could have a
negative effect on the Funds, the Adviser is working to avoid these problems in
its own computer systems and to obtain assurances from service providers that
they are taking similar steps.
<PAGE>
EURO CONVERSION
The Funds also could be adversely affected by the conversion of European
currencies into the Euro beginning January 1, 1999. This conversion will not be
complete until 2002, and its full implementation may be delayed. Difficulties
with the conversion and potential delays may significantly impact European
capital markets and could increase volatility in world capital markets.
It is impossible to know whether the problems associated with both Year 2000 and
Euro conversion, which could disrupt operations of investments if uncorrected,
have been adequately addressed until the dates in question arrive.
Please note that there are other circumstances not described here which could
adversely affect your investment and potentially prevent a Fund from achieving
its objectives.
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you may pay if you buy and
hold shares of the Funds. These expenses are deducted from the Funds' assets.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO
INCOME YIELD SECURITIES BALANCED
FUND FUND FUND FUND
- ---------------------------------------------------------------
<S> <C> <C> <C>
Maximum Front-End
Sales Charge (Load)
Imposed on Purchases
Class A 5.00% 5.75% 5.75% 5.75%
Class B and C None None None None
Maximum Deferred
Sales Charge (Load)
Class A None None None None
Class B* 5.00% 5.00% 5.00% 5.00%
Class C** 1.00% 1.00% 1.00% 1.00%
</TABLE>
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
EQUITY INTERNATIONAL 20
FUND FUND FUND
- ---------------------------------------------------------------
<S> <C> <C> <C>
Maximum Front-End
Sales Charge (Load)
Imposed on Purchases
Class A 5.75% 5.75% 5.75%
Class B and C None None None
Maximum Deferred
Sales Charge (Load)
Class A None None None
Class B* 5.00% 5.00% 5.00%
Class C** 1.00% 1.00% 1.00%
</TABLE>
The Funds do not charge any fees for reinvesting dividends, or redeeming or
exchanging fund shares.
*The maximum 5% contingent deferred sales charged applies to sales of Class B
shares during the first year after purchase. The charge generally declines
annually, receiving zero after six years.
**The maximum 1% contingent deferred sales charge applies only if an investor
sells Class C shares within the first year after purchase.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from each Fund's
assets) as a % of average daily net assets
CLASS A SHARES
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO
INCOME YIELD SECURITIES BALANCED
FUND FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and
Administrative Fees 0.65% 0.90% 1.05% 0.90%
Distribution (12b-1) Fees 0.65% 0.50% 0.50% 0.50%
Other Expenses 0.64% 0.72% 0.57% 0.86%
---- ---- ---- ----
Equals: Total Annual
Fund Operating Expenses 1.94% 2.12% 2.12% 2.26%
---- ---- ---- ----
Less: Fee Waiver
and/or Expense
Reimbursement* 0.69% 0.72% 0.57% 0.76%
---- ---- ---- ----
Equals: Net Expenses 1.25% 1.40% 1.55% 1.50%
==== ==== ==== ====
</TABLE>
CLASS A SHARES
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
EQUITY INTERNATIONAL 20
FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Management and
Administrative Fees 0.90% 1.23% 0.90%
Distribution (12b-1) Fees 0.50% 0.50% 0.50%
Other Expenses 0.70% 1.11% 0.75%
---- ---- ----
Equals: Total Annual
Fund Operating Expenses 2.10% 2.84% 2.15%
Less: Fee Waiver
and/or Expense
Reimbursement* 0.60% 0.59% 0.40%
---- ---- ----
Equals: Net Expenses 1.50% 2.25% 1.75%
==== ==== ====
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO
INCOME YIELD SECURITIES BALANCED
FUND FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and
Administrative Fees 0.65% 0.90% 1.05% 0.90%
Distribution (12b-1) Fees 1.00% 1.00% 1.00% 1.00%
Other Expenses 1.12% 0.85% 1.75%+ 2.03%
---- ---- ---- ----
Equals: Total Annual
Fund Operating Expenses 2.77% 2.75% 3.80% 3.93%
Less: Fee Waiver
and/or Expense
Reimbursement* 1.17% 0.85% 1.75% 1.93%
---- ---- ---- ----
Equals: Net Expenses 1.60% 1.90% 2.05% 2.00%
==== ==== ==== ====
</TABLE>
CLASS B SHARES
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
EQUITY INTERNATIONAL 20
FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Management and
Administrative Fees 0.90% 1.23% 0.90%
Distribution (12b-1) Fees 1.00% 1.00% 1.00%
Other Expenses 2.95% 0.81% 0.83%
---- ---- ----
Equals: Total Annual
Fund Operating Expenses 4.85% 3.04% 2.73%
Less: Fee Waiver
and/or Expense
Reimbursement* 2.85% 0.29% 0.48%
---- ---- ----
Equals: Net Expenses 2.00% 2.75% 2.25%
==== ==== ====
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO
INCOME YIELD SECURITIES BALANCED
FUND FUND FUND FUND
- --------------------------------------------------------------------------------
- -
<S> <C> <C> <C> <C>
Management and
Administrative Fees 0.65% 0.90% 1.05% 0.90%
Distribution (12b-1) Fees 1.00% 1.00% 1.00% 1.00%
Other Expenses 4.26% 1.13% 1.75%+ 1.50%
---- ---- ---- ----
Equals: Total Annual
Fund Operating Expenses 5.91% 3.03% 3.80% 3.40%
Less: Fee Waiver
and/or Expense
Reimbursement* 4.31% 1.13% 1.75% 1.40%
---- ---- ---- ----
Equals: Net Expenses 1.60% 1.90% 2.05% 2.00%
==== ==== ==== ====
</TABLE>
CLASS C SHARES
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
EQUITY INTERNATIONAL 20
FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Management and
Administrative Fees 0.90% 1.23% 0.90%
Distribution (12b-1) Fees 1.00% 1.00% 1.00%
Other Expenses 6.61% 1.03% 0.82%
---- ---- ----
Equals: Total Annual
Fund Operating Expenses 8.51% 3.26% 2.72%
Less: Fee Waiver
and/or Expense
Reimbursement* 6.51% 0.51% 0.47%
---- ---- ----
Equals: Net Expenses 2.00% 2.75% 2.25%
==== ==== ====
</TABLE>
* PURSUANT TO A CONTRACTUAL ARRANGEMENT WITH THE FUND, THE ADVISER, DISTRIBUTOR
AND ADMINISTRATOR HAVE AGREED TO WAIVE FEES AND/OR REIMBURSE FUND EXPENSES
THROUGH 4/30/00, SO THAT THE TOTAL ANNUAL OPERATING EXPENSES OF EACH FUND ARE
LIMITED TO THE NET EXPENSES FOR EACH RESPECTIVE FUND, AS SET FORTH ABOVE. THIS
ARRANGEMENT DOES NOT COVER INTEREST, TAXES, BROKERAGE COMMISSIONS, AND
EXTRAORDINARY EXPENSES.
** 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.
+Because the Fund has not completed a full fiscal year, other expenses are
estimated.
<PAGE>
EXPENSE EXAMPLE
This example will help you compare the cost of investing in the
Conseco Fund Group to the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in a Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs and the return on
your investment may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO CONSECO CONSECO
INCOME YIELD SECURITIES BALANCED EQUITY INTERNATIONAL CONSECO
FUND FUND FUND FUND FUND FUND 20 FUND
----------------------------------------------------------------------------------
CLASS A SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $62 $71 $72 $72 $72 $79 $74
3 Year* $101 $113 $114 $117 $113 $134 $117
5 Year* $143 $158 $159 $165 $158 $193 $162
10 Years $262 $286 $286 $300 $284 $355 $289
CLASS B SHARES
1 Year $66 $69 $71 $70 $70 $78 $73
3 Year* $104 $107 $130 $132 $151 $120 $109
5 Year* $157 $158 $204 $209 $249 $176 $159
10 Years $279 $284 $353 $368 $423 $327 $283
CLASS C SHARES
1 Year $26 $29 $31 $30 $30 $38 $33
3 Year* $140 $82 $100 $91 $198 $95 $79
5 Year* $273 $150 $184 $167 $387 $165 $139
10 Years $647 $338 $417 $376 $910 $356 $304
</TABLE>
* THE EXAMPLES FOR 3, 5 AND 10 YEARS DO NOT TAKE INTO ACCOUNT THE EXPENSE
WAIVER/REIMBURSEMENT DESCRIBED ABOVE. UNDER THE REIMBURSEMENT ARRANGEMENT, YOUR
COST FOR THE 3, 5 AND 10 YEAR PERIODS WOULD BE LOWER.
<PAGE>
MANAGEMENT
ADVISER
Conseco Capital Management, Inc. (CCM) is a wholly owned subsidiary of Conseco,
Inc., a publicly owned financial services company that provides specialized
annuity, life and health insurance products. CCM serves as the "Adviser" to each
of the Funds and as adviser to other registered investment companies. In
addition to managing the invested assets of Conseco, Inc., CCM manages
foundations, endowments, corporations, government and union clients. As of
December 31, 1998, CCM managed over $35.3 billion.
CCM is also responsible for recommending and monitoring the performance of the
investment company in which Conseco International Fund, which operates in a
"master-feeder" structure, invests. If it is dissatisfied with the performance
of that company, CCM may propose (i) to take on the management of the
International Fund internally or (ii) recommend a different investment company
to invest the assets of the International Fund. Any such change would require
approval from the Board of Trustees.
ADVISORY FEES
For the fiscal year ended 12/31/98, the advisory fee paid to the Adviser by each
Fund was as follows:
<TABLE>
<CAPTION>
<S> <C>
--------------------------------------------------------------------------------------------------
ADVISORY FEES PAID
FUND NAME (expressed as a percentage of
average daily net assets)
--------------------------------------------------------------------------------------------------
Conseco Fixed Income Fund 0.00%
--------------------------------------------------------------------------------------------------
Conseco High Yield Fund 0.00%
--------------------------------------------------------------------------------------------------
Conseco Convertible Securities Fund 0.06%
--------------------------------------------------------------------------------------------------
Conseco Balanced Fund 0.00%
--------------------------------------------------------------------------------------------------
Conseco Equity Fund 0.18%
--------------------------------------------------------------------------------------------------
Conseco International Fund 0.00%
--------------------------------------------------------------------------------------------------
Conseco 20 Fund 0.15%
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ADVISER TO THE INTERNATIONAL EQUITY PORTFOLIO
AMR, a wholly owned subsidiary of AMR Corporation, oversees all administrative,
investment advisory and portfolio management services for the AMR Investment
Services Trust International Equity Portfolio (the "Portfolio") - the Fund in
which the Conseco International Fund invests. As of December 31, 1998, AMR had
approximately $20.4 billion in assets under management.
For the services provided, AMR receives an annualized advisory fee from the
Portfolio that is 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 described
below. AMR also receives compensation in connection with the Portfolio's
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 this cash. If a borrower posts collateral other than cash, the
borrower will pay a loan fee to the Portfolio. 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.
SUB-ADVISERS TO THE INTERNATIONAL EQUITY PORTFOLIO
The following three investment advisers have agreements with AMR to provide
investment management and related record-keeping services to the Portfolio. 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.
Hotchkis and Wiley is a division of the Capital Management Group of Merrill
Lynch Asset Management, L.P., a wholly owned subsidiary of Merrill Lynch & Co.,
Inc. As of December 31, 1998, assets under management were approximately $14.5
billion.
Independence Investment Associates, Inc. (IIA) is a wholly owned subsidiary of
John Hancock Mutual Life Insurance Company. As of December 31, 1998, IIA,
together with funds managed for its parent company, had assets under management
totaling approximately $30.4 billion.
Lazard Asset Management, is a division of Lazard Freres (Lazard). As of December
31, 1998, Lazard had discretionary investment management authority with respect
to approximately $70 billion of assets.
As compensation for its services, each investment sub-adviser is paid a fee by
AMR out of the proceeds of the management fee received by AMR from the
Portfolio.
<PAGE>
(Sidebar)
CONSECO CAPITAL MANAGEMENT, INC.
11825 N. Pennsylvania Street, Carmel, Indiana 46032
AMR INVESTMENT SERVICES, INC.
4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas 76155
HOTCHKIS AND WILEY
725 South Figueroa Street, Suite 4000, Los Angeles, California 90017
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 State Street, Boston, Massachusetts 02109
LAZARD ASSET MANAGEMENT
30 Rockefeller Plaza, New York, New York 10112
PORTFOLIO MANAGERS OF THE CONSECO FUND GROUP
CONSECO FIXED INCOME FUND
GREGORY J. HAHN, CFA, SENIOR VICE PRESIDENT, PORTFOLIO ANALYTICS
At CCM, Mr. Hahn is also responsible for the portfolio analysis and management
of the institutional client accounts and analytical support for taxable
portfolios. In addition, he is responsible for SEC registered investment
products, investments in the insurance industry and is portfolio manager of
other affiliated investment companies. Mr. Hahn joined the Adviser as Vice
President and portfolio manager in 1989.
G. NOLAN SMITH, CFA, VICE PRESIDENT, PORTFOLIO ANALYTICS
At CCM, Mr. Smith is also responsible for taxable and tax-exempt, fixed income
and institutional client accounts. He is also a portfolio manager of other
affiliated investment companies. Prior to joining the Adviser in 1995, Mr. Smith
was a portfolio manager at Strong Capital Management, where he managed the
Strong Municipal Money Market, Short-Term and Municipal Bond Funds.
CONSECO HIGH YIELD FUND
PETER C. ANDERSEN, CFA, VICE PRESIDENT, PORTFOLIO ANALYTICS
At CCM, Mr. Andersen is responsible for managing below investment grade fixed
income portfolios for institutional client accounts and is the portfolio manager
of other affiliated investment companies. Prior to joining the Adviser in 1997,
he was a portfolio manager for Colonial Management Associates, where he managed
over $650 million in high-yield, tax-free mutual funds.
WILLIAM F. FICCA, VICE PRESIDENT AND DIRECTOR OF RESEARCH
At CCM, Mr. Ficca also oversees the Adviser's research efforts and is the
portfolio manager of other investment products managed by the Adviser. Mr. Ficca
joined the Adviser as Assistant Vice President in 1991.
<PAGE>
CONSECO CONVERTIBLE SECURITIES FUND
ANDREW S. CHOW, CFA, FLMI, VICE PRESIDENT
At CCM, Mr. Chow is also responsible for trading mortgage-backed securities,
exchange and over-the-counter derivatives and convertible securities.
Additionally, he is portfolio manager for fixed income institutional client
accounts. He joined the Adviser as Assistant Vice President in 1991.
CONSECO BALANCED FUND
GREGORY J. HAHN, CFA, SENIOR VICE PRESIDENT, PORTFOLIO ANALYTICS
Mr. Hahn is the portfolio manager of the fixed income portion of the Fund. See
Conseco Fixed Income Fund for Mr. Hahn's complete biography.
THOMAS J. PENCE, CFA, SENIOR VICE PRESIDENT
Mr. Pence is portfolio manager of the equity portion of the Fund. Since joining
the Adviser in 1992, Mr. Pence has been responsible for the management of all of
the Adviser's equity portfolios and for the oversight of the equity investment
process. Additionally, he is portfolio manager of other affiliated investment
companies.
CONSECO EQUITY FUND
THOMAS J. PENCE, CFA, SENIOR VICE PRESIDENT
See Conseco Balanced Fund for Mr. Pence's complete biography.
CONSECO 20 FUND
THOMAS J. PENCE, CFA, SENIOR VICE PRESIDENT
See Conseco Balanced Fund for Mr. Pence's complete biography.
ERIK J. VOSS, ASSISTANT VICE PRESIDENT, SENIOR SECURITIES ANALYST
At CCM, Mr. Voss is also responsible for assisting in the research and portfolio
management efforts for all of the Adviser's equity portfolios. Prior to joining
the Adviser in 1996, Mr. Voss worked as an equity analyst for Gardner Lewis
Asset Management for over three years.
<PAGE>
YOUR ACCOUNT
CHOOSING A SHARE CLASS
The distributor, Conseco Equity Sales, Inc., offers three classes of Conseco
Fund Group shares in this prospectus: A, B and C. Each class has its own expense
structure. This allows you to choose the shares that best meets your investment
needs.
The primary differences between the classes of shares is the initial sales
charge and contingent deferred sales charge (CDSC) structures and the ongoing
annual expenses. How should you determine which share class is best for you?
Considerations generally include:
o The amount you wish to invest
o Your investment time horizon
o The Fund's expenses and charges
Ask your financial adviser for assistance in determining your most appropriate
pricing option.
(Sidebar)
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Class A Class B Class C
- ------------------------------------------------------------------------------------------------------------
Initial sales charge of 5.75% or less for No initial sales charge No initial sales charge
all Funds - except Conseco Fixed Income
Fund (5.00% or less)
See schedules on page 00
- ------------------------------------------------------------------------------------------------------------
Lower sales charges for larger Contingent deferred sales charge Deferred sales charge
investments available of 5% or less on shares sold within of 1%, paid if you
six years sell shares within one
year of purchase
See schedules on page 00 See schedule on page 00
- ------------------------------------------------------------------------------------------------------------
Automatic conversion to Class A shares
at net asset value in the eighth year
- -----------------------------------------------------------------------------------------------------------
Please consult your financial Please consult your financial intermediary or the SAI for a
intermediary or the SAI for a complete list of CDSC waivers
complete list of sales load waivers
- ------------------------------------------------------------------------------------------------------------
For actual past expenses of Class A, B and C shares, see the Annual Fund Operating Expense table
information earlier in this
prospectus.
</TABLE>
<PAGE>
(sidebar)
In addition to Class A, B and C shares, Conseco Fund Group also offers in a
separate prospectus Class Y shares to qualifying individual investors,
or to institutional investors, including:
o Tax-qualified plans with at least $10 million in assets or 250 plan
eligible employees
o Banks and insurance companies investing for their own accounts
o Investment companies unaffiliated with the Adviser
o Tax-qualified retirement plans of the Adviser or qualified financial
intermediaries who have a contract with the distributor
o Endowments, foundations and other charitable organizations
o Wrap fee accounts or asset allocation programs where the shareholder pays
an asset-based fee
PURCHASES OF CLASS A SHARES
The public offering price of Class A shares is the Fund's net asset
value (NAV) per share, plus an initial sales charge that may vary depending on
the amount invested.
(sidebar)
NET ASSET VALUE (NAV)
The market value of a fund's securities and other assets less its liabilities
divided by total number of outstanding shares.
The sales charge for Class A shares:
CLASS A SALES CHARGE - ALL FUNDS EXCEPT CONSECO FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
On Purchases of: As a % of Public As a % of Net Dealer
Offering Price Amount Invested Reallowance
As a % 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%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
CLASS A SALES CHARGE - CONSECO FIXED INCOME FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
On Purchases of: As a % of Public As a % of Net Dealer
Offering Price Amount Invested Reallowance
As a % 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>
<PAGE>
Although you may pay an initial sales charge when you buy Class A shares, the
ongoing expenses of this class are lower than those of Class B or C.
REDUCING YOUR SALES CHARGES FOR CLASS A SHARE PURCHASES
You may be eligible to buy Class A shares with a reduced sales charge in one or
more of the following ways:
RIGHTS OF ACCUMULATION: Allows you to include the value of your existing Conseco
Fund Group investments together with the value of any shares you hold in a
FEDERATED MONEY MARKET FUND (FMMF) to your current investment to determine the
applicable sales charge.
(sidebar)
FEDERATED MONEY MARKET FUND
You may also purchase shares of a money market fund currently managed
by Federated Management through a separate prospectus. That
prospectus is available upon request by
calling 800-986-3384.
COMBINED PURCHASES: Allows you to include the cumulative value of all of your
Conseco Fund Group investments with the value of investments made by other
qualifying persons to determine the amount of reduction in sales charge.
Qualifying persons include trustees or other fiduciaries, as well as qualified
employee benefit plans of a single corporation or of corporations affiliated
with each other in accordance with the 1940 Act (see Statement of Additional
Information [SAI] for specific information).
In addition, if you own a Conseco Variable Insurance Company variable annuity
contract, the current cash value of the contract will be aggregated with your
shares to determine your sales charge.
You or your financial intermediary must provide documentation to the Transfer
Agent each time a purchase that qualifies for a reduced sales charge is made.
LETTER OF INTENT: Allows you to commit to invest a certain amount in Class A
shares of any or all of the Funds over a 13-month period and receive the same
sales charge as if all shares had been purchased at once. You may also include
your existing Conseco Fund Group investments to further reduce your sales
charge.
See the SAI and the application for further details on how you can take
advantage of these cost-reduction programs.
<PAGE>
PURCHASE OF CLASS B SHARES
Class B shares are offered at their net asset value per share without any
initial sales charge. Your entire purchase amount is immediately invested.
However, a contingent deferred sales charge (CDSC) is imposed upon Class B
shares redeemed within six years of their purchase. The CDSC is based on the
number of shares you are selling and on the lessor of:
o The NAV of shares at the time of purchase
o The NAV of shares at the time of redemption
The longer the time between the purchase and the sale of shares, the lower the
rate of the CDSC. A Class B share purchase may not exceed $500,000.
DETERMINING THE CDSC
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------
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% (Converts to Class A shares of equal dollar
value; Class A shares have lower ongoing
expenses than Class B shares)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this CDSC, purchases made on any day during the calendar month
are counted as having been made on the first day of that month.
To keep your CDSC as low as possible, each time you place a request to sell
shares we will first sell any shares in your account that carry no CDSC (those
acquired through reinvestments of dividends or capital gains distributions). The
CDSC, if any, payable on shares acquired through an exchange between Conseco
Funds will be calculated based on the original purchase date of the Class B
shares exchanged.
PURCHASE OF CLASS C SHARES
With Class C shares, you pay no sales charge when you invest, but you are
charged a contingent deferred sales charge (CDSC) when you sell shares you have
held for one year or less. In this case, shares are subject to a CDSC on
redemptions equal to 1% of the lower of:
o The NAV of shares at the time of purchase
o The NAV of shares at the time of redemption
<PAGE>
Class C shares held one year or longer are not subject to this CDSC.
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.
The CDSC 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").
DETERMINING SHARE PRICE
A Fund's share price is the total fair market value of its assets minus its
liabilities, called net asset value, divided by the total number of shares
outstanding. Because the value of each Fund's securities changes every business
day, the Fund's share price usually changes as well.
Each Fund calculates its net asset value (NAV) per share on each business day
that the New York Stock Exchange (NYSE) is open.
For each of the Funds except the Conseco International Fund, NAV is calculated
at the close of regular trading on the NYSE (normally 4:00 p.m., Eastern Time).
The NAV is generally based on the market price of securities held in a Fund.
In the case of the Conseco International Fund, foreign
securities may trade in their local markets on weekends or other days when a
Fund does not price its shares. Therefore, the NAV of Funds holding foreign
securities may change on days when shareholders will not be able to buy or sell
their Fund shares.
Under the direction of the Board, the Funds may use a practice known as fair
value pricing under the following circumstances:
o Securities and assets for which market quotations are not readily
available
o Events that occur after an exchange closes are likely to affect the value
of the security
o Fund management strongly believes a market price is not reflective of the
security's appropriate value
<PAGE>
BUYING SHARES
OPENING A NEW ACCOUNT IS EASY
The Funds are open for business each day the New York Stock Exchange (NYSE) is
open for business. The Funds are closed for business on:
- --------------------------------------------------------------------------------
Saturday Presidents' Day Labor Day
Sunday Good Friday Thanksgiving Day
New Year's Day Memorial Day Christmas Day
Martin Luther King, Jr. Day Independence Day
- --------------------------------------------------------------------------------
When placing purchase orders, investors should specify whether the order is for
Class A, Class B or Class C shares. There are three convenient ways to begin
your Conseco Fund Group investment program.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Through Financial Intermediaries By Bank Wire By Mail
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares of the Funds may be Wire your investment to: Simply complete and sign an
purchased through authorized ABA#011000028 application to begin the process.
broker-dealers, financial State Street Bank
institutions and service Boston, MA Make your check payable to
therewith whom the distributor Reference your customer name, Fund of your choice.*
has a selling agreement. fund name and fund account number Account #9905-244-1
If you are adding to your
Important note: Each institution existing account, indicate your
may have its own procedures and For NEW accounts, please promptly Fund account number directly on
requirements for buying and selling complete and mail the account the check.
shares and may charge fees. Contact application form to the Funds at
your financial professional for the address given under "By Mail." Mail your application and check
more information. to:
The Funds currently do not charge Conseco Fund Group
for wire transfers, although your P.O. Box 8017
bank may. Boston, Massachusetts
02266-8017
- -----------------------------------------------------------------------------------------------------------
*No third-party checks are accepted.
</TABLE>
Payment for the shares purchased through a financial institution is due
on the settlement date. The settlement date is normally three business days
after the order has been executed. WHEN MAKING PAYMENT FOR CONFIRMED PURCHASES
VIA FEDERAL FUNDS WIRE, YOU MUST REFERENCE THE CONFIRMATION NUMBER
TO ENSURE TIMELY CREDIT.
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). Check with your investment professional to find out if they have
an internal deadline for receiving your order to ensure processing that day.
Shares are purchased at the next share price calculation after your investment
is received. The Funds reserve the right to reject any purchase order.
<PAGE>
(Sidebar)
PLEASE INDICATE WHETHER YOU WOULD LIKE THE ABILITY TO REDEEM OR EXCHANGE
SHARES BY TELEPHONE OR WIRE WHEN YOU COMPLETE YOUR APPLICATION.
CHOOSE YOUR INVESTMENT AMOUNT
Conseco Fund Group offers a flexible range of minimum investment amounts to
initiate - or add to - your investment program.
<TABLE>
<CAPTION>
MINIMUM INVESTMENTS PER FUND
- --------------------------------------------------------------------------------
<S> <C>
To open an account $250
- --------------------------------------------------------------------------------
To make a subsequent investment $50
- --------------------------------------------------------------------------------
To open a pre-authorized investment plan to transfer $50
assets from bank account to Fund
- --------------------------------------------------------------------------------
To open a retirement account through salary reduction $10
- --------------------------------------------------------------------------------
Initiate a Dollar Cost Averaging (DCA) Plan through $5,000
Federated money market fund account
- --------------------------------------------------------------------------------
Transfer assets from DCA Plan to Fund $250 each month
- --------------------------------------------------------------------------------
These requirements may be changed or waived at any time at the discretion of the
Funds' officers.
</TABLE>
(Sidebar)
DOLLAR COST AVERAGING: A CONVENIENT OPTION
Through our dollar cost averaging (DCA) program, you can transfer equal amounts
of money on a regular basis from our Federated Money Market Fund to another
investment choice.
If you have at least $5,000 invested in the money market fund, you can transfer
a minimum of $250 a month into a Conseco fund. This investment plan helps you
buy more shares when the market is low and fewer shares when the market is high.
When you make regular investments of a given amount, you will end up investing
at different share prices over time. Over time, this can help lower the average
price you pay per share.
<PAGE>
Of course, dollar cost averaging cannot assure a profit or protect against a
loss. Additionally, since such a plan involves continuous investment in
securities regardless of fluctuating price levels, investors should consider the
financial ability required to continue purchases through periods of low price
levels.
PURCHASES BY CHECK
To avoid fees and delays, all checks should be drawn only on U.S. banks
in U.S. funds. A charge may be imposed if any check submitted for investment
does not clear. Third-party checks will not be accepted. When you purchase
shares by check, you will not be allowed to redeem the shares until your
investment has been in the account for 15 business days. The Fund 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.
ELECTRONIC TRANSFERS THROUGH AUTOMATED CLEARING HOUSE
Electronic transfers through the 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.
PRE-AUTHORIZED INVESTMENT PLAN
You can establish a pre-authorized investment plan 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 this process, please contact the Transfer Agent at
800-986-3384. The minimum investment requirements may be waived by the Funds for
purchases made using certain programs such as payroll deduction plans and
retirement plans.
<PAGE>
SELLING SHARES
Redemption requests require your account number, the exact name
of your account and your Social Security or taxpayer identification number. The
Fund will mail a check to your account address or, if you have elected the wire
redemption privilege, the Fund will wire the proceeds to your bank on the
following business day.
You may sell, or redeem, some or all of your shares on any business day by doing
one of the following.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
THROUGH FINANCIAL INTERMEDIARY BY TELEPHONE BY MAIL
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
If you bought your shares through a Individual investors may Financial intermediaries, as
broker/dealer or other financial communicate redemption orders by well as institutional and
intermediary, you may redeem your telephone. individual investors, may sell
shares by calling them directly. shares by writing the Funds at
the following address:
Financial intermediaries may
communicate redemption orders by Conseco Fund Group
wire and telephone. P.O. Box 8017
Boston, Massachusetts
Important note: Each institution 02266-8017
may have its own procedures and
requirements for buying and selling Redemption certifications and
shares and may charge fees. Contact signature guarantees may be
your financial professional for required.
more information.
- --------------------------------------------------------------------------------------------------------
</TABLE>
Redemption orders placed through a financial intermediary will receive the next
calculated net asset value after the order has been accepted, minus any
applicable contingent deferred sales charge.
It is the responsibility of the 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).
MORE ABOUT SELLING YOUR SHARES
Your shares will be sold at the next NAV calculated after your order is
accepted. Your order will be processed promptly and you will generally receive
the proceeds within seven business days.
<PAGE>
A Fund may delay payment up to 15 days or longer in the event the check you used
to purchase shares has not cleared. To shorten this delay, consider purchasing
your shares by bank wire through federal funds.
Under certain extraordinary circumstances, where the law allows additional time,
a Fund may suspend the right to redeem shares.
REDEEMING CLASS B AND C SHARES
Shares acquired through reinvestment of dividends and capital gains
distributions will be redeemed first, followed by shares held for the longest
period of time.
Upon redemption of Class B shares acquired through an exchange, the contingent
deferred sales charge, if any, will be calculated based on the original purchase
date of the shares exchanges.
Upon redemption of Class C shares acquired through an exchange and held less
than one year, the contingent deferred sales charge, if any, will also be
calculated based on the original purchase date of the shares exchanged.
REDEMPTIONS BY MAIL
Redemption certification is provided on the application. 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
Financial intermediaries may charge for their services in connection with your
redemption request but neither the Funds nor the Distributor impose any such
charges.
Although the Funds and the Transfer Agent will not be responsible for the
authenticity of telephone instructions, the following procedures have been
established to confirm that instructions communicated by telephone are genuine:
o Recording telephone instructions for exchanges and expedited redemptions
o Requiring the caller to give certain specific identifying information
o Providing written confirmations to shareholders not later than five days
following a telephone transaction
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.
Certain 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 such a financial intermediary accepts the order.
<PAGE>
EXPEDITED REDEMPTIONS
You may have the payment of redemption requests (of $250 or more) wired or
mailed directly to a designated domestic commercial bank account. Normally, such
payments will be transmitted on the second business day following receipt of the
request.
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.
ADDITIONAL SHAREHOLDER SERVICES
SYSTEMATIC WITHDRAWAL PLAN
This plan may be used for routine payments to you or a designated party.
If you reinvest your distributions, you can have regular monthly or quarterly
payments withdrawn, at no charge, in excess of $50, as long as the account has a
value of at least $5,000.
To elect this plan, simply complete the appropriate section on the application.
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.
Changing or terminating your plan is easy. Simply give written notice to the
Transfer Agent.
EXCHANGE PRIVILEGE
You may exchange shares of one Conseco Fund for shares of the same class of any
other Fund, or for shares of the Federated Money Market Fund, without paying an
additional sales charge.
The value of shares to be exchanged must meet the fund's minimum investment
requirement.
CLASS A SHARES An initial sales charge for Class A shares, if
applicable, will be made on exchanges from the Federated Money Market
Fund to a Fund's Class A shares.
CLASS B AND C SHARES Although a contingent deferred sales charge
(CDSC) is not charged upon an exchange to another fund or FMMF within
the same class of shares, a CDSC may be applied on redemptions from
the Federated Money Market Fund based on the original purchase date of
the Class B or Class C shares exchanged.
<PAGE>
Shares from the Federated Money Market Fund may be exchanged back to the
originating Class of shares without any additional charges. In the case of Class
B and C shares, a contingent deferred sales charge (CDSC) may be applied on
subsequent redemptions from any fund based on the original purchase date of the
shares.
Normally, exchanges can be completed on the same business day.
(Sidebar)
REINSTATEMENT PRIVILEGE
You may reinstate your investment by reinvesting any or all of your redemption
proceeds within 180 calendar days.
o Reinvest redemptions from Class A shares at net asset value without any
initial sales charge.
o Reinvest redemptions from your Class B or Class C shares and you will be
reimbursed pro rata for the contingent deferred sales charge paid
The reinstatement privilege may be utilized only once per Fund investment and
may be subject to other restrictions.
(Sidebar)
RECORD-KEEPING MADE EASY
You will receive a confirmation of each new transaction in your account. You may
rely on these confirmations in lieu of certificates, which will not be issued,
as evidence of your ownership.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes at least 90% of its net investment income to shareholders.
Net investment income for all of the Funds, except the Conseco International
Fund, consists of all dividends and interest received, less expenses (including
fees payable to the Adviser and its affiliates). For Conseco International Fund,
investors receive a proportionate share of the Portfolio's dividends and
interest, less the Fund's expenses and its proportionate share of the
Portfolio's expenses.
Dividends from net investment income are declared, and paid, by each Fund
according to the schedule below. The Trustees may elect to change dividend
distribution intervals.
<TABLE>
<CAPTION>
SCHEDULE OF DIVIDEND PAYMENTS
- --------------------------------------------------------------------------------
<S> <C>
FUND DECLARED AND PAID
- --------------------------------------------------------------------------------
Conseco Fixed Income Fund Monthly
- --------------------------------------------------------------------------------
Conseco High Yield Fund Monthly
- --------------------------------------------------------------------------------
Conseco Convertible Securities Fund Monthly
- --------------------------------------------------------------------------------
Conseco Balanced Fund Quarterly
- --------------------------------------------------------------------------------
Conseco Equity Fund Quarterly
- --------------------------------------------------------------------------------
Conseco 20 Fund Quarterly
- --------------------------------------------------------------------------------
Conseco International Fund Annually
- --------------------------------------------------------------------------------
</TABLE>
Any capital gains are generally declared and distributed to shareholders
annually after the close of the Fund's fiscal year. These include net capital
gains (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, they include
the Fund's proportionate share of the Portfolio's gains.
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 each class
might be affected differently by the allocation of other class-specific
expenses.
CHOOSE HOW TO USE YOUR DISTRIBUTIONS
Conseco Fund Group offers you a number of ways to receive your distributions.
When you open your account, simply specify on your application any one of the
options that meets your needs.
Keep in mind, all Fund distributions are reinvested for retirement accounts
unless specific circumstances are met. Call the Funds at 800-986-3384 for
further information.
<PAGE>
HERE ARE YOUR OPTIONS
REINVEST ALL DISTRIBUTIONS in additional Fund shares.
REINVEST ONLY INCOME DIVIDENDS in additional Fund shares. Receive other
distributions in cash.
REINVEST ONLY OTHER DISTRIBUTIONS in additional Fund shares. Receive income
dividends in cash.
RECEIVE ALL DISTRIBUTIONS IN CASH. Distributions can be sent via check to you,
or by wire to your bank account.
<PAGE>
TAX CONSIDERATIONS
Your investment in a Fund has tax consequences that you need to consider.
The amount you will owe in taxes will vary depending on many factors, such as
your tax bracket, how long you held your shares, and whether you owe alternative
minimum tax. Some of the more common federal tax consequences are described
here, but you should consult your tax adviser about your own situation. (See the
Statement of Additional Information for more information.)
TAXABLE DISTRIBUTIONS
You will generally have to pay federal income tax on all Fund distributions.
Except for tax-advantaged retirement accounts, dividends from the Funds' taxable
income generally will be taxable to you as ordinary income, whether paid in cash
or reinvested in additional shares.
Capital gains distributions, whether paid in cash or reinvested in additional
shares, will be taxable to you, regardless of how long you have held your Fund
shares. When designated as such, short-term gains are treated as ordinary
income. Long-term gains are taxed as long-term capital gains regardless of how
long the fund shares have been held.
Income distributions and short-term capital gain distributions are generally
taxed as ordinary income. Distributions of other capital gains are generally
taxed as long-term capital gains. The tax treatment of capital gain
distributions depends on how long the Fund held the securities it sold, not when
you bought your shares of the fund, or whether you reinvested your
distributions.
TAXES ON SALES OR EXCHANGES
Selling your shares may result in a taxable gain or loss to you, depending on
whether you receive more or less than what the shares cost you.
Share exchanges, from one Fund to another within the same share class, generally
will have the same tax consequences as if those shares had been sold.
No gain or loss will be triggered as a result of the automatic conversion of
Class B shares into Class A shares.
BACKUP WITHHOLDING
When sending in your application, it's important to provide your Social Security
or other taxpayer ID number. If we don't have this number, or if the IRS informs
us that you are subject to backup withholding, the IRS requires the Fund to
withhold 31% of all money you receive from the Fund, whether from selling your
shares or from distributions.
<PAGE>
DISTRIBUTION AND SERVICE PLANS
The Funds have adopted Distribution and Service Plans (12b-1 Plan) for Class A,
B and C shares to compensate the Distributor, Conseco Equity Sales, Inc., for
distributing the shares and servicing the accounts of shareholders of each such
class. The following chart provides the fees paid for the respective share
classes. Because these distributions and service fees are paid out of each share
Class' assets on an ongoing basis, over time these fees will increase the cost
of your investment and may cost you more than paying other types of sales
charges.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Class A Shares Class B and Class C Shares
- -----------------------------------------------------------------------------------------------
<S> <C>
For all the Funds, excluding the Conseco Fixed Fees paid to the Distributor may not be more
Income Fund, fees paid to the Distributor may than 1.00% annually of each Fund's average
be no more than 0.50% annually of the average daily net assets attributable to these
daily net assets attributable to Class A classes.
shares.
For the Conseco Fixed Income Fund, fees paid to
the Distributor may be no more than 0.65%
annually of the average daily net assets
attributable to Class A shares.
- -----------------------------------------------------------------------------------------------
</TABLE>
Payments also may be made by the Distributor to brokers, dealers and other
financial intermediaries for providing shareholder services and for promotional
and other sales-related costs for each of the share classes. However, the
portion of these payments for shareholder servicing may not exceed an annual
rate of .25% of the average daily net asset value attributable to the class of
shares owned by the financial intermediary's clients.
PAYMENTS TO FINANCIAL INTERMEDIARIES
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
- ------------------------------------------------------------------------------------------------------------
The sales charge you pay on the Since these shares are sold Since these shares are sold
purchase of Class A shares may be without sales charges, the without sales charges, the
retained by the selling broker, Distributor provides compensation Distributor provides compensation
dealer or other financial to brokers, dealers and financial to brokers, dealers and financial
intermediary. intermediaries from its own intermediaries from its own
assets. assets.
This compensation is equal to 4% This compensation is equal to 1%
of the purchase amount. of the purchase amount.
- ------------------------------------------------------------------------------------------------------------
The proceeds from the contingent deferred sales charge and the 12b-1
fee, in part, are used to defray these expenses.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ADMINISTRATIVE FEES
The following chart provides an explanation of services provided by Conseco
Services, LLC (the Funds' "Administrator") and the fees paid for such services.
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------------
ALL FUNDS, EXCLUDING THE CONSECO INTERNATIONAL CONSECO INTERNATIONAL FUND
FUND
- --------------------------------------------------------------------------------------------------
Services provided include: Services provided include:
o Supervising the preparation and filing o Monitoring the performance of the
of all documents required for investment company in which the
Fund compliance Conseco International Fund invests
o Supervising the maintenance of books o Coordinating the Fund's
and records relationship with that investment
o Other general and administrative company
responsibilities o Communicating with the Board and
shareholders regarding the
For such services, the Administrator receives fees performance of that investment
of .20% annually of each Fund's average daily company and the Fund's
net assets. master-feeder structure
For such services, the Administrator
receives a fee of .75% annually of the
Fund's average daily net assets.
- -------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand a Fund's
financial performance for the past five years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers, LLC whose report, along with the Funds' financial
statements, is included in the Funds' annual report, which is available upon
request.
The Financial Highlights for the Conseco International Fund are presented
separately from the remaining six funds due to its October 31 fiscal year-end.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS-(CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
---- ---- --------------- ----
FOR THE
PERIOD FROM
COMMENCEMENT
OF OPERATIONS
(SEPTEMBER 28, 1998)
YEAR ENDED YEAR ENDED THROUGH Year Ended
Class A Shares 1998 1997 1998 December 31, 1998 1998 1997
---- ---- ---- ----------------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period .$ 10.13 $10.00 $ 10.00 $ 10.00 $10.73 $10.00
Income from investment operations (a):
Net investment income (loss) ................. 0.55 0.66 0.76 0.10 0.30 0.28
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments ............................. 0.20 0.18 (0.10) 1.00 1.03 1.43
---- ---- ----- ---- ---- ----
Total income from investment operations .... 0.75 0.84 0.66 1.10 1.33 1.71
==== ==== ==== ==== ==== ====
Distributions:
Dividends from net investment income ......... (0.55) (0.58) (0.66) (0.10) (0.24) (0.27)
Distribution of net capital gains ............ (0.12) (0.13) -- -- (0.13) (0.71)
---- ----- ----- ---- ---- ----
Total distributions ............................ (0.67) (0.71) (0.66) (0.10) (0.37) (0.98)
---- ----- ----- ---- ---- ----
Net asset value per share, end of period ...$ 10.21 $10.13 $ 10.00 $ 11.00 $11.69 $10.73
===== ===== ===== ===== ===== =====
Total return (b) (c) ........................... 7.57% 8.66% 6.56% 11.04%(d) 12.45% 17.19%
===== ===== ===== ===== ===== =====
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period ...............................$30,684 $153 $28,199 $27,611 $26,064 $1,076
Ratio of expenses to average net assets (b) . 1.25% 1.25% 1.40% 1.55% 1.50% 1.50%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ..... 5.28% 5.51% 7.76% 3.80% 2.66% 2.50%
</TABLE>
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to waive
their fees and/or reimburse Fund expenses to the extent that the ratio of
expenses to average net assets exceeds on an annual basis 1.25% for the
Conseco Fixed Income, 1.40% for the Conseco High Yield, 1.55% for the
Conseco Convertible Securities, 1.50% for the Conseco Balanced and Conseco
Equity and 1.75% for the Conseco 20 Funds. These limits may be discontinued
by the Advisor, Administrator and Distributor at any time after April 30,
1999. If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would have
been 1.94% for the Conseco Fixed Income, 2.12% for the Conseco High Yield,
2.12% for the Conseco Convertible Securities, 2.26% for the Conseco
Balanced, 2.10% for the Conseco Equity and 2.15% for the Conseco 20 Funds.
If the aforementioned agreements had not been in effect for the year ended
December 31, 1997, the annualized ratio of expenses to average net assets
would have been 13.67 % for the Conseco Fixed Income, 12.44 % for the
Conseco Balanced and 4.85 % for the Conseco Equity Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
(d) Not annualized
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS-(CONTINUED)
December 31, 1998
CONSECO CONSECO
EQUITY 20
FUND FUND
-------------- ----
YEAR ENDED YEAR ENDED
Class A Shares 1998 1997 1998
---- ---- ----
Net asset value per share, beginning of period . $ 11.07 $10.00 $10.00
Income from investment operations (a):
Net investment income (loss) .................. -- (0.04) (0.02)
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments .............................. 1.79 2.33 2.82
---- ---- ----
Total income from investment operations ..... 1.79 2.29 2.80
---- ---- ----
Distributions:
Dividends from net investment income .......... (0.01) -- --
Distribution of net capital gains ............. (0.30) (1.22) --
---- ---- ----
Total distributions ............................. (0.31) (1.22) --
---- ---- ----
Net asset value per share, end of period .... $ 12.55 $11.07 $12.80
======= ====== ======
Total return (b) (c) ............................ 16.11% 22.90% 28.00%
======= ====== ======
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period ................................. $26,203 $4,877 $33,845
Ratio of expenses to average net assets (b) ... 1.50% 1.50% 1.75%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ...... -- (0.35%) (0.22%)
- ------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to waive
their fees and/or reimburse Fund expenses to the extent that the ratio of
expenses to average net assets exceeds on an annual basis 1.25% for the
Conseco Fixed Income, 1.40% for the Conseco High Yield, 1.55% for the
Conseco Convertible Securities, 1.50% for the Conseco Balanced and Conseco
Equity and 1.75% for the Conseco 20 Funds. These limits may be discontinued
by the Advisor, Administrator and Distributor at any time after April 30,
1999. If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would have
been 1.94% for the Conseco Fixed Income, 2.12% for the Conseco High Yield,
2.12% for the Conseco Convertible Securities, 2.26% for the Conseco
Balanced, 2.10% for the Conseco Equity and 2.15% for the Conseco 20 Funds.
If the aforementioned agreements had not been in effect for the year ended
December 31, 1997, the annualized ratio of expenses to average net assets
would have been 13.67 % for the Conseco Fixed Income, 12.44 % for the
Conseco Balanced and 4.85 % for the Conseco Equity Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
(d) Not annualized
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS-(CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
---------------- ---------------- ---------------- ----------------
FOR THE PERIOD FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM
FROM COMMENCEMENT COMMENCEMENT COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS OF OPERATIONS OF OPERATIONS
(MARCH 20, 1998) (FEBRUARY 19,1998) (SEPTEMBER 28,1998) (FEBRUARY 10, 1998)
THROUGH THROUGH THROUGH THROUGH
CLASS B SHARES DECEMBER 31,1998 DECEMBER 31,1998 DECEMBER 31,1998 DECEMBER 31,1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net asset value per share, beginning of period ........ $10.24 $10.44 $10.00 $11.20
Income from investment operations (a):
Net investment income (loss) ........................ 0.36 0.60 0.08 0.19
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments .................................... 0.14 (0.48) 1.00 0.57
----- ----- ----- -----
Total income from investment operations ........... 0.50 0.12 1.08 0.76
----- ----- ----- -----
Distributions:
Dividends from net investment income ................ (0.45) (0.59) (0.08) (0.22)
Distribution of net capital gains ................... (0.10) -- -- (0.13)
----- ----- ----- -----
Total distributions ................................... (0.55) (0.59) (0.08) (0.35)
----- ----- ----- -----
Net asset value per share, end of period .......... $10.19 $9.97 $11.00 $11.61
==== ==== ===== ====
Total return (b) (c) (d) .............................. 4.97% 1.12% 10.89% 6.83%
==== ==== ===== ====
Ratios/supplemental data:
Net assets (dollars in thousands), end of period..... $2,619 $11,271 $1 $1,301
Ratio of expenses to average net assets (b) ......... 1.60% 1.90% 2.05% 2.0%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ............ 4.83% 7.27% 3.02% 2.09%
</TABLE>
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to waive
their fees and/or reimburse Fund expenses to the extent that the ratio of
expenses to average net assets exceeds on an annual basis 1.60% for the
Conseco Fixed Income, 1.90% for the Conseco High Yield, 2.05% for the
Conseco Convertible Securities, 2.00% for the Conseco Balanced and Conseco
Equity and 2.25% for the Conseco 20 Funds. These limits may be discontinued
by the Advisor, Administrator and Distributor at any time after April 30,
1999. If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would have
been 2.77% for the Conseco Fixed Income, 2.75% for the Conseco High Yield,
154.76% for the Conseco Convertible Securities, 3.93% for the Conseco
Balanced, 4.85% for the Conseco Equity and 2.73% for the Conseco 20 Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
(d) Not annualized.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS-(CONTINUED)
December 31, 1998
CONSECO CONSECO
EQUITY 20
FUND FUND
---------------- ----------------
FOR THE PERIOD FOR THE PERIOD
FROM COMMENCEMENT FROM COMMENCEMENT
OF OPERATIONS OF OPERATIONS
(JANUARY 28,1998) (FEBRUARY 18,1998)
THROUGH THROUGH
CLASS B SHARES DECEMBER 31,1998 DECEMBER 31,1998
---------------- ----------------
Net asset value per share, beginning of
period .......................................... $11.09 $11.21
Income from investment operations (a):
Net investment income (loss) .................. (0.06) (0.07)
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments .............................. 1.75 1.57
---- ----
Total income from investment
operations ................................ 1.69 1.50
---- ----
Distributions:
Dividends from net investment income .......... (0.01) --
Distribution of net capital gains ............. (0.30) --
---- ----
Total distributions ............................. (0.31) 0.00
---- ----
Net asset value per share,
end of period ............................. $12.47 $12.71
====== ======
Total return (b) (c) (d) ........................ 15.20% 13.38%
====== ======
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period . ............................... $1,634 $7,270
Ratio of expenses to average net assets (b) ... 2.00% 2.25%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ...... (0.60%) (0.78%)
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to waive
their fees and/or reimburse Fund expenses to the extent that the ratio of
expenses to average net assets exceeds on an annual basis 1.60% for the
Conseco Fixed Income, 1.90% for the Conseco High Yield, 2.05% for the
Conseco Convertible Securities, 2.00% for the Conseco Balanced and Conseco
Equity and 2.25% for the Conseco 20 Funds. These limits may be discontinued
by the Advisor, Administrator and Distributor at any time after April 30,
1999. If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would have
been 2.77% for the Conseco Fixed Income, 2.75% for the Conseco High Yield,
154.76% for the Conseco Convertible Securities, 3.93% for the Conseco
Balanced, 4.85% for the Conseco Equity and 2.73% for the Conseco 20 Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included. (d) Not annualized.
<PAGE>
================================================================================
Financial Highlights--(Continued)
December 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
---------------- ---------------- ---------------- ----------------
FOR THE PERIOD FOR THE PERIOD FROM FOR THE PERIOD FROM FOR THE PERIOD FROM
FROM COMMENCEMENT COMMENCEMENT COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS OF OPERATIONS OF OPERATIONS
(MARCH 5, 1998) (FEBRUARY 19, 1998) (SEPTEMBER 28, 1998)(FEBRUARY 13, 1998)
THROUGH THROUGH THROUGH THROUGH
CLASS C SHARES DECEMBER 31,1998 DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net asset value per share, beginning of period ......... $10.13 $10.44 $10.00 $11.31
Income from investment operations (a):
Net investment income (loss) .......................... 0.38 0.59 0.08 0.20
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments ...................................... 0.26 (0.50) 1.00 0.48
----- ----- ----- -----
Total income from investment operations ............. 0.64 0.09 1.08 0.68
----- ----- ----- -----
Distributions:
Dividends from net investment income .................. (0.44) (0.58) (0.08) (0.20)
Distribution of net capital gains ..................... (0.10) -- -- (0.13)
----- ----- ----- -----
Total distributions ..................................... (0.54) (0.58) (0.08) (0.33)
----- ----- ----- -----
Net asset value per share, end of period ............$10.23 $9.95 $11.00 $11.66
====== ===== ====== ======
Total return (b) (c) (d) ................................ 6.44% 0.88% 10.89% 6.10%
====== ===== ====== ======
Ratios/supplemental data:
Net assets (dollars in thousands), end of period ......$ 539 $3,685 $1 $1,197
Ratio of expenses to average net assets (b) ........... 1.60% 1.90% 2.05% 2.00%
Ratio of net investment income (loss)
to average net assets (annualized) (b) .............. 4.98% 7.22% 3.02% 2.08%
</TABLE>
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to waive
their fees and/or reimburse Fund expenses to the extent that the ratio of
expenses to average net assets exceeds on an annual basis 1.60% for the
Conseco Fixed Income, 1.90% for the Conseco High Yield, 2.05% for the
Conseco Convertible Securities, 2.00% for the Conseco Balanced and Conseco
Equity and 2.25% for the Conseco 20 Funds. These limits may be discontinued
by the Advisor, Administrator and Distributor at any time after April 30,
1999. If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would have
been 5.91% for the Conseco Fixed Income, 3.03% for the Conseco High Yield,
154.76% for the Conseco Convertible Securities, 3.40% for the Conseco
Balanced, 8.51% for the Conseco Equity and 2.72% for the Conseco 20 Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
(d) Not annualized.
<PAGE>
CONSECO FUND GROUP
Financial Highlights-(Continued) 1998 ANNUAL REPORT
================================================================================
Financial Highlights--(Continued)
December 31, 1998
Conseco Conseco
Equity 20
Fund Fund
---------------- ----------------
FOR THE PERIOD FOR THE PERIOD
FROM COMMENCEMENT FROM COMMENCEMENT
OF OPERATIONS OF OPERATIONS
(FEBRUARY 19, 1998) (MARCH 10, 1998)
THROUGH THROUGH
CLASS C SHARES DECEMBER 31, 1998 DECEMBER 31, 1998
----------------- -----------------
Net asset value per share, beginning of
period ..........................................$11.98 $11.82
Income from investment operations (a):
Net investment income (loss) .................... (0.06) (0.07)
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments ................................ 0.93 1.00
------ ------
Total income from investment operations ..... 0.87 0.93
------ ------
Distributions:
Dividends from net investment income ............ (0.01) --
Distribution of net capital gains ............... (0.30) --
------ ------
Total distributions ............................... (0.31) --
------ ------
Net asset value per share, end of period ....$12.54 $12.75
Total return (b) (c) (d) .......................... 7.21% 7.87%
Ratios/supplemental data:
Net assets (dollars in thousands), end of
period ......................................... $616 $2,982
Ratio of expenses to average net assets (b) ..... 2.00% 2.25%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ........ (0.68%) (0.81%)
- ----------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor, Administrator and Distributor have voluntarily agreed to waive
their fees and/or reimburse Fund expenses to the extent that the ratio of
expenses to average net assets exceeds on an annual basis 1.60% for the
Conseco Fixed Income, 1.90% for the Conseco High Yield, 2.05% for the
Conseco Convertible Securities, 2.00% for the Conseco Balanced and Conseco
Equity and 2.25% for the Conseco 20 Funds. These limits may be discontinued
by the Advisor, Administrator and Distributor at any time after April 30,
1999. If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would have
been 5.91% for the Conseco Fixed Income, 3.03% for the Conseco High Yield,
154.76% for the Conseco Convertible Securities, 3.40% for the Conseco
Balanced, 8.51% for the Conseco Equity and 2.72% for the Conseco 20 Funds.
(c) Total return figures do not include sales loads; results would be lower if
sales charges were included.
(d) Not annualized.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS-(CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
Conseco Conseco Conseco Conseco
Fixed Income High Yield Convertible Balanced
Fund Fund Securities Fund Fund
------------------- ------------- ---------------- -----------------
Year Ended Year ended Period Ended Year Ended
1998 1997 1998 1998(a) 1998 1997
---------- -------- ------------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Supplemental date for all classes:
Net assets (dollars in thousands),
end of period .................. $48,245 $22,029 $44,392 $27,614 $32,700 $13,113
Portfolio turnover rate .......... 420.83% 367.82% 432.08% 12.95% 341.20% 506.64%
<CAPTION>
Conseco Conseco
Equity 20
Fund Fund
---------------------------------------
Year Ended Year Ended
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental date for all classes:
Net assets (dollars in thousands),
end of period ...................... $89,270 $65,211 $44,269
Portfolio turnover rate .............. 350.13% 199.12% 411.71%
</TABLE>
- --------------------
(a) For the period from commencement of operations (September 28, 1998) through
December 31, 1998.
<PAGE>
CONSECO FUND GROUP
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
For the period from inception
(January 2, 1998) THROUGH
OCTOBER 31, 1998
Conseco
International
Fund
----
<S> <C>
Class A Shares
Net asset value per share, for sales at inception.................................. $10.00
Income from investment operations (a):
Net investment income.......................................................... .06
Net realized gains and change in unrealized appreciation
on investments............................................................ .35
-------------------
Net asset value per share, end of period............................... $10.41
===================
Total return (not annualized) (b) (c).............................................. 4.10%
Ratios/supplemental data:
Net assets, end of period...................................................... $10,434,073
Ratio of expenses to average net assets (annualized) (b)....................... 2.25%
Ratio of net investment income to average net assets (annualized) (b).......... .72%
-----------------------------
(a) Per share amounts presented are based on daily shares outstanding during
the period from inception (January 2, 1998) through October 31, 1998.
(b) The Administrator and Distributor have voluntarily agreed to waive their
fees and/or reimburse the Fund to the extent that the ratio of expenses
to average net assets would exceed on an annual basis 2.25 percent for
Class A shares. These voluntary limits may be discontinued by the
Adviser, Administrator and Distributor at any time after April 30, 1999.
If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would
have been 2.84 percent.
(c) The total return ratio does not include sales loads; results would be
lower if sales charges were included.
</TABLE>
<PAGE>
CONSECO FUND GROUP
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
For the period from inception
(June 30, 1998)
THROUGH OCTOBER 31, 1998
Conseco
International
Fund
----
<S> <C>
Class B Shares
Net asset value per share, for sales at inception.................................. $11.38
Income from investment operations (a):
Net investment loss............................................................ (.02)
Net realized losses and change in unrealized depreciation
on investments............................................................ (.97)
-------------------
Net asset value per share, end of period............................... $10.39
===================
Total return (not annualized) (b) (c).............................................. (8.70%)
Ratios/supplemental data:
Net assets, end of period...................................................... $4,291
Ratio of expenses to average net assets (annualized) (b)....................... 2.75%
Ratio of net investment loss to average net assets (annualized) (b)............ (.52%)
-----------------------------
(a) Per share amounts presented are based on daily shares outstanding during
the period from inception (June 30, 1998) through October 31, 1998.
(b) The Administrator and Distributor have voluntarily agreed to waive their
fees and/or reimburse the Fund to the extent that the ratio of expenses
to average net assets would exceed on an annual basis 2.75 percent for
Class B shares. These voluntary limits may be discontinued by the
Adviser, Administrator and Distributor at any time after April 30, 1999.
If the aforementioned agreements had not been in effect during the
period, this annualized ratio of expenses to average net assets would
have been 3.04 percent.
(c) The total return ratio does not include sales loads; results would be
lower if sales charges were included.
</TABLE>
<PAGE>
CONSECO FUND GROUP
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
For the period from inception
(April 8, 1998) THROUGH
OCTOBER 31, 1998
Conseco
International
Fund
----
<S> <C>
Class C Shares
Net asset value per share, for sales at inception.................................. $11.50
Income from investment operations (a):
Net investment income.......................................................... .03
Net realized losses and change in unrealized depreciation
on investments............................................................ (1.13)
-------------------
Net asset value per share, end of period............................... $10.40
===================
Total return (not annualized) (b) (c).............................................. (9.57%)
Ratios/supplemental data:
Net assets, end of period...................................................... $3,141
Ratio of expenses to average net assets (annualized) (b)....................... 2.75%
Ratio of net investment income to average net assets (annualized) (b).......... .53%
-----------------------------
(a) Per share amounts presented are based on daily shares outstanding during
the period from inception (April 8, 1998) through October 31, 1998.
(b) The Administrator and Distributor have voluntarily agreed to waive their
fees and/or reimburse the Fund to the extent that the ratio of expenses
to average net assets would exceed on an annual basis 2.75 percent for
Class C shares. These voluntary limits may be discontinued by the
Adviser, Administrator and Distributor at any time after April 30, 1999.
If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would
have been 3.26 percent.
(c) The total return ratio does not include sales loads; results would be
lower if sales charges were included.
</TABLE>
<PAGE>
[back cover]
FOR MORE INFORMATION
More information on the Conseco Fund Group is available free upon request:
SHAREHOLDER REPORTS
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Fund's annual report,
you will find a discussion of the market conditions and investment
strategies that significantly affect the Funds' performance during their most
recent fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI is on file with the Securities and Exchange Commission (SEC) and is
incorporated by reference into (is legally considered part of) this prospectus.
The SAI provides more details about each Fund and its policies.
(Sidebar)
To obtain a shareholder report, SAI, or other information:
BY TELEPHONE
Call 800-986-3384
BY MAIL
Conseco Fund Group
Attn: Administrative Offices
11815 N. Pennsylvania Street, B1C
Carmel, IN 46032
BY EMAIL
[email protected]
ON THE INTERNET
Text-only versions of the prospectuses and other documents pertaining to the
Funds can be viewed online or downloaded from:
SEC
http://www.sec.gov
CONSECO FUND GROUP
http://www.consecofunds.com
Information about the Funds (including the SAI) can also be reviewed and copied
at the SEC's public reference room in Washington, DC (phone 800-SEC-0330). Or,
you can obtain copies of this information by sending a request, along with a
duplicating fee, to the SEC's Public Reference Section, Washington, DC
20549-6009.
Registration Number: 811-07839
<PAGE>
[front cover]
CONSECO FUND GROUP
March 12, 1999 Prospectus
Class Y Shares
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Convertible Securities Fund
Conseco Balanced Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
As with any mutual fund, the Securities and Exchange Commission (SEC) has not
approved or disapproved of these securities or determined whether this
prospectus is accurate or complete. Any representation to the contrary is a
criminal offense.
<PAGE>
TABLE OF CONTENTS
THE FUNDS
General Information about the Funds
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Convertible Securities Fund
Conseco Balanced Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
PRIMARY RISK CONSIDERATIONS
FEES AND EXPENSES
MANAGEMENT
YOUR ACCOUNT
Determining Share Price
Buying Shares
Selling Shares
Dividends and Distributions
Tax Considerations
Administrative Fees
FINANCIAL HIGHLIGHTS
FOR MORE INFORMATION
<PAGE>
(Intro)
THE ADVISER'S INTEGRATED APPROACH TO MONEY MANAGEMENT
We believe that combining the knowledge and experience of both fixed income and
equity analysts leads to better security selection over time.
Whether selecting fixed income or equity securities, our analysts look for
companies with:
o Proven management teams
o Leading edge products
o Dominant market share positions
They then conduct a rigorous financial analysis of these companies, focusing on
such indicators as:
o Cost of capital
o Financial strength
o Spending plans
This analysis is used to select those securities deemed by the Adviser to
be most appropriate for each Fund's investment objective.
Because of the Adviser's active management style, our Funds generally
have a higher portfolio turnover rate than other funds and, therefore, may have
higher taxable distributions and increased trading costs which may impact
performance.
There is no assurance that the Funds will achieve their investment
objectives. All of the Funds have the ability to change their investment
objectives without shareholder approval, although they do not currently intend
to do so. In addition, the value of your investment in any Fund will fluctuate,
which means that you may lose money.
(Sidebar)
A WORD ABOUT THE ADVISER
Conseco Capital Management, Inc. (CCM), or the "Adviser", provides investment
advice and management to each Fund. CCM manages more than $35.3 billion in
assets for an array of foundations, endowments, corporations, government and
union clients (as of 12/31/98).
Please note: Definitions for bold-faced words within the text can be found
directly following each Fund's Primary Risk Considerations.
<PAGE>
CONSECO FIXED INCOME FUND
Our fixed income fund offers investors a strong complement to traditional
savings accounts. The Fund provides a way to earn income from a portfolio of
bonds and other debt instruments. However, unlike traditional savings accounts,
the principal value of an investment in the Fund will fluctuate.
INVESTMENT OBJECTIVE
The Fund seeks to provide the highest level of income consistent with the
preservation of capital.
ADVISER'S STRATEGY
The Fund invests primarily in INVESTMENT GRADE DEBT SECURITIES.
The Adviser actively manages the portfolio to generate income, reduce risk, and
preserve or enhance total return.
Adhering to a strict buy/sell discipline, the Adviser seeks to enhance total
return by:
o Purchasing securities it believes are undervalued
o Selling securities it believes are overvalued or fully priced
To select securities, the Adviser utilizes:
o Independent FUNDAMENTAL ANALYSIS to evaluate the issuer of a security
o An analysis of the specific structure of the security
In an effort to achieve its investment objective, the Fund may invest
in debt securities issued by:
o Publicly or privately held companies in the U.S.
o Publicly or privately held companies overseas (primarily in
YANKEE BONDS)
o The U.S. Government, its agencies and instrumentalities
o States and their political subdivisions issuing taxable MUNICIPAL
SECURITIES
o Foreign governments, their agencies and instrumentalities
The Fund may also invest in:
o Mortgage-backed debt securities
o Asset-backed debt securities
o RESTRICTED SECURITIES
In addition, the Fund may invest up to 15% of its assets in the following:
o Common and PREFERRED STOCKS
o Convertible bonds
o Debt securities carrying warrants or other rights to purchase equity s
ecurities
Up to 10% of Fund assets may be invested in BELOW INVESTMENT GRADE SECURITIES,
commonly known as high-yield or "junk" bonds, which tend to fluctuate in price
to a greater extent than investment-grade debt securities.
<PAGE>
While the Fund may purchase debt securities of any MATURITY, it is anticipated
that the AVERAGE LIFE of the portfolio will be in the intermediate range -
between seven and 15 years - but may be shorter or longer depending on market
conditions.
PRIMARY RISKS
Credit risk
Interest rate risk
Market risk
Prepayment risk
Restricted securities risk
Municipal market risk
Foreign risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar)
INVESTMENT-GRADE DEBT SECURITIES
Considered especially creditworthy, these debt securities are either (i)
normally rated AAA to BBB- by Standard and Poor's Corporation or Aaa to Baa3 by
Moody's Investors Services, Inc., or (ii) if unrated, are deemed by the Adviser
to be of comparable credit quality.
FUNDAMENTAL ANALYSIS
A research technique that looks at a company's financial condition,
creditworthiness, management, and place in its industry to determine the
intrinsic value of the company's securities.
YANKEE BONDS
Dollar-denominated bonds issued in the U.S. by foreign banks and corporations.
MUNICIPAL SECURITIES
Bonds and other debt obligations issued by state and local governments. The
interest on the municipal securities in which the Fund invests typically is NOT
exempt from federal income tax.
RESTRICTED SECURITIES
Securities that are not registered with the Securities and Exchange Commission,
some of which may qualify to be sold directly to institutional investors
pursuant to Rule 144A under the Securities Act of 1933. Restricted securities
are generally illiquid; however, the Adviser focuses on those that are liquid,
i.e., easily convertible into cash.
PREFERRED STOCK
Shares of a company that ordinarily do not have voting rights but do have a
stated dividend payment, as opposed to common stocks which ordinarily do have
voting rights but do not have a stated dividend payment.
BELOW INVESTMENT GRADE SECURITIES
These securities offer higher return potential in exchange for assuming greater
risk. Normally, they are rated BB+ or lower by Standard & Poor's Corporation or
Ba1 or lower by Moody's Investors Services, Inc. or, if unrated deemed by the
Adviser to be comparable credit.
<PAGE>
MATURITY
When the principal, or face value of a bond, must be repaid.
AVERAGE LIFE
The average number of years that each principal dollar will be outstanding,
before it is repaid.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
Class Y:
Year Return
-------------------------------
<S> <C>
1997 9.18%
1998 8.32%
</TABLE>
BEST QUARTER: 2Q97 3.41%
WORST QUARTER: 1Q97 0.29%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Since
Inception
--------------------------
<S> <C> <C>
Class Y (Inception 1/2/97) 8.32% 18.27%
Lehman Bros. 8.69% 19.19%
Aggregate Bond Index
</TABLE>
<PAGE>
CONSECO HIGH YIELD FUND
Our high-yield fund offers investors who can tolerate a greater degree of share
price volatility, the potential to receive a higher level of income than would
normally be earned from a portfolio of investment-grade debt securities.
INVESTMENT OBJECTIVE
The Fund seeks to provide a high level of current income with a
secondary objective of capital appreciation.
ADVISER'S STRATEGY
Normally, the Adviser invests at least 65% of the Fund's assets in BELOW
INVESTMENT GRADE SECURITIES (those rated BB+/Ba1 or lower by independent rating
agencies).
Adhering to a strict buy/sell discipline, the Adviser seeks to enhance total
return by:
o Purchasing securities it believes are undervalued
o Selling securities it believes are overvalued or fully priced
To select securities, the Adviser utilizes:
o Independent FUNDAMENTAL ANALYSIS to evaluate of the issuer of a security
o An analysis of the specific structure of the security
In an effort to achieve its investment objective, the Fund may invest in any or
all of the following:
o Corporate debt securities and PREFERRED STOCK
o ZERO COUPON BONDS and other deferred interest securities
o Mortgage-backed securities
o Asset-backed securities
o Convertible securities
o Restricted securities
o Taxable MUNICIPAL SECURITIES issued by states and their political
subdivisions
The Fund's may also invest in:
o Cash or cash equivalents
o Money market instruments
o Securities issued or guaranteed by the U.S. Government, its agencies,
and instrumentalities
In addition, the Fund may invest in the following:
o Common stocks and other equity securities
o Equity and debt securities of foreign issuers, including issuers in
emerging markets
For defensive purposes or pending investment, the Fund may temporarily depart
from its objective and hold an unlimited amount of cash or money market
instruments. This could help the Fund avoid losses, but may mean lost
opportunities.
<PAGE>
PRIMARY RISKS
Credit risk
Interest rate risk
Market risk
Restricted Securities risk
Prepayment risk
Foreign risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar)
BELOW INVESTMENT GRADE SECURITIES See page 00.
FUNDAMENTAL ANALYSIS See page 00.
PREFERRED STOCK See page 00.
ZERO COUPON BONDS
These bonds are sold at a deep discount and do not pay periodic interest to
investors; instead, investors receive, at maturity, the difference between the
discounted price and the maturity value of the bond.
RESTRICTED SECURITIES See page 00.
MUNICIPAL SECURITIES See page 00.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)*
Class A:
Year Return
-------------------------------
<S> <C>
1998 6.56%
</TABLE>
BEST QUARTER: 1Q98 8.17%
WORST QUARTER: 3Q98 -5.56%
*Because Class Y does not have returns for a full calendar year, Class
A performance is presented here. Class A shares are not offered in this
prospectus. Class Y shares would have substantially similar annual returns
because the shares are invested in the same portfolio of securities as Class
A and would differ only to the extent that Class Y shares have lower expenses
than Class A shares.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
Since
Inception
-------------------
<S> <C>
Class A (Inception 1/1/98) 6.56%
Merrill Lynch High 3.66%
Yield Index
</TABLE>
Because Class Y shares are sold without a sales load, Class A share return
information is shown without the applicable sales load.
<PAGE>
CONSECO CONVERTIBLE SECURITIES FUND
Our convertible securities fund offers investors a way to pursue the benefits of
income and capital appreciation through a portfolio of securities
that are convertible into common stock.
INVESTMENT OBJECTIVE
The Fund seeks high total return through a combination of current income and
capital appreciation by investing primarily in convertible securities.
ADVISER'S STRATEGY
Normally, the Adviser invests at least 65% of the Fund's assets in CONVERTIBLE
SECURITIES. These are often of lower grade investment quality than other types
of investments. Therefore, at any given time, over 50% of the Fund's assets
may be invested in BELOW INVESTMENT GRADE SECURITIES.
Adhering to a strict buy/sell discipline, the Adviser seeks to enhance total
return by:
o Purchasing securities it believes are undervalued
o Selling securities it believes are overvalued or fully priced
To select securities, the Adviser utilizes:
o Independent FUNDAMENTAL ANALYSIS to evaluate of the issuer of a security
o An analysis of the specific structure of the security
In an effort to achieve its investment objective, the Fund may also invest in:
o Common stock
o Other securities convertible other than at the option of the holder
o Equity and debt securities of foreign issuers, including issuers based in
emerging markets
For defensive purposes, the Fund may temporarily depart from its investment
objective and invest without limitation in preferred stocks and investment-grade
debt securities. This could help the Fund avoid losses but may mean lost
opportunities.
PRIMARY RISKS
Credit risk
Interest rate risk
Market risk
Restricted Securities risk
Foreign risk
Leverage risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
<PAGE>
(Sidebar)
CONVERTIBLE SECURITIES
Bonds, debentures, notes or preferred stock that are convertible into common
stock. Convertible securities have some unique return characteristics relative
to market fluctuations:
o When equity markets go up, they tend to rise in price
o When equity markets decline, they tend to decline relatively less in
price than stocks
Convertible securities have both an equity and a fixed income component.
Therefore,
o While the equity component is subject to fluctuations in value due to
activities of the issuing companies, and general market and economic
conditions;
o The fixed income component will be impacted by shifting interest rates
and changes in credit quality of the issuers.
FUNDAMENTAL ANALYSIS See page 00.
BELOW INVESTMENT GRADE SECURITIES See page 00.
Because the Fund is new it does not have performance to report.
<PAGE>
CONSECO BALANCED FUND
Our balanced fund offers investors the growth potential of stocks and the income
potential of bonds in one blended portfolio.
INVESTMENT OBJECTIVE
The Fund seeks high total investment return, consistent with the preservation of
capital and prudent investment risk.
ADVISER'S STRATEGY
Normally, the Fund invests approximately 50-65% of its assets in equity
securities, and the remainder in a combination of fixed income securities, cash,
or cash equivalents.
This balance may change:
o A much higher percentage of assets may be invested in equity securities,
if the Adviser considers conditions in the stock market to be
substantially more favorable than in the bond market.
o Conversely, if the Adviser considers conditions in the bond market to be
substantially more favorable than in the equity market, a much higher
percentage of assets may be invested in fixed income securities.
THE EQUITY PORTION OF THE PORTFOLIO
The Fund may invest in equity securities of domestic and foreign issuers. These
may include common and PREFERRED STOCKS, CONVERTIBLE SECURITIES and WARRANTS.
The Adviser intends for the equity portion of the Fund to be widely diversified
by size of company and industry.
The Adviser looks for securities that will provide the two elements of total
return:
o Price appreciation
o Income from dividends
In selecting equity securities, the Adviser considers the following factors:
o Growth trends of the stock - and its industry
o Significant purchases or sales of the stock by corporate insiders
o Recent changes in earnings per share and their deviations from analysts'
expectations
o Relative price-earnings ratios, as compared to industry peers and
earnings growth potential
o The stock's price movement
THE FIXED INCOME PORTION OF THE PORTFOLIO
Normally, the Fund will maintain at least 25% of the value of its assets in a
wide range of domestic and foreign debt securities, including non-U.S. dollar
denominated securities. The majority of foreign investments will be in YANKEE
BONDS.
The Adviser anticipates that bonds will be invested primarily in intermediate-
and/or long-term domestic debt securities.
<PAGE>
The Fund may also invest up to 25% of total assets in BELOW INVESTMENT GRADE
SECURITIES, which are not believed to involve undue risk to income or principal.
In general, however, these types of securities are issued by companies without
long track records of sales and earnings, or by those companies with
questionable credit strength. The lowest rating categories in which the Fund
will invest are CCC/Caa.
For defensive purposes, the Fund may temporarily depart from its investment
objective and invest without limitation in money market instruments.
This could help the Fund avoid losses but may mean lost opportunities.
PRIMARY RISKS
Market risk
Credit risk
Interest rate risk
Foreign risk
Leverage risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar)
PREFERRED STOCK See page 00.
CONVERTIBLE SECURITY See page 00.
WARRANTS
Contracts that allow the bearer to purchase shares for a specified price at a
future date.
YANKEE BONDS See page 00.
BELOW INVESTMENT GRADE SECURITIES See page 00.
[Enclose in shaded boxes]
ANTICIPATING A STOCK'S GROWTH POTENTIAL
Analysts employ two common measurements, earnings per share and price-earnings
ratio (P/E), to help them determine how much they may be paying for a company's
future earnings power. For example, the higher the P/E, the greater the
expectations are for a company's earnings to grow.
INTEREST RATES AND BOND MATURITIES
Bonds with longer maturities will be more affected by interest rate changes than
intermediate-term bonds. For example, if interest rates go down, the price of
long-term bonds will increase more rapidly than the price of intermediate-term
bonds.
<PAGE>
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
Class Y:
Year Return
-------------------------------
<S> <C>
1997 17.87%
1998 12.90%
</TABLE>
BEST QUARTER: 3Q97 14.05%
WORST QUARTER: 3Q98 -11.65%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Since
Inception
--------------------------
<S> <C> <C>
Class Y (Inception 1/2/97) 12.90% 33.07%
Lehman Bros. Aggregate 8.69% 19.19%
Bond Index
Standard & Poor's Midcap 19.11% 57.54%
400 Index
</TABLE>
<PAGE>
CONSECO EQUITY FUND
Our equity fund offers investors an opportunity to participate in the growth of
a variety of corporations by investing in a portfolio of common stocks.
INVESTMENT OBJECTIVE
The Fund seeks to provide a high equity total return, consistent with
preservation of capital and a prudent level of risk.
ADVISER'S STRATEGY
The Fund primarily invests in common stocks and other U.S. and foreign
securities with similar characteristics, including CONVERTIBLE SECURITIES and
WARRANTS.
Normally, the Fund will be widely diversified by industry and company, but will
focus on SMALL- AND MID-CAP COMPANIES.
The Adviser looks for securities that will provide the two elements of total
return:
o Price appreciation
o Income from dividends
In selecting equity securities, the Adviser considers the following factors:
o Growth trends of the stock's issuer and the industry it represents
o Significant purchases and sales of the stock by corporate insiders
o Recent changes in earnings per share and their deviations from analysts'
expectations
o Relative price-earnings ratios as compared to industry peers and earning
growth potential
o The stock's historical price movement
For defensive purposes, the Fund may temporarily depart from its investment
objective and invest without limitation in money market instruments.
This could help the Fund avoid losses but may mean lost opportunities.
PRIMARY RISKS
Market risk
Liquidity and valuation risk
Small company risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar definitions)
CONVERTIBLE SECURITIES See page 00.
WARRANTS See page 00.
<PAGE>
[Enclose in shaded box]
SMALL- AND MID-CAP COMPANIES
Generally refers to companies in the earlier period of their growth
expectations, from start-ups to better established firms. While these companies
potential for attractive long-term returns, their securities may involve greater
risks, and more volatility, than investments in larger companies with a stronger
competitive advantage. The Adviser's extensive research efforts can play a
greater role in selecting securities from this sector than from larger
companies.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)
Class Y:
Year Return
-------------------------------
<S> <C>
1997 23.50%
1998 16.82%
</TABLE>
BEST QUARTER: 4Q98 28.18%
WORST QUARTER: 3Q98 -20.43%
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
1 Year Since
Inception
--------------------------
<S> <C> <C>
Class Y (Inception 1/2/97) 16.82% 44.28%
Standard & Poor's 500 28.57% 71.46%
Index
Standard & Poor's Midcap 19.11% 57.54%
400 Index
</TABLE>
<PAGE>
CONSECO INTERNATIONAL FUND
Our international fund offers investors a way to access some of the attractive
growth prospects of companies located outside of the United States.
INVESTMENT OBJECTIVE
The Fund seeks to realize long-term capital appreciation.
THE INTERNATIONAL FUND'S STRATEGY
Under normal circumstances, the Fund invests at least 80% of its assets in
common stocks and securities convertible into common stocks from at least three
different countries outside of the United States.
Currently, the eligible countries include:
AUSTRALIA DENMARK HONG KONG MEXICO PORTUGAL SWEDEN
AUSTRIA FINLAND IRELAND NETHERLANDS SINGAPORE SWITZERLAND
BELGIUM FRANCE ITALY NEW ZEALAND SOUTH KOREA UNITED KINGDOM
CANADA GERMANY JAPAN NORWAY SPAIN
The Fund will place a primary emphasis on identifying undervalued securities.
Generally, these will have most or all of the following characteristics:
o Above-average earnings growth potential
o A market price below perceived economic value
o Below average price-earnings ratio
o Below average price to book value ratio
o Above-average dividend yields
The Fund's investment advisers determine the growth earnings prospects of
companies based on a combination of internal and external research using
fundamental analysis and considering changing economic trends. The decision to
sell a stock is typically based on the belief that the company is no longer
considered undervalued or shows deteriorating fundamentals, or that better
investment opportunities exist in other stocks. The Fund's investment advisers
believe that this strategy will help the Fund outperform other investment styles
over the longer term while minimizing volatility and downside risk.
The Fund's investment advisers will consider potential changes in currency
exchange rates when choosing stocks. When it is believed that a foreign currency
may suffer a decline against the U.S. dollar, the Fund may trade forward foreign
currency contracts to hedge currency fluctuations of underlying stock positions
Under adverse market conditions, the Fund may, for temporary defensive purposes,
invest up to 100% of its assets in cash or cash equivalents, including
investment-grade short-term obligations. To the extent that the Fund invokes
this strategy, its ability to achieve its investment objective may be affected
adversely.
<PAGE>
PRIMARY RISKS
Currency risk
Foreign risk
Leverage risk
Market risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
Investing in international markets increases additional risks that need to be
considered:
o Currency exchange rate fluctuations
o Political and financial instability
o Less liquidity and greater volatility of foreign investments
o Lack of uniform accounting, auditing and financial reporting standards
o Less government regulation and supervision of foreign stock exchanges,
brokers and listed companies
o Increased price volatility
o Delays in transaction settlement in some foreign markets
o Adverse impact of euro conversion on the business or financial conditions
of companies in which the Fund is invested.
(Enclose in shaded box)
THE FUND'S STRUCTURE
The Conseco International Fund seeks its investment objective by investing all
of its investable assets in the AMR Investment Services' Trust International
Equity Portfolio (the "Portfolio"), an investment company which has
substantially the same investment objective and policies as the Fund. AMR
Investment Services, Inc. (AMR) manages the "Portfolio." This type of structure
is commonly known as a "master feeder" structure (see the Statement of
Additional Information [SAI] for more details).
AMR undertakes the following activities in managing the "Portfolio":
o Selecting investment advisers
o Allocating assets among advisers
o Monitoring results
o Coordinating activities among investment advisers to ensure regulatory
compliance
<PAGE>
(Sidebar)
INVESTMENT GRADE DEBT SECURITIES See page 00.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)*
Class A:
Year Return
-------------------------------
<S> <C>
1998 9.80%
</TABLE>
BEST QUARTER: 4Q98 13.80%
WORST QUARTER: 3Q98 -15.78%
*Because there have been no sales of Class Y shares as of 12/31/98, Class
A performance is presented here. Class A shares are not offered in this
prospectus. Class Y shares would have substantially similar annual returns
because the shares are invested in the same portfolio of securities as Class
A and would differ only to the extent that Class Y shares have lower expenses
than Class A shares.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
Since
Inception
-------------------
<S> <C>
Class A (Inception 1/2/98) 9.80%
Morgan Stanley Capital Int'l 20.33%
Europe, Australia, Far East
Index (EAFE)
</TABLE>
Because Class Y shares are sold without a sales load, Class A share return
information is shown without the applicable sales load.
<PAGE>
CONSECO 20 FUND
This focus Fund offers investors a way to capitalize on those equity selections
that the Adviser believes are the best through one concentrated portfolio.
INVESTMENT OBJECTIVE
The Fund seeks capital appreciation.
ADVISER'S STRATEGY
Normally, the Fund will invest at least 65% of its assets in common stocks of
companies that the Adviser believes have above-average growth prospects.
The Fund is NON-DIVERSIFIED and will normally concentrate its investments in a
core position of approximately 20 to 30 common stocks. While the Fund invests in
securities issued by large-cap companies, a substantial portion of
these securities may be issued by SMALL- AND MID-CAP COMPANIES.
The Adviser looks for companies that demonstrate strong growth potential,
preferring:
o Companies whose earnings appear likely to continue in an upward direction
o Companies that demonstrate the ability to consistently grow their
earnings at a faster rate than their peer group
o Companies whose stocks appear to the Adviser to be undervalued in the
marketplace
In selecting equity securities, the Adviser considers the following factors:
o High return on invested capital
o Sound financial policies and a strong balance sheet
o Competitive advantages (including innovative products and services)
o Effective research, product development and marketing
o Stable, capable management
The Fund may also invest in any or all of the following:
o PREFERRED STOCK
o CONVERTIBLE SECURITIES
o WARRANTS
o Fixed income securities (when the Adviser believes they are more
attractive than stocks on a long-term basis)
If the Adviser believes that market conditions warrant a defensive
position, the Fund may temporarily depart from its investment objective
and invest without limitation in cash and short-term debt
securities. This could help the Fund avoid losses but may mean lost
opportunities.
<PAGE>
PRIMARY RISKS
Concentration risk
Market risk
Small company risk
Liquidity and valuation risk
Foreign risk
See "Primary Risk Considerations" at page 00 for a detailed discussion of the
Fund's risks.
(Sidebar)
NON-DIVERSIFIED
A fund is considered non-diversified if it does not limit by the percentage of
assets it may invest in any one issuer. The success or failure of one issuer
may cause the Fund to fluctuate more than it would in a diversified fund.
SMALL- AND MID-CAP COMPANIES See page 00.
PREFERRED STOCK See page 00.
CONVERTIBLE SECURITIES See page 00.
WARRANTS See page 00.
HOW HAS THE FUND PERFORMED?
The chart and table below give an indication of the Fund's risks and
performance. The chart shows you how the Fund's performance has varied from year
to year. The table compares the Fund's performance over time to that of a broad
measure of market performance. WHEN YOU CONSIDER THIS INFORMATION, PLEASE
REMEMBER THAT THE FUND'S PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW IT WILL PERFORM IN THE FUTURE.
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (as of 12/31 each year)*
Class A:
Year Return
-------------------------------
<S> <C>
1998 28.00%
</TABLE>
BEST QUARTER: 4Q98 29.69%
WORST QUARTER: 3Q98 -17.13%
*Because Class Y does not have returns for a full calendar year, Class
A performance is presented here. Class A shares are not offered in this
prospectus. Class Y shares would have substantially similar annual returns
because the shares are invested in the same portfolio of securities as Class
A and would differ only to the extent that Class Y shares have lower expenses
than Class A shares.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (as of 12/31/98)
Since
Inception
-------------------
<S> <C>
Class A (Inception 1/2/98) 28.00%
Standard & Poor's 500 28.57%
Index
Standard & Poor's Midcap 19.11%
400 Index
Because Class Y shares are sold without a sales load, Class A share return
information is shown without the applicable sales load.
</TABLE>
*Because Class Y does not have annual returns for a full calendar year, Class
A performance is presented here. Class A shares are not offered in this
prospectus. Class Y shares would have substantially similar annual returns
because the shares are invested in the same portfolio of securities as Class
A and would differ only to the extent that Class Y shares have lower expenses
than Class A shares. Additionally, because Class Y shares are sold without
a sales load, Class A share return information is shown without the applicable
sales load.
<PAGE>
PRIMARY RISK CONSIDERATIONS
All Fund investments are subject to risk and may decline in value. The principal
risks of investing in the Funds are described below. Each Fund's exposure to
risk depends upon its specific investment profile. The amount and types of risk
vary depending on:
o The Fund's investment objective
o The Fund's ability to achieve its objective
o The markets in which the Fund invests
o The investments the Fund makes in those markets
o Prevailing economic conditions over the period of an investment
CONCENTRATION RISK
The risk that if a Fund has most of its investments in a few securities or a
single sector, its portfolio will be more susceptible to factors adversely
affecting issuers of those few securities or within that sector than would a
more diversified portfolio of securities.
CREDIT RISK
The risk that the issuer of a security, or the counterparty to a contract, will
default or otherwise be unable to honor a financial obligation. Securities rated
below investment grade are especially susceptible to this risk.
CURRENCY RATE RISK
The risk that fluctuations in the exchange rates between the U.S. dollar and
foreign currencies may negatively affect an investment.
FOREIGN RISK
The risk that foreign issuers may be subject to foreign political and economic
instability, the imposition or tightening of exchange controls or other
limitations on repatriation of foreign capital. In addition, there may be
changes in foreign governmental attitudes towards private investment, possibly
leading to nationalization, increased taxation or confiscation of investors'
assets. Investments in issuers located or doing business in emerging or
developing markets are especially susceptible to these risks.
INTEREST RATE RISK
The risk that changing interest rates may adversely affect the value of an
investment. With fixed income securities, an increase in interest rates
typically causes the value of those securities to fall, while a decline in
interest rates may produce an increase in the market value of those securities.
Because of this risk, an investment in a Fund that invests in fixed income
securities is subject to risk even if all the fixed income securities in the
Fund's portfolio are paid in full at maturity. Changes in interest rates will
affect the value of longer-term fixed income securities more than shorter-term
securities.
LEVERAGE RISK
The risk that borrowing, or some derivative investments, such as forward
commitment transactions, may multiply smaller market movements into large
changes in value.
<PAGE>
LIQUIDITY AND VALUATION RISKS
The risk that securities that were liquid when purchased by a Fund may become
temporarily illiquid (i.e., not be sold readily) and hard to value, especially
in declining markets.
MARKET RISK
The risk that the market value of a Fund's investments will fluctuate as the
stock and bond markets fluctuate. Market risk may affect a single issuer,
industry or section of the economy or may affect the market as a whole.
MUNICIPAL MARKET RISK
The risk that special factors may negatively affect the value of municipal
securities, and, as a result, a Fund's share price. These factors include
political or legislative changes, uncertainties related to the tax status of the
securities or the rights of investors in the securities. A Fund may invest in
municipal obligations that are related in such a way that an economic, business
or political development or change affecting one of these obligations would also
affect the other obligations.
PREPAYMENT RISK
The risk that issuers will prepay fixed rate obligations when interest rates
fall, forcing the Fund to re-invest in obligations with lower interest rates
than the original obligations.
RESTRICTED SECURITIES RISK
The risk that a buyer will be difficult to come by and selling price will need
to be less than originally anticipated because these restricted securities may
only be sold in privately negotiated transactions.
SMALL COMPANY RISK
The risk that investments in smaller companies may be more volatile than
investments in larger companies. Smaller companies generally experience higher
growth rates and higher failure rates than do larger companies. The trading
volume of the securities of smaller companies is normally lower than that of
larger companies. The tendency of short-term changes in the demand for the
securities of smaller companies generally has a disproportionate effect on
their market price, tending to make prices rise more in response to buying
demand and fall more in response to selling pressure.
YEAR 2000
The Funds could be adversely affected by problems relating to the inability of
computer systems used by the Adviser and the Funds' other service providers to
recognize the year 2000. While year 2000-related computer problems could have a
negative effect on the Funds, the Adviser is working to avoid these problems in
its own computer systems and to obtain assurances from service providers that
they are taking similar steps.
<PAGE>
EURO CONVERSION
The Funds also could be adversely affected by the conversion of European
currencies into the Euro beginning January 1, 1999. This conversion will not be
complete until 2002, and its full implementation may be delayed. Difficulties
with the conversion and potential delays may significantly impact European
capital markets and could increase volatility in world capital markets.
It is impossible to know whether the problems associated with both Year 2000 and
Euro conversion, which could disrupt operations of investments if uncorrected,
have been adequately addressed until the dates in question arrive.
Please note that there are other circumstances not described here which could
adversely affect your investment and potentially prevent a Fund from achieving
its objectives.
<PAGE>
FEES AND EXPENSES
The tables below describe the fees and expenses that you may pay if you buy and
hold shares of the Funds. These expenses are deducted from the Funds' assets.
SHAREHOLDER FEES (fees paid directly from your investment)
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO
INCOME YIELD SECURITIES BALANCED
FUND FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Front-End
Sales Charge (Load)
Imposed on Purchases None None None None
Maximum Deferred
Sales Charge (Load) None None None None
</TABLE>
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
EQUITY INTERNATIONAL 20
FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Front-End
Sales Charge (Load)
Imposed on Purchases
None None None
Maximum Deferred
Sales Charge (Load)
None None None
</TABLE>
The Funds do not charge any fees for reinvesting dividends, or redeeming or
exchanging fund shares.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from each Fund's
assets) as a % of average daily net assets
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
% of average daily net assets
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO
INCOME YIELD SECURITIES BALANCED
FUND FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and
Administrative Fees 0.65% 0.90% 1.05% 0.90%
Distribution (12b-1) Fees 0 0 0 0
Other Expenses 0.81% 2.34% 1.25%+ 1.29%
---- ---- ---- ----
Equals: Total Annual
Fund Operating Expenses 1.46% 3.24% 2.30% 2.19%
Less: Fee Waiver
and/or Expense
Reimbursement* 0.86% 2.34% 1.25% 1.19%
---- ---- ---- ----
Equals: Net Expenses 0.60% 0.90% 1.05% 1.00%
==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
EQUITY INTERNATIONAL 20
FUND FUND FUND
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Management and
Administrative Fees 0.90% 1.23% 0.90%
Distribution (12b-1) Fees 0 0 0
Other Expenses 0.52% 1.25%++ 2.87%
---- ---- ----
Equals: Total Annual
Fund Operating Expenses 1.42% 2.48% 3.77%
Less: Fee Waiver
and/or Expense
Reimbursement* 0.42% 0.73% 5.02%
---- ---- ----
Equals: Net Expenses 1.00% 1.75% 1.25%
==== ==== ====
</TABLE>
* Pursuant to a contractual arrangement with the Fund, the Adviser, Distributor
and Administrator have agreed to waive fees and/or reimburse fund expenses
through 4/30/00, so that the total annual operating expenses of each Fund are
limited to the Net Expenses for each respective Fund, as set forth above. This
arrangement does not cover interest, taxes, brokerage commissions, and
extraordinary expenses.
** Management Fees in the fee table reflect only the Conseco International
Fund's pro rata potion 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.
+Because the Fund has not completed a full fiscal year, other expenses are
estimated.
++Because there have been not sales of Class Y shares, other expenses
are estimated.
<PAGE>
EXPENSE EXAMPLE
This example will help you compare the cost of investing in the
Conseco Fund Group to the cost of investing in other mutual funds. The example
assumes that you invest $10,000 in a Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. The example also
assumes that your investment has a 5% return each year and that the Fund's
operating expenses remain the same. Although your actual costs and the return on
your investment may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO
FIXED HIGH CONVERTIBLE CONSECO CONSECO CONSECO
INCOME YIELD SECURITIES BALANCED EQUITY INTERNATIONAL CONSECO
FUND FUND FUND FUND FUND FUND 20 FUND
----------------------------------------------------------------------------------
CLASS Y SHARES
<S> <C> <C> <C> <C> <C> <C> <C>
1 Year $6 $9 $11 $10 $10 $18 $13
3 Year* $37 $78 $59 $56 $40 $70 $92
5 Year* $71 $152 $112 $107 $73 $125 $178
10 Years $170 $367 $263 $251 $166 $280 $422
</TABLE>
* THE EXAMPLES FOR 3, 5 AND 10 YEARS DO NOT TAKE INTO ACCOUNT THE EXPENSE
WAIVER/REIMBURSEMENT DESCRIBED ABOVE. UNDER THE REIMBURSEMENT ARRANGEMENT, YOUR
COST FOR THE 3, 5 AND 10 YEAR PERIODS WOULD BE LOWER.
<PAGE>
MANAGEMENT
ADVISER
Conseco Capital Management, Inc. (CCM) is a wholly owned subsidiary of Conseco,
Inc., a publicly owned financial services company that provides specialized
annuity, life and health insurance products. CCM serves as the "Adviser" to each
of the Funds and as adviser to other registered investment companies. In
addition to managing the invested assets of Conseco, Inc., CCM manages
foundations, endowments, corporations, government and union clients.
As of December 31, 1998, CCM managed over $35.3 billion assets.
CCM is also responsible for recommending and monitoring the performance of the
investment company in which Conseco International Fund, which operates in a
"master-feeder" structure, invests. If it is dissatisfied with the performance
of that company, CCM may propose (i) to take on the management of the
International Fund internally or (ii) recommend a different investment company
to invest the assets of the International Fund. Any such change would require
approval from the Board of Trustees.
ADVISORY FEES
For the fiscal year ended 12/31/98, the advisory fee paid to the Adviser by each
Fund was as follows:
<TABLE>
<CAPTION>
<S> <C>
--------------------------------------------------------------------------------------------------
ADVISORY FEES PAID
FUND NAME (expressed as a percentage of
average daily net assets)
--------------------------------------------------------------------------------------------------
Conseco Fixed Income Fund 0.00%
--------------------------------------------------------------------------------------------------
Conseco High Yield Fund 0.00%
--------------------------------------------------------------------------------------------------
Conseco Convertible Securities Fund 0.06%
--------------------------------------------------------------------------------------------------
Conseco Balanced Fund 0.00%
--------------------------------------------------------------------------------------------------
Conseco Equity Fund 0.18%
--------------------------------------------------------------------------------------------------
Conseco International Fund 0.00%
--------------------------------------------------------------------------------------------------
Conseco 20 Fund 0.15%
--------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ADVISER TO THE INTERNATIONAL EQUITY PORTFOLIO AMR, a wholly owned subsidiary of
AMR Corporation, oversees all administrative, investment advisory and portfolio
management services for the AMR Investment Services Trust International Equity
Portfolio (the "Portfolio") - the Fund in which the Conseco International Fund
invests. As of December 31, 1998, AMR had approximately $20.4 billion in assets
under management.
For the services provided, AMR receives an annualized advisory fee from the
Portfolio that is 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 described
below. AMR also receives compensation in connection with the Portfolio's
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 this cash. If a borrower posts collateral other than cash, the
borrower will pay a loan fee to the Portfolio. 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.
SUB-ADVISERS TO THE INTERNATIONAL EQUITY PORTFOLIO
The following three investment advisers have agreements with AMR to provide
investment management and related record-keeping services to the Portfolio. 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.
Hotchkis and Wiley is a division of the Capital Management Group of
Merrill Lynch Asset Management, L.P., a wholly owned subsidiary of Merrill Lynch
& Co., Inc. As of December 31, 1998, assets under management were approximately
$14.5 billion.
Independence Investment Associates, Inc. (IIA) is a wholly owned subsidiary
of John Hancock Mutual Life Insurance Company. As of December 31, 1998, IIA,
together with funds managed for its parent company, had assets under management
totaling approximately $30.4 billion.
Lazard Asset Management, is a division of Lazard Freres (Lazard). As of December
31, 1998, Lazard had discretionary investment management authority with respect
to approximately $70 billion of assets.
As compensation for its services, each investment sub-adviser is paid a fee by
AMR out of the proceeds of the management fee received by AMR from the
Portfolio.
<PAGE>
(Sidebar)
CONSECO CAPITAL MANAGEMENT, INC.
11825 N. Pennsylvania Street, Carmel, Indiana 46032
AMR INVESTMENT SERVICES, INC.
4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas 76155
HOTCHKIS AND WILEY
725 South Figueroa Street, Suite 4000, Los Angeles, California 90017
INDEPENDENCE INVESTMENT ASSOCIATES, INC.
53 State Street, Boston, Massachusetts 02109
LAZARD ASSET MANAGEMENT
30 Rockefeller Plaza, New York, New York 10112
PORTFOLIO MANAGERS OF THE CONSECO FUND GROUP
CONSECO FIXED INCOME FUND
GREGORY J. HAHN, CFA, SENIOR VICE PRESIDENT, PORTFOLIO ANALYTICS
At CCM, Mr. Hahn is also responsible for the portfolio analysis and management
of the institutional client accounts and analytical support for taxable
portfolios. In addition, he is responsible for SEC registered investment
products, investments in the insurance industry and is portfolio manager of
other affiliated investment companies. Mr. Hahn joined the Adviser as Vice
President and portfolio manager in 1989.
G. NOLAN SMITH, CFA, VICE PRESIDENT, PORTFOLIO ANALYTICS
At CCM, Mr. Smith is also responsible for taxable and tax-exempt, fixed income
and institutional client accounts. He is also a portfolio manager of other
affiliated investment companies. Prior to joining the Adviser in 1995, Mr. Smith
was a portfolio manager at Strong Capital Management, where he managed the
Strong Municipal Money Market, Short-Term and Municipal Bond Funds.
CONSECO HIGH YIELD FUND
PETER C. ANDERSEN, CFA, VICE PRESIDENT, PORTFOLIO ANALYTICS
At CCM, Mr. Andersen is responsible for managing below investment grade fixed
income portfolios for institutional client
accounts and is the portfolio manager of other affiliated investment companies.
Prior to joining the Adviser in 1997, he was a portfolio manager for Colonial
Management Associates, where he managed over $650 million in high-yield,
tax-free mutual funds.
WILLIAM F. FICCA, VICE PRESIDENT AND DIRECTOR OF RESEARCH
At CCM, Mr. Ficca also oversees the Adviser's research efforts and is the
portfolio manager of other investment products managed by the Adviser. Mr. Ficca
joined the Adviser as Assistant Vice President in 1991.
<PAGE>
CONSECO CONVERTIBLE SECURITIES FUND
ANDREW S. CHOW, CFA, FLMI, VICE PRESIDENT
At CCM, Mr. Chow is also responsible for trading mortgage-backed securities,
exchange and over-the-counter derivatives and convertible securities.
Additionally, he is portfolio manager for fixed income institutional client
accounts. He joined the Adviser as Assistant Vice President in 1991.
CONSECO BALANCED FUND
GREGORY J. HAHN, CFA, SENIOR VICE PRESIDENT, PORTFOLIO ANALYTICS
Mr. Hahn is the portfolio manager of the fixed income portion of the Fund. See
Conseco Fixed Income Fund for Mr. Hahn's complete biography.
THOMAS J. PENCE, CFA, SENIOR VICE PRESIDENT
Mr. Pence is portfolio manager of the equity portion of the Fund. Since joining
the Adviser in 1992, Mr. Pence has been responsible for the management of all of
the Adviser's equity portfolios and for the oversight of the equity investment
process. Additionally, he is portfolio manager of other affiliated investment
companies.
CONSECO EQUITY FUND
THOMAS J. PENCE, CFA, SENIOR VICE PRESIDENT
See Conseco Balanced Fund for Mr. Pence's complete biography.
CONSECO 20 FUND
THOMAS J. PENCE, CFA, SENIOR VICE PRESIDENT
See Conseco Balanced Fund for Mr. Pence's complete biography.
ERIK J. VOSS, ASSISTANT VICE PRESIDENT, SENIOR SECURITIES ANALYST
At CCM, Mr. Voss is also responsible for assisting in the research and portfolio
management efforts for all of the Adviser's equity portfolios. Prior to joining
the Adviser in 1996, Mr. Voss worked as an equity analyst for Gardner Lewis
Asset Management for over three years.
<PAGE>
YOUR ACCOUNT
DETERMINING SHARE PRICE
A Fund's share price is the total fair market value of its assets minus its
liabilities, called net asset value, divided by the total number of shares
outstanding. Because the value of each Fund's securities changes every business
day, the Fund's share price usually changes as well.
Each Fund calculates its net asset value (NAV) per share on each business day
that the New York Stock Exchange (NYSE) is open.
(sidebar)
NET ASSET VALUE (NAV)
The market value of a fund's securities and other assets less
its liabilities divided by the total number of shares
outstanding.
For each of the Funds except the Conseco International Fund, NAV is calculated
at the close of regular trading on the NYSE (normally 4:00 p.m., Eastern Time).
The NAV is generally based on the market price of securities held in a Fund.
In the case of the Conseco International Fund, foreign
securities may trade in their local markets on weekends or other days when a
Fund does not price its shares. Therefore, the NAV of Funds holding foreign
securities may change on days when shareholders will not be able to buy or sell
their Fund shares.
Under the direction of the Board, the Funds may use a practice known as fair
value pricing under the following circumstances:
o Securities and assets for which market quotations are not readily
available
o Events that occur after an exchange closes are likely to affect the value
of the security
o Fund management strongly believes a market price is not reflective of
the security's appropriate price
<PAGE>
BUYING SHARES
To buy Class Y shares, you must be a qualifying individual investor, whose Fund
investments exceed $500,000, or an institutional investor.
Institutional investors may include the following:
o Tax qualified plans with at least $10 million in assets or 250 plan
eligible employees
o Banks and insurance companies investing for their own accounts
o Investment companies unaffiliated with the Adviser
o Tax-qualified retirement plans of the Adviser or qualified financial
intermediaries who have a contract with the Distributor
o Endowments, foundations and other charitable organizations
o Wrap fee accounts or asset allocation programs where the shareholder pays
an asset-based fee
OPENING A NEW ACCOUNT IS EASY
The Funds are open for business each day the New York Stock Exchange (NYSE) is
open for business. The Funds are closed for business on:
- --------------------------------------------------------------------------
Saturday Presidents' Day Labor Day
Sunday Good Friday Thanksgiving Day
New Year's Day Memorial Day Christmas Day
Martin Luther King, Jr. Day Independence Day
- -------------------------------------- -----------------------------------
<PAGE>
There are three convenient ways to begin your Conseco Fund Group investment
program.
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
THROUGH FINANCIAL INTERMEDIARIES BY BANK WIRE BY MAIL
- -----------------------------------------------------------------------------------------------------------
Shares of the Funds may be Wire your investment to: Simply complete and sign an
purchased through authorized ABA#011000028 application to begin the process.
broker-dealers, financial State Street Bank
institutions and service Boston, MA Make your check payable to the
organizations with whom the Account #9905-244-1 Fund of your choice.*
distributor has a selling agreement. Reference your customer name,
fund name and fund account number If you are adding to your
Important note: Each institution existing account, indicate your
may have its own procedures and For NEW accounts, please promptly Fund account number directly on
requirements for buying and selling complete and mail the account the check.
shares and may charge fees. Contact application form to the Funds at
your financial professional for the address given under "By Mail." Mail your application and check
more information. to:
The Funds currently do not charge Conseco Fund Group
for wire transfers, although your P.O. Box 8017
bank may. Boston, Massachusetts
02266-8017
- -----------------------------------------------------------------------------------------------------------
*No third-party checks are accepted.
</TABLE>
Payment for the shares purchased through a financial institution is due
on the settlement date. The settlement date is normally three business
days after the order has been
executed. WHEN MAKING PAYMENT FOR CONFIRMED PURCHASES VIA FEDERAL FUNDS WIRE,
YOU MUST REFERENCE THE CONFIRMATION NUMBER TO ENSURE TIMELY CREDIT.
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). Check with your investment professional to find out if they have
an internal deadline for receiving orders to ensure processing that day. When
making payment for confirmed purchases via Federal funds wire, financial
intermediaries must reference the confirmation number to ensure timely credit.
Shares are purchased at the next share price calculation after your investment
is received. The Funds reserve the right to reject any purchase order.
(Sidebar)
Please indicate whether you would like the ability to redeem
or exchange shares by telephone or wire when you complete your
application.
PURCHASES BY CHECK
An initial investment made by check must be accompanied by a completed
application. To avoid order to avoid fees and delays, all checks should be drawn
only on U.S. banks in U.S. funds. A charge may be imposed if any check submitted
for investment does not clear. Third-party checks will not be accepted. When you
purchase shares by check, you will not be allowed to redeem the shares until
your investment has been in the account for 15 business days.
<PAGE>
ELECTRONIC TRANSFERS THROUGH AUTOMATED CLEARING HOUSE
Electronic transfers through the 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.
<PAGE>
SELLING SHARES
After receipt of an authorized redemption request, shares are redeemed at net
asset value on any business day, reduced by any required tax withholding.
Redemption requests require your account number, the exact name of your account
and your Social Security or taxpayer identification number. The Fund will mail a
check to your account address or, if you have elected the wire redemption
privilege, the Fund will wire the proceeds to your bank on the following
business day.
You may sell, or redeem, some or all of your shares on any business day by doing
one of the following.
<TABLE>
<CAPTION>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
THROUGH FINANCIAL ADVISER BY TELEPHONE BY MAIL
- ---------------------------------------------------------------------------------------------------------
If you bought your shares through a Individual investors may Financial intermediaries, as
broker/dealer or other financial communicate redemption orders by well as institutional and
intermediary, you may redeem your telephone. individual investors, may sell
shares by calling them directly. shares by writing the Funds at
the following address:
Financial intermediaries may
communicate redemption orders by Conseco Fund Group
wire and telephone. P.O. Box 8017
Boston, Massachusetts
Important note: Each institution 02266-8017
may have its own procedures and
requirements for buying and selling
shares and may charge fees. Contact Institutional investors must have
your financial professional for appropriate redemption
more information. certifications on file before a
redemption can be completed.
Signature guarantees are required
for amounts of $50,000 or more.
- --------------------------------------------------------------------------------------------------------
</TABLE>
It is the responsibility of the 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).
MORE ABOUT SELLING YOUR SHARES
Your shares will be sold at the next NAV calculated after your order is
accepted. Your order will be processed promptly and you will generally receive
the proceeds within seven business days.
A Fund may delay payment up to 15 days or longer in the event the check you used
to purchase shares has not cleared. To shorten this delay, consider purchasing
your shares by bank wire through Federal funds.
<PAGE>
Under certain extraordinary circumstances, where the law allows additional time,
a Fund may suspend the right to redeem shares.
REDEMPTIONS BY MAIL
Redemption certification is provided on the application. A signature guarantee,
required for redemptions of $50,000 or more, 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
Financial intermediaries may charge for their services in connection with your
redemption request but neither the Funds nor the Distributor impose any such
charges.
Although the Funds and the Transfer Agent will not be responsible for the
authenticity of telephone instructions, the following procedures have been
established to confirm that instructions communicated by telephone are genuine:
o Recording telephone instructions for exchanges and expedited redemptions
o Requiring the caller to give certain specific identifying information
o Providing written confirmations to shareholders not later than five days
following a telephone transaction
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.
Certain 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 such a financial intermediary accepts the order.
EXPEDITED REDEMPTIONS
You may have the payment of redemption requests (of $250 or more) wired or
mailed directly to a designated domestic commercial bank account. Normally, such
payments will be transmitted on the second business day following receipt of the
request.
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.
EXCHANGE PRIVILEGE
You may exchange shares of one Conseco Fund for shares of the same class of any
other Fund at NAV. The value of shares to be exchanged must meet the Fund's
minimum investment requirement.
Normally, exchanges can be completed on the same business day.
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each Fund distributes at least 90% of its net investment income to shareholders.
Net investment income for all of the Funds, except the Conseco International
Fund, consists of all dividends and interest received, less expenses (including
fees payable to the Adviser and its affiliates). For Conseco International Fund,
investors receive a proportionate share of the Portfolio's dividends and
interest, less the Fund's expenses and its proportionate share of the
Portfolio's expenses.
Dividends from net investment income are declared, and paid, by each Fund
according to the schedule below. The Trustees may elect to change dividend
distribution intervals.
<TABLE>
<CAPTION>
SCHEDULE OF DIVIDEND PAYMENTS
- --------------------------------------------------------------------------------
<S> <C>
FUND DECLARED AND PAID
- --------------------------------------------------------------------------------
Conseco Fixed Income Fund Monthly
- --------------------------------------------------------------------------------
Conseco High Yield Fund Monthly
- --------------------------------------------------------------------------------
Conseco Convertible Securities Fund Monthly
- --------------------------------------------------------------------------------
Conseco Balanced Fund Quarterly
- --------------------------------------------------------------------------------
Conseco Equity Fund Quarterly
- --------------------------------------------------------------------------------
Conseco 20 Fund Quarterly
- --------------------------------------------------------------------------------
Conseco International Fund Annually
- --------------------------------------------------------------------------------
</TABLE>
Any capital gains are generally declared and distributed to shareholders
annually after the close of the Fund's fiscal year. These include net capital
gains (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, they include
the Fund's proportionate share of the Portfolio's gains.
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 each class
might be affected differently by the allocation of other class-specific
expenses.
<PAGE>
CHOOSE HOW TO USE YOUR DISTRIBUTIONS
Conseco Fund Group offers you a number of ways to receive your distributions.
When you open your account, simply specify on your application any one of the
options that meets your needs.
Keep in mind, all Fund distributions are reinvested for retirement accounts
unless specific circumstances are met. Call the Funds at 800-986-3384 for
further information.
HERE ARE YOUR OPTIONS
REINVEST ALL DISTRIBUTIONS in additional Fund shares.
REINVEST ONLY INCOME DIVIDENDS in additional Fund shares. Receive other
distributions in cash.
REINVEST ONLY OTHER DISTRIBUTIONS in additional Fund shares. Receive income
dividends in cash.
RECEIVE ALL DISTRIBUTIONS IN CASH. Distributions can be sent via check to you,
or by wire to your bank account.
<PAGE>
TAX CONSIDERATIONS
Your investment in a Fund has tax consequences that you need to consider.
The amount you will owe in taxes will vary depending on many factors, such as
your tax bracket, how long you held your shares, and whether you owe alternative
minimum tax. Some of the more common federal tax consequences are described
here, but you should consult your financial adviser about your own situation.
(See the Statement of Additional Information for more information.)
TAXABLE DISTRIBUTIONS
You will generally have to pay federal income tax on all Fund distributions.
Except for tax-advantaged retirement accounts, dividends from the Funds' taxable
income generally will be taxable to you as ordinary income, whether paid in cash
or reinvested in additional shares.
Capital gains distributions, whether paid in cash or reinvested in additional
shares, will be taxable to you as long-term capital gains, regardless of how
long you have held your Fund shares. When designated as such, short-term gains
are treated as ordinary income. Only long-term gains are taxed regardless of how
long the fund shares have been held.
Income distributions and short-term capital gain distributions are generally
taxed as ordinary income. Distributions of other capital gains are generally
taxed as long-term capital gains. The tax treatment of capital gain
distributions depends on how long the Fund held the securities it sold, not when
you bought your shares of the fund, or whether you reinvested your
distributions.
TAXES ON SALES OR EXCHANGES
Selling your shares may result in a taxable gain or loss to you, depending on
whether you receive more or less than what the shares cost you.
Share exchanges from one Fund to another within the same share class generally
will have the same tax consequences as those on a sale.
BACKUP WITHHOLDING
When sending in your application, it's important to provide your Social Security
or other taxpayer ID number. If we don't have this number, or if the IRS informs
us that you are subject to backup withholding, the IRS requires the Fund to
withhold 31% of all money you receive from the Fund, whether from selling your
shares or from distributions.
<PAGE>
(sidebar)
In addition to Class Y shares, Conseco Fund Group offers in
a separate prospectus Class A, B and C shares.
These shares are available to individual
investors. Class A, B and 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 and a prospectus on these other classes.
<PAGE>
ADMINISTRATIVE FEES
The following chart provides an explanation of services provided by Conseco
Services, LLC (the Fund Administrator) and the fees paid for such services.
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------------------------------------------------
ALL FUNDS, EXCLUDING THE CONSECO INTERNATIONAL CONSECO INTERNATIONAL FUND
FUND
- --------------------------------------------------------------------------------------------------
Services provided include: Services provided include:
o Supervising the preparation and filing o Monitoring the performance of the
of all documents required for investment company in which the
Fund compliance Conseco International Fund invests
o Supervising the maintenance of books o Coordinating the Fund's
and records relationship with that investment
o Other general and administrative company
responsibilities o Communicating with the Board and
shareholders regarding the
For such services, the Administrator receives fees performance of that investment
of .20% annually of each Fund's average daily company and the Fund's
net assets. master-feeder structure
For such services, the Administrator
receives a fee of .75% annually of the
Fund's average daily net assets.
- -------------------------------------------------------------------------------------------------
</TABLE>
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand a Fund's
financial performance for the past five years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
Fund share. The total returns in the table represent the rate that an investor
would have earned (or lost) on an investment in each Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
PricewaterhouseCoopers, LLC, whose report, along with the Funds' financial
statements, is included in the Funds' annual report, which is available upon
request.
Because there were no sales of Class Y shares for the Conseco International
Fund, financial highlights are not available.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
December 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO CONSECO CONSECO
FIXED INCOME HIGH YIELD CONVERTIBLE BALANCED
FUND FUND SECURITIES FUND FUND
------------------- ---------------- ---------------- ---------------
FOR THE FOR THE
PERIOD FROM PERIOD FROM
COMMENCEMENT COMMENCEMENT
OF OPERATIONS OF OPERATIONS
(MARCH 2, 1998) (SEPTEMBER 28, 1998)
YEAR ENDED THROUGH THROUGH YEAR ENDED
CLASS Y SHARES 1998 1997 DECEMBER 31, 1998 DECEMBER 31, 1998 1998 1997
---------- -------- ----------------- ----------------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period ... $10.15 $10.00 $10.49 $10.00 $10.78 $10.00
Income from investment operations (a):
Net investment income .......................... 0.65 0.68 0.62 0.11 0.32 0.19
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments ............................... 0.17 0.21 (0.48) 1.00 1.06 1.58
- ----------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations ...... 0.82 0.89 0.14 1.11 1.38 1.77
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income ........... (0.60) (0.61) (0.61) (0.11) (0.28) (0.28)
Distribution of net capital gains .............. (0.12) (0.13) -- -- (0.13) (0.71)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions .............................. (0.72) (0.74) (0.61) (0.11) (0.41) (0.99)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period ..... $10.25 $10.15 $10.02 $11.00 $11.75 $10.78
==================================================================================================================================
Total return (b) (c) ............................. 8.32% 9.18% 1.36%(c) 11.17%(c) 12.90% 17.87%
==================================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands), end of period $14,403 $21,876 $1,237 $1 $4,138 $12,037
Ratio of expenses to average net assets (b) .... 0.60% 0.60% 0.90% 1.05% 1.00% 1.00%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ....... 6.26% 6.28% 7.66% 3.87% 2.67% 2.76%
</TABLE>
- ----------------
(a) Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor and Administrator have voluntarily agreed to waive their fees
and/or reimburse Fund expenses to the extent that the ratio of expenses to
average net assets exceeds on an annual basis .60% for the Conseco Fixed
Income, .90% for the Conseco High Yield, 1.05% for the Conseco Convertible
Securities, 1.00% for the Conseco Balanced and Conseco Equity and 1.25% for
the Conseco 20 Funds. These limits may be discontinued by the Advisor and
Administrator at any time after April 30, 1999. If the aforementioned
agreements had not been in effect during the period, the annualized ratio of
expenses to average net assets would have been 1.46% for the Conseco Fixed
Income, 3.24% for the Conseco High Yield, 149.31% for the Conseco
Convertible Securities, 2.19% for the Conseco Balanced, 1.42% for the
Conseco Equity and 3.77% for the Conseco 20 Funds. If the aforementioned,
agreements had not been in effect for the year ended December 31, 1997, the
annualized ratio of expense to average net assets would have been 1.44% for
the Conseco Fixed Income, 2.14% for the Conseco Balanced and 1.24% for the
Conseco Equity Funds.
(c) Not annualized.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS-(CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
CONSECO CONSECO
EQUITY 20
FUND FUND
------------------------- --------
FOR THE
PERIOD FROM
COMMENCEMENT OF
OPERATIONS
(APRIL 6, 1998)
YEAR ENDED THROUGH
CLASS Y SHARES 1998 1997 DECEMBER 31, 1998
----------- ----------- --------------------
<S> <C> <C> <C>
Net asset value per share, beginning of period $11.13 $10.00 $12.33
Income from investment operations (a):
Net investment income (loss) ............... 0.05 -- 0.04
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments ........................... 1.83 2.35 0.31
- ------------------------------------------------------------------------------------------------------
Total income from investment operations .. 1.88 2.35 0.35
- ------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income ....... (0.04) -- --
Distribution of net capital gains .......... (0.30) (1.22) --
- ------------------------------------------------------------------------------------------------------
Total distributions .......................... (0.34) (1.22) --
- ------------------------------------------------------------------------------------------------------
Net asset value per share, end of period . $12.67 $11.13 $12.68
- ------------------------------------------------------------------------------------------------------
Total return (b) (c) ......................... 16.82% 23.50% 2.84%(c)
======================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period ............................ $60,816 $60,334 $172
Ratio of expenses to average net assets (b) 1.00% 1.00% 1.25%
Ratio of net investment income (loss)
to average net assets (annualized) (b) ... 0.40% 0.03% 0.62%
</TABLE>
- --------------------
(a Per share amounts presented are based on an average of monthly shares
outstanding throughout the periods indicated.
(b) The Advisor and Administrator have voluntarily agreed to waive their fees
and/or reimburse Fund expenses to the extent that the ratio of expenses to
average net assets exceeds on an annual basis .60% for the Conseco Fixed
Income, .90% for the Conseco High Yield, 1.05% for the Conseco Convertible
Securities, 1.00% for the Conseco Balanced and Conseco Equity and 1.25% for
the Conseco 20 Funds. These limits may be discontinued by the Advisor and
Administrator at any time after April 30, 1999. If the aforementioned
agreements had not been in effect during the period, the annualized ratio of
expenses to average net assets would have been 1.46% for the Conseco Fixed
Income, 3.24% for the Conseco High Yield, 149.31% for the Conseco
Convertible Securities, 2.19% for the Conseco Balanced, 1.42% for the
Conseco Equity and 3.77% for the Conseco 20 Funds. If the aforementioned,
agreements had not been in effect for the year ended December 31, 1997, the
annualized ratio of expense to average net assets would have been 1.44% for
the Conseco Fixed Income, 2.14% for the Conseco Balanced and 1.24% for the
Conseco Equity Funds.
(c) Not Annualized.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS-(CONTINUED)
December 31, 1998
<TABLE>
<CAPTION>
Conseco Conseco Conseco Conseco
Fixed Income High Yield Convertible Balanced
Fund Fund Securities Fund Fund
------------------- ------------- ---------------- -----------------
Year Ended Year ended Period Ended Year Ended
1998 1997 1998 1998(a) 1998 1997
---------- -------- ------------- ---------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Supplemental date for all classes:
Net assets (dollars in thousands),
end of period .................. $48,245 $22,029 $44,392 $27,614 $32,700 $13,113
Portfolio turnover rate .......... 420.83% 367.82% 432.08% 12.95% 341.20% 506.64%
</TABLE>
<TABLE>
<CAPTION>
Conseco Conseco
Equity 20
Fund Fund
---------------------------------------
Year Ended Year Ended
1998 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Supplemental date for all classes:
Net assets (dollars in thousands),
end of period ...................... $89,270 $65,211 $44,269
Portfolio turnover rate .............. 350.13% 199.12% 411.71%
</TABLE>
- --------------------
(a) For the period from commencement of operations (September 28, 1998) through
December 31, 1998.
<PAGE>
[back cover]
FOR MORE INFORMATION
More information on the Conseco Fund Group is available free upon request:
SHAREHOLDER REPORTS
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Fund's annual report, you
will find a discussion of the market conditions and investment strategies that
significantly affected the Funds' performance during their most recent fiscal
year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI is on file with the Securities and Exchange Commission (SEC) and is
incorporated by reference into (is legally considered part of) this prospectus.
The SAI provides more details about each Fund and its policies.
(Sidebar)
To obtain a shareholder report, SAI, or other information:
BY TELEPHONE
Call 800-986-3384
BY MAIL
Conseco Fund Group
Attn: Administrative Offices
11815 N. Pennsylvania Street, B1C
Carmel, IN 46032
BY EMAIL
[email protected]
ON THE INTERNET
Text-only versions of the prospectuses and other documents pertaining to the
Funds can be viewed online or downloaded from:
SEC
http://www.sec.gov
CONSECO FUND GROUP
http://www.consecofunds.com
Information about the Funds (including the SAI) can also be reviewed and copied
at the SEC's public reference room in Washington, DC (phone 800-SEC-0330). Or,
you can obtain copies of this information by sending a request, along with a
duplicating fee, to the SEC's Public Reference Section, Washington, DC
20549-6009.
Registration Number: 811-07839
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CONSECO FUND GROUP
CONSECO FIXED INCOME FUND CONSECO BALANCED FUND
CONSECO HIGH YIELD FUND CONSECO EQUITY FUND
CONSECO CONVERTIBLE SECURITIES FUND CONSECO INTERNATIONAL FUND
CONSECO 20 FUND
CLASS A, B AND C SHARES
MARCH 12, 1999
This Statement of Additional Information ("SAI") is not a prospectus. It
contains additional information about the Conseco Fund Group (the "Trust") and
the seven series of the Trust: Conseco Fixed Income Fund, Conseco High Yield
Fund, Conseco Convertible Securities Fund, Conseco Balanced 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 March 12, 1999. You may
obtain a copy by contacting the Trust's Administrative Office, 11815 N.
Pennsylvania Street, Carmel, Indiana 46032 or by phoning 800-986-3384.
<PAGE>
TABLE OF CONTENTS
GENERAL INFORMATION.........................................................3
INVESTMENT RESTRICTIONS.....................................................3
INVESTMENT STRATEGIES.......................................................9
TEMPORARY DEFENSIVE POSTIONS...............................................13
PORTFOLIO TURNOVER.........................................................13
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................14
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE...................36
INVESTMENT PERFORMANCE.....................................................37
SECURITIES TRANSACTIONS....................................................40
MANAGEMENT.................................................................44
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................55
FUND EXPENSES..............................................................60
DISTRIBUTION ARRANGEMENTS..................................................60
PURCHASE, REDEMPTION AND PRICING OF SHARES.................................63
INFORMATION ON CAPITALIZATION AND OTHER MATTERS............................68
TAXES......................................................................70
FINANCIAL STATEMENTS.......................................................75
APPENDIX A SECURITIES RATINGS..............................................76
2
<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 seven 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 (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.
Prior to August 4, 1998, the Conseco Balanced Fund was known as the Conseco
Asset Allocation 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.
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.
3
<PAGE>
CONSECO EQUITY, CONSECO BALANCED AND CONSECO FIXED INCOME FUNDS
The Conseco Equity, Conseco Balanced 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 rate
futures contracts, stock index futures, futures contracts based on other
financial instruments, and options on such futures contracts; and (b)
Conseco Balanced 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
4
<PAGE>
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 HIGH YIELD, CONSECO CONVERTIBLE SECURITIES AND CONSECO 20 FUNDS
The Conseco High Yield, Conseco Convertible Securities and Conseco 20 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 and the Conseco Convertible
Securities Fund's total assets, purchase the securities of any issuer if
(a) more than 5% of Fund's total assets would be invested in the securities
of that issuer or (b) the Fund would own more than 10% of the outstanding
voting securities of that issuer; this restriction does not apply to U.S.
Government securities (as defined in the Prospectus);
5. Purchase any security if thereafter 25% or more of the total assets of the
Fund would be invested in securities of issuers having their principal
business activities in the same industry; this restriction does not apply
to U.S. Government securities (as defined in the Prospectus);
6. Purchase or sell real estate, except that a Fund may purchase securities
which are issued by companies which invest in real estate or which are
secured by real estate or interests therein;
7. Make loans of its assets if, as a result, more than 33-1/3% of the Fund's
total assets would be lent to other parties except through (a) entering
into repurchase agreements and (b) purchasing debt instruments; or
8. Issue any senior security, except as permitted under the 1940 Act.
5
<PAGE>
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
nine 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;
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
<PAGE>
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.)
8. Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of the
Portfolio's total assets; or
9. Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry, provided that: (i) this limitation
does not apply to obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities; (ii) municipalities and their agencies
and authorities are not deemed to be industries; and (iii) financial
service companies as a group are not considered a single industry for
purposes of this policy. Wholly-owned finance companies will be considered
to be industries of their parent companies if their activities are
primarily related to financing the activities of their parent companies.
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 and Conseco Fixed Income Funds and may be changed by the Trust's
Board of Trustees ("Board") without shareholder approval.
The CONSECO EQUITY 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 below investment grade security if as a result more than 35%
of the Fund's assets would be invested in below investment grade
securities.
The following restrictions are designated as non-fundamental with respect to the
Conseco Balanced Fund and may be changed by the Board without shareholder
approval.
7
<PAGE>
The CONSECO BALANCED FUND may not:
1. With respect to in excess of 15% of the Fund's assets, sell securities
short, except that the Fund may, without limit, make short sales against
the box.
2. Purchase any below investment grade security if as a result more than 35%
of the Fund's assets would be invested in below investment grade
securities.
3. Invest less than 25% of the Fund's assets in debt securities.
The following restrictions are designated as nonfundamental with respect to the
Conseco High Yield, Conseco Convertible Securities and Conseco 20 Funds and may
be changed by the Board without shareholder approval.
The CONSECO HIGH YIELD, CONSECO CONVERTIBLE SECURITIES AND CONSECO 20 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. Invest more than 15% of its net assets in illiquid securities, including
time deposits and repurchase agreements that mature in more than seven
days; or
2. Purchase securities on margin, effect short sales (except that the
Portfolio may obtain such short term credits as may be necessary for the
clearance of purchases or sales of securities) or purchase or sell call
options or engage in the writing of such options.
3. Invest more than 10% of its total assets in the securities of other
investment companies. The Portfolio may incur duplicate advisory fees or
management fees when investing in another mutual fund.
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.
8
<PAGE>
INVESTMENT STRATEGIES
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO FIXED INCOME
FUND may:
o Invest in debt securities which the Adviser believes 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.
o 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" below for further information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO HIGH YIELD
FUND may:
o Invest in below investment grade securities which 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 Investors Service, Inc. ("Moody's") or D by Standard &
Poor's ("S&P"), securities comparably rated by another national statistical
rating organization ("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.
o 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, 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, including municipal securities.
o Invest in zero coupon securities and payment-in-kind securities.
o 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.
9
<PAGE>
o Invest in private placements, securities traded pursuant to Rule 144A under
the 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.
o 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" below for further information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO CONVERTIBLE
SECURITIES FUND may:
o Invest in securities rated as low as CCC/Caa. See "Description of
Securities and Investment Techniques" below. The Appendix to this SAI
describes Moody's and S&P's rating categories.
o Invest in zero coupon securities and payment-in-kind securities.
o As a non-fundamental policy, 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. Investments in foreign securities may involve risks in
addition to those of U.S. investments. See "Foreign Securities" below for
further information.
o Invest in private placements, securities traded pursuant to Rule 144A under
the 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.
o Use 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 call and put options and purchasing options; purchasing and
selling, for hedging purposes, interest rate and other futures contracts,
and purchasing and writing options on such futures contracts; entering into
foreign currency futures contracts, forward contracts and options on
foreign currencies; borrowing from banks to purchase securities; investing
in securities of other investment companies; entering into repurchase
agreements, reverse repurchase agreements and dollar rolls; investing in
when-issued or delayed delivery securities; selling securities short, and
10
<PAGE>
entering into swaps and other interest rate transactions. See "Description
of Securities and Investment Techniques" below for further information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO BALANCED FUND
may:
o 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. As
a non-fundamental policy, the Fund maintains at least 25% of the value of
its assets in debt securities.
o 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, if the Adviser believes that inflationary or monetary
conditions warrant a significant investment in companies involved in
precious metals.
o Invest in high yield, high risk below investment grade securities which are
not believed to involve undue risk to income or principal. The Conseco
Balanced Fund does not intend to invest more than 25% of its total assets
(measured at the time of investment) in below investment grade 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 below investment grade securities, see "Description of Securities and
Investment Techniques" below. The Fund may also invest in investment grade
debt securities.
o Invest in zero coupon securities and payment-in-kind securities.
o 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 Fund
will not invest more than 50% of its total assets (measured at the time of
investment) in foreign securities. See "Description of Securities and
Investment Techniques" below for further information.
o 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" below for further information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO EQUITY FUND
may:
o Use 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
11
<PAGE>
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" below further information.
o Invest up to 5% of its assets in below investment grade securities. The
Fund will not invest in rated fixed income securities which are rated below
CCC/Caa. See "Appendix A" to this SAI for further discussion regarding
securities ratings. For information about the risks associated with below
investment grade securities, see "Description of Securities and Investment
Techniques" below.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO INTERNATIONAL
FUND may:
o Invest up to 20% of total assets in debt securities that are investment
grade at the time of purchase, including obligations of the U.S.
Government, its agencies and instrumentalities, corporate debt securities,
mortgage-backed securities, asset-backed securities, master-demand notes,
Yankeedollar and Eurodollar bank certificates of deposit, time deposits,
bankers' acceptances, commercial paper and other notes, and other debt
securities. Investment grade securities include securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, as
well as securities rated in one of the four highest rating categories by
all rating organizations rating that security (such as S & P or Moody's).
Obligations rated in the fourth highest rating category are limited to 25%
of each of the Fund's debt allocations. The Fund may invest up to 20% of
its total assets in non-U.S. debt securities that are rated at the time of
purchase in one of the three highest rating categories by any rating
organization or, if unrated, are deemed to be of comparable quality by the
applicable investment adviser and traded publicly on a world market. The
Fund, at the discretion of the investment advisers, may retain a debt
security that has been downgraded below the initial investment criteria.
o Engage in dollar rolls or purchase or sell securities on a when-issued or
forward commitment basis.
o Invest in other investment companies to the extent permitted by the 1940
Act or exemptive relief granted by the SEC.
o Loan securities to broker-dealers or other institutional investors.
o Enter into repurchase agreements.
o Purchase securities in private placement offerings 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.
See "Description of Securities and Investment Techniques" below for more
information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO 20 FUND may:
12
<PAGE>
o Invest 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 below investment grade securities.
o 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.
o Use 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" below for further
information.
TEMPORARY DEFENSIVE POSTIONS
When unusual market or other conditions warrant, a Fund may temporarily depart
from its investment objective. In assuming a temporary defensive position, each
Fund may make investments as follow:
Conseco High Yield Fund may invest in money market instruments without limit.
Conseco Balanced Fund may invest in money market instruments without limit.
Conseco Equity Fund may invest in money market instruments without limit.
The International Portfolio may invest in cash or cash equivalent short-term
investment grade obligations, including: obligations of the U.S. Government, its
agencies and instrumentalities; corporate debt securities, such as commercial
paper, master demand notes, loan participation interests, medium-term notes and
funding agreements; Yankeedollar and Eurodollar bank certificates of deposit,
time deposits, and banker's acceptances; asset-backed securities; and repurchase
agreements involving the foregoing obligations.
Conseco 20 Fund may invest without limit in short-term debt securities and cash
and money market instruments.
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. Because of the Adviser's active management style, our
Funds generally have a higher portfolio turnover than other funds and therefore,
may have higher taxable distributions and increased trading costs which may
13
<PAGE>
impact performance. The following is a list of the Funds' portfolio turnover
rates for the fiscal year ended December 31, 1997 and 1998:
----------------------------------------------------------------------------
YEAR ENDED
----------------------------------------------------------------------------
FUND NAME: 1997 1998
----------------------------------------------------------------------------
Conseco Fixed Income Fund 367.82% 420.83%
----------------------------------------------------------------------------
Conseco High Yield Fund* n/a 432.08%
----------------------------------------------------------------------------
Conseco Convertible Securities Fund* n/a 12.95%
----------------------------------------------------------------------------
Conseco Balanced Fund 506.64% 341.20%
----------------------------------------------------------------------------
Conseco Equity Fund 199.12% 350.13%
----------------------------------------------------------------------------
Conseco International Fund 15% 24%
----------------------------------------------------------------------------
Conseco 20 Fund* n/a 411.71%
----------------------------------------------------------------------------
*Because these Funds' inception dates were in 1998, there is no
portfolio turnover rate for 1997.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in realized short-term capital gains or losses.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
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 below.
The investment objectives of the Funds are not fundamental; the investment
objective of the International Portfolio is fundamental. Except as otherwise
noted, all investment policies and practices described in this 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.
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.
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 Convertible Securities,
Conseco Balanced and Conseco Equity Funds 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
14
<PAGE>
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
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.
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.
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, 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.
15
<PAGE>
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.
BELOW INVESTMENT GRADE SECURITIES
IN GENERAL. The Funds (except the Conseco International Fund and
Portfolio) may invest in below investment grade securities. Below investment
grade securities (also referred to as "high yield securities") are securities
rated BB+ or lower by S&P or Ba1 or lower by Moody's, securities comparably
rated by another NRSRO, or unrated securities of equivalent quality. Below
investment grade securities are deemed by the rating agencies to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Below investment grade 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.
Below investment grade 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. Below investment grade
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.
Subsequent to purchase by a Fund (except the Conseco International Fund or the
Conseco High Yield 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
and this SAI.
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 below investment
grade 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. Below investment grade 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 below investment grade
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.
16
<PAGE>
PAYMENT EXPECTATIONS. Below investment grade 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 below investment grade 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. Below investment grade 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
below investment grade securities, especially in a thinly traded market.
Because of the many risks involved in investing in below investment grade
securities, the success of such investments is dependent upon the credit
analysis of the Adviser. Although the market for below investment grade
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. 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
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
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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.
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.
MORTGAGE-BACKED SECURITIES
The Funds (except the Conseco International Fund and 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
incurred) may expose a Fund to a lower rate of return upon reinvestment of
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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
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
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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.
ZERO COUPON BONDS
The Conseco High Yield, Conseco Convertible Securities, Conseco Balanced and
Conseco 20 Funds may invest in zero coupon securities. Zero coupon bonds are
debt obligations which make no fixed interest payments but instead are issued at
a significant discount from face value. Like other debt securities, the market
price can reflect a premium or discount, in addition to the original issue
discount, reflecting the market's judgment as to the issuer's creditworthiness,
the interest rate or other similar factors. The original issue discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity (or the first interest payment date) at a rate of
interest reflecting the market rate at the time of issuance. Because zero coupon
bonds do not make periodic interest payments, their prices can be very volatile
when market interest rates change.
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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, Conseco Convertible Securities and Conseco Balanced
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.
TRUST ORIGINATED PREFERRED SECURITIES
The Conseco High Yield and Conseco Convertible Securities Funds may 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 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 a 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 and Conseco Convertible Securities Funds may invest in
loan participations or assignments. In purchasing a loan participation or
assignment, a Fund acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower. Both the lending bank and
the borrower may be deemed to be "issuers" of a loan participation. 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 a Fund will be exposed to a risk of loss if the borrower defaults.
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. Loan
participations may also be purchased by a Fund when the borrowing company is
already in default. 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.
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In purchasing a loan participation, a Fund may have less protection under the
federal securities laws than it has in purchasing traditional types of
securities. 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. A 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 a Fund will be illiquid
and therefore subject to the Fund's limit on illiquid investments.
EURODOLLAR AND YANKEEDOLLAR OBLIGATIONS
Eurodollar obligations are U.S. dollar obligations issued outside the United
States by domestic or foreign entities, while Yankeedollar obligations are U.S.
dollar obligations issued inside the United States by foreign entities. There is
generally less publicly available information about foreign issuers and there
may be less governmental regulation and supervision of foreign stock exchanges,
brokers and listed companies. Foreign issuers may use different accounting and
financial standards, and the addition of foreign governmental restrictions may
affect adversely the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements.
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
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
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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.
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. A
sale of a when-issued security also involves the risk that the other party will
be unable to settle the transaction. Dollar rolls are a type of forward
commitment transaction. 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
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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.
DOLLAR ROLLS (CONSECO INTERNATIONAL FUND)
Purchases and sales of securities on a forward commitment basis involve a
commitment to purchase or sell securities with payment and delivery to take
place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. Forward commitment transactions are executed for
existing obligations, whereas in a when-issued transaction, the obligations have
not yet been issued. When purchasing securities on a when-issued or forward
commitment basis, a segregated account of liquid assets at least equal to the
value of purchase commitments for such securities will be maintained until the
settlement date
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;
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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.
COMMERCIAL PAPER
Commercial paper refers to promissory notes representing an unsecured debt of a
corporation or finance company with a fixed maturity of no more than 270 days. A
variable amount master demand note (which is a type of commercial paper)
represents a direct borrowing arrangement involving periodically fluctuating
rates of interest under a letter agreement between a commercial paper issuer and
an institutional lender pursuant to which the lender may determine to invest
varying amounts.
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.
However, to minimize this 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.
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.
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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
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,
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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 tenth
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.
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.
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.
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STOCK INDEX FUTURES CONTRACTS (CONSECO CONVERTIBLE SECURITIES, CONSECO
BALANCED, CONSECO EQUITY 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:
I. 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 commissions;
II. 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
III. 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 Balanced 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
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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. Each of the Funds may purchase options on
futures contracts. Conseco Convertible Securities Fund may also write options on
such contracts. When a Fund purchases a futures option, it acquires 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
would remain obligated to meet margin requirements and continue to incur losses
until the position is closed.
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a CFTC-regulated exchange,
in each case that is not for BONA FIDE hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums
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required to establish these positions (excluding the amount by which options are
"in-the-money" at the time of purchase) may not exceed 5% of the liquidation
value of the Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into.
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Funds (except the Conseco International Fund and Portfolio) 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 Conseco Convertible Securities Fund also may write call and put
options, and each of the other Funds may 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 CALL AND 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 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 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 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 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.
The Funds (except Conseco Convertible Securities 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
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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. The Conseco Convertible Securities Fund may write call and put
options that are not "covered" or "secured."
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. The purchase of such
options may not enable a Fund to hedge effectively against stock market risk if
they are not highly correlated with the value of its securities. Moreover, the
ability to hedge effectively depends upon the ability to predict movements in
the stock market, which cannot be done accurately in all cases.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, and, as
long as its obligation as a writer continues, has retained the risk of loss if
the price of the underlying security declines. The writer of an option has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or purchase the underlying
securities at the exercise price. If a put or call option purchased by a Fund is
not sold when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price or, in the case of a call, remains less than or equal to the exercise
price, the Fund will lose its entire investment in the option. Also, where a put
or call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. If a Fund cannot effect a closing transaction, it
will not be able to sell the underlying security or securities in a segregated
account while the previously written option remains outstanding, even though it
might otherwise be advantageous to do so. Possible reasons for the absence of a
liquid secondary market on a national securities exchange could include:
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.
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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 (ALL FUNDS EXCEPT CONSECO FIXED INCOME AND CONSECO
EQUITY 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 and the Conseco Convertible Securities
Fund, a Fund will not (1) commit more than 15 percent of its total assets
computed at market value at the time of commitment to foreign currency futures
or forward currency contracts, or (2) enter into a foreign currency contract
with a term of greater than one year. The Conseco Convertible Securities Fund
will not commit more than 15 percent of its total assets computed at market
value at the time of commitment to foreign currency futures or forward currency
contracts, but it may 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 HIGH YIELD, CONSECO CONVERTIBLE
SECURITIES, CONSECO BALANCED AND CONSECO 20 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
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another currency) in relation to a foreign currency in which portfolio
securities of the Fund may be denominated. A call option on a foreign currency
gives the purchaser the right to buy, and a put option the right to sell, a
certain amount of foreign currency at a specified price during a fixed period of
time. A Fund may enter into closing sale transactions with respect to such
options, exercise them, or permit them to expire.
A Fund may employ hedging strategies with options on currencies before the Fund
purchases a foreign security denominated in the hedged currency, during the
period the Fund holds a foreign security, or between the day a foreign security
is purchased or sold and the date on which payment therefor is made or received.
Hedging against a change in the value of a foreign currency in the foregoing
manner does not eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Furthermore, such
hedging transactions reduce or preclude the opportunity for gain if the value of
the hedged currency increases relative to the U.S. dollar. The Funds will
purchase options on foreign currencies only for hedging purposes and will not
speculate in options on foreign currencies. The Funds may invest in options on
foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
An option position on a foreign currency may be closed out only on an exchange
which provides a secondary market for an option of the same series. Although the
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.
SEGREGATION AND COVER FOR OPTIONS, FUTURES AND OTHER FINANCIAL INSTRUMENTS
The use of the financial instruments discussed above, I.E., interest rate
transactions (including swaps, caps, floors and collars), futures contracts,
options on future contacts, options on securities and securities indices, and
forward contracts (collectively, "Financial Instruments"), may be subject to
applicable regulations of the SEC, the several exchanges upon which they are
traded, and/or the Commodity Futures Trading Commission ("CFTC").
Each Fund is required to maintain assets as "cover," maintain segregated
accounts or make margin payments when it takes positions in Financial
Instruments involving obligations to third parties (I.E., Financial Instruments
other than purchased options). No Fund will enter into such transactions unless
it owns either (1) an offsetting ("covered") position in securities, currencies
or other options, futures contracts or forward contracts, or (2) cash and liquid
assets with a value, marked-to-market daily, sufficient to cover its potential
obligations to the extent not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, set aside cash or liquid assets in a segregated
account with its custodian in the prescribed amount as determined daily.
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 High Yield, Conseco Convertible Securities, Conseco
International and Conseco 20 Funds will not make such loans if, as a result, the
aggregate amount of all
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outstanding securities loans would exceed 33 1/3% of the Fund's total assets. As
a fundamental policy of the Conseco Fixed Income, Conseco Equity, and the
Conseco Balanced Funds, 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
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.
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 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. 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.
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 generally 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
35
<PAGE>
be less expensive and more expedient for the Fund to invest in a foreign
investment company in a country which permits direct foreign investment.
Investment companies in which the Funds may invest charge advisory and
administrative fees and may also assess a sales load and/or distribution fees.
Therefore, investors in a Fund that invests in other investment companies would
indirectly bear costs associated with those investments as well as the costs
associated with investing in the Fund. The percentage limitations described
above significantly limit the costs a Fund may incur in connection with such
investments.
SHORT SALES (ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND)
The Funds (except Conseco International Fund and Portfolio) may effect short
sales. 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.
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 nine 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.
36
<PAGE>
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 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" below.
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.
37
<PAGE>
Based on the 30-day period ended December 31, 1998, the average yield for Class
A of the Conseco Fixed Income Fund was 4.46%; Class B was 4.34%; and Class C was
4.36%.
Based on the 30-day period ended December 31, 1998, the average yield for Class
A of the Conseco High Yield Fund was 8.42%; Class B was 8.30%; and Class C was
8.12%.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN QUOTATIONS. Each class of the Funds may
advertise its total return and its cumulative total return. The total return
will be based upon a stated period and will be computed by finding the average
annual compounded rate of return over the stated period that would equate an
initial amount invested to the ending redeemable value of the investment
(assuming reinvestment of all distributions), according to the following
formula:
P (1+T)n=ERV
Where:
P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value at the end of the stated period of a
hypothetical $1,000 payment made at the beginning of the stated period.
The 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.
AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31,1998
------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FUND ONE YEAR PERIOD FROM INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Conseco Fixed Income
Class A 2.19% 11.00%
Class B N/A -0.22%
Class C N/A 5.38%
- ----------------------------------------------------------------------------------------------------------------
Conseco High Yield
Class A N/A 0.43%
Class B N/A -3.92%
Class C N/A -0.12%
- ----------------------------------------------------------------------------------------------------------------
Conseco Convertible Securities* N/A N/A
Class A
Class B
Class C
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
FUND ONE YEAR PERIOD FROM INCEPTION
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Conseco Balanced
Class A 5.98% 24.20%
Class B N/A 1.52%
Class C N/A 5.04%
- ----------------------------------------------------------------------------------------------------------------
Conseco Equity
Class A 9.43% 34.50%
Class B N/A 9.44%
Class C N/A 6.14%
- ----------------------------------------------------------------------------------------------------------------
Conseco International (as of
10/31/98)
Class A N/A -1.89%
Class B N/A -13.27%
Class C N/A -10.43%
- ----------------------------------------------------------------------------------------------------------------
Conseco 20
Class A N/A 20.64%
Class B N/A 7.71%
Class C N/A 2.76%
- ----------------------------------------------------------------------------------------------------------------
* Because the Fund is new it does not have performance to report.
</TABLE>
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.
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.
39
<PAGE>
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.
The Merrill Lynch Convertible Securities Index is a market capitalization
weighted index of over 450 non-mandatory domestic corporate convertible
securities, representing approximately 95% of the total outstanding market value
of U.S. convertible securities. To be included in the index, bonds and preferred
stocks must be convertible only to common stock and have a market value or
original par value of at least $500 million.
The Boston Convertible Securities Index is a market capitalization weighted
index of over 250 convertible bonds and preferred stocks rated B- or above. To
be included in the index, convertible bonds must have an original par value of
at least $50 million and preferred stocks must have a minimum of 500,000 shares
outstanding. The index also includes U.S. dollar-denominated Eurobonds that have
been issued by U.S. domiciled companies, are rated B- or above, and have an
original par value of at least $100 million.
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.
40
<PAGE>
SECURITIES TRANSACTIONS
ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND
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.
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.
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
41
<PAGE>
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 years ended December 31, 1997 and 1998, the following brokerage
commissions were paid by the Funds:
FUND 1997 1998
- ---- ---- ----
Conseco Fixed Income $ 0 $ 0
Conseco High Yield* N/A $ 0
Conseco Balanced $ 37,658 $107,448
Conseco Equity $215,359 $624,839
Conseco 20* N/A $255,305
Conseco Convertible Securities+ N/A $ 8,567
* The Conseco High Yield and Conseco 20 Funds commenced operations on January
1, 1998.
+ The Conseco Convertible Securities Fund commenced operations on September 28,
1998. The amount listed is for the fiscal period beginning September 28, 1998.
During the fiscal year ended December 31, 1997 and December 31, 1998, no Fund
paid commissions to any affiliated brokers.
During the fiscal year ended December 31, 1998, the Fixed Income, Balanced and
Convertible Securities Funds acquired the securities of its "regular brokers or
dealers" (as defined in the 1940 Act) ("Regular B/Ds") as follows: Lehman
Brothers Holdings, Inc., Paine Webber Group, Salomon, Smith Barney, Inc., J.P.
Morgan Securities, and Merrill Lynch.
Additionally, at December 31, 1998, the following Funds held the securities of
its Regular B/Ds with an aggregate value as follows:
Conseco Fixed Income:
Lehman Brothers Holdings, Inc. $1,297,098
Paine Webber Group $215,576
Salomon, Smith Barney Inc. $102,455
J.P. Morgan Securities $426,234
Conseco Balanced:
Lehman Brothers Holdings, Inc. $629,177
Conseco Convertible Securities:
Merrill Lynch $1,142,500
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 will place its
own orders to execute securities transactions which are designed to implement
the Portfolio's investment objective and policies. 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 will be considered when making these determinations. Pursuant
to written guidelines approved by the AMR Trust Board, as appropriate, an
investment adviser of the Portfolio, or its affiliated broker-dealer, may
execute portfolio
42
<PAGE>
transactions and receive usual and customary brokerage commissions (within the
meaning of Rule 17e-1 of the 1940 Act) for doing so. The Portfolio's turnover
rate, or the frequency of portfolio transactions, will vary from year to year
depending on market conditions and the Portfolio's cash flows. High portfolio
activity increases the Portfolio's transaction costs, including brokerage
commissions, and may result in a greater number of taxable transactions.
In executing portfolio transactions and 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, 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 a 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 a 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, 1996, 1997 and 1998, the following
brokerage commissions were paid by the Portfolio:
1996 1997 1998
---- ---- ----
$544,844 $956,160 $1,833,458
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, 1996, the Portfolio paid the following
commissions to affiliated brokers:
BROKER AFFILIATED WITH COMMISSION
- ------ --------------- ----------
Fleming Martin Rowe-Price Fleming International, Inc. $ 2,142
Jardine Fleming Rowe-Price Fleming International, Inc. $ 1,002
43
<PAGE>
BROKER AFFILIATED WITH COMMISSION
- ------ --------------- ----------
Ord Minnett Rowe-Price Fleming International, Inc. $ 2,051
Robert Fleming & Co. Rowe-Price Fleming International, Inc. $20,129
Morgan Stanley Intl. Morgan Stanley Asset Management Inc. $ 3,892
The percentage of total commissions of the Portfolio paid to affiliated brokers
in 1996 was 2.68%. The transactions represented 2.2% of the Portfolio's total
dollar value of portfolio transactions for the fiscal year ended October 31,
1996.
During the fiscal year ended October 31, 1997, the Portfolio paid the following
commissions to affiliated brokers:
BROKER AFFILIATED WITH COMMISSION
- ------ --------------- ----------
Jardine Fleming Rowe-Price Fleming International, Inc. $ 3,260
Ord Minnett Rowe-Price Fleming International, Inc. $13,141
Robert Fleming & Co. Rowe-Price Fleming International, Inc. $81,109
Morgan Stanley Intl. Morgan Stanley Asset Management Inc. $ 5,413
Merrill Lynch & Co. Hotchkis and Wiley $50,428
The percentage of total commissions of the Portfolio paid to affiliated brokers
in 1997 was 16.04%. The transactions represented 9.2% of the Portfolio's total
dollar value of portfolio transactions for the fiscal year ended October 31,
1997.
During the fiscal year ended October 31, 1998, the Portfolio paid the following
commissions to affiliated brokers:
<TABLE>
<CAPTION>
PORTFOLIO BROKER AFFILIATED WITH COMMISSION
- --------- ------ --------------- ----------
<S> <C> <C> <C>
International Equity Merrill Lynch & Co. Hotchkis and Wiley $29,669
International Equity Morgan Stanley Intl. Morgan Stanley Asset Management $30,057
International Equity Robert Fleming & Co. Rowe-Price Fleming International, Inc. $93,606
International Equity Ord Minnett Rowe-Price Fleming International, Inc. $13,959
International Equity Jardine Fleming Rowe-Price Fleming International, Inc. $ 3,846
</TABLE>
44
<PAGE>
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 Adviser manages and serves as
sub-adviser to other registered investment companies and manages the
invested assets of Conseco, 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, 1998, the Adviser managed in excess of $35.3 billion in assets.
The Investment Advisory Agreements, dated March 28, 1997, between the Adviser
and the Conseco Equity Fund, Conseco Balanced Fund and Conseco Fixed Income
Fund, and the Investment Advisory Agreement dated December 31, 1997 between the
Adviser and the Conseco High Yield Fund, Conseco Convertible Securities Fund,
Conseco International Fund and Conseco 20 Fund (the agreement was approved with
respect to the Conseco Convertible Securities Fund on May 14, 1997), provide
that the Adviser shall not be liable for any error in judgment or mistake of law
or for any loss suffered by a Fund in connection with any investment policy or
the purchase, sale or redemption of any securities on the recommendations of the
Adviser. The Agreements provide that the Adviser is not protected against any
liability to a Fund or its security holders for which the Adviser shall
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by the
Agreements or the violation of any applicable law.
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 Balanced 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, 1.00% of the average daily
net asset value of the Conseco International Fund, and 0.85% of the average
daily net asset value of the Conseco Convertible Securities Fund. The Adviser
has 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.
Pursuant to a contractual arrangement with the Trust, the Adviser, along with
the Funds' Administrator and Distributor, has agreed to waive fees and/or
reimburse expenses through April 30, 2000, so that annual operating expenses of
the Funds are limited to the following net expenses:
45
<PAGE>
NET EXPENSES
------------
FUND CLASS A SHARES CLASS B AND C SHARES
---- -------------- --------------------
Conseco Fixed Income 1.25% 1.60%
Conseco High Yield 1.40% 1.90%
Conseco Convertible Securities 1.55% 2.05%
Conseco Balanced 1.50% 2.00%
Conseco Equity 1.50% 2.00%
Conseco International 2.25% 2.75%
Conseco 20 1.75% 2.25%
This Arrangement does not cover interest, taxes, brokerage commissions, and
extraordinary expenses.
<TABLE>
<CAPTION>
ADVISORY FEES ACCRUED AMOUNT REIMBURSED/WAIVED
FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND DECEMBER 31* DECEMBER 31*
---- ------------ ------------
1997 1998 1997 1998
----- ---- ----- ----
<S> <C> <C> <C> <C>
Conseco Fixed Income $58,632 $146,274 $38,405 $146,274
Conseco High Yield N/A $145,966 N/A $145,966
Conseco Convertible Securities+ N/A $ 55,482 N/A $ 38,398
Conseco Balanced $ 63,605 $166,164 $49,074 $166,164
Conseco Equity $286,410 $534,249 $66,061 $375,909
Conseco International* N/A N/A N/A N/A
Conseco 20 N/A $166,646 N/A $ 98,505
</TABLE>
* The Conseco International Fund's fiscal year end is October 31. The Fund pays
a pro rata portion of the Portfolio's expenses, which include investment
advisory and portfolio management fees.
+ The Convertible Securities Fund commenced operations on September 28, 1998.
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') 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.
OTHER SERVICE PROVIDERS
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
46
<PAGE>
January 2, 1997 and amended December 31, 1997. The Administration Agreement was
approved with respect to the Conseco Convertible Securities Fund on May 14,
1998. 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 contractual arrangement to waive its fees and/or reimburse
Fund expenses.
For the fiscal year ended December 31, 1998, the following administration fees
were accrued:
--------------------------------------------------------------------
FUND FEES PAID
--------------------------------------------------------------------
Conseco Fixed Income $ 65,007
--------------------------------------------------------------------
Conseco High Yield $ 41,707
--------------------------------------------------------------------
Conseco Convertible Securities $ 13,055
--------------------------------------------------------------------
Conseco Balanced $ 47,477
--------------------------------------------------------------------
Conseco Equity $ 152,515
--------------------------------------------------------------------
Conseco International $ 66,645
--------------------------------------------------------------------
Conseco 20 $ 47,614
--------------------------------------------------------------------
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 serves as custodian of
the assets of the Conseco International Fund and of the International Portfolio.
TRANSFER AGENCY SERVICES. State Street Bank and Trust Company is the transfer
agent for each Fund.
INDEPENDENT ACCOUNTANTS/AUDITORS. PricewaterhouseCoopers LLP, 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
47
<PAGE>
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.
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
48
<PAGE>
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 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 in
"Management." The Trust's officers supervise the daily business operations 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. (73) Chairman of the Board, Consultant to insurance and healthcare
5723 Trail Meadow Trustee industries. Director, President and Chief
Dallas, TX 75230 Executive Officer, FFG Insurance Co. Chairman of
the Board and Trustee of other mutual funds
managed by the Adviser.
Maxwell E. Bublitz* (43) President and Trustee Chartered Financial Analyst. President and
11825 N. Pennsylvania St. Director, Adviser. Previously, Senior Vice
Carmel, IN 46032 President, Adviser. President and Trustee of
other mutual funds managed by the Adviser.
Gregory J. Hahn* (38) Vice President for Chartered Financial Analyst. Senior Vice
11825 N. Pennsylvania St. Investments and Trustee President, Adviser. Portfolio Manager of the
Carmel, IN 46032 fixed income portion of Balanced and Fixed Income
Funds. Trustee and portfolio manager of other mutual
funds managed by the Adviser.
Harold W. Hartley (75) Trustee Retired. Chartered Financial Analyst. Director,
317 Peppard Drive, S.W. Ennis Business Forms, Inc. Previously,
Ft. Myers Beach, Fl 33913 Executive Vice President, Tenneco Financial
Services, Inc. Trustee of other
mutual funds
managed by the Adviser.
Dr. R. Jan LeCroy (68) Trustee Retired. President, Dallas Citizens Council.
Dallas Citizens Council Trustee of other mutual funds managed by the
1201 Main Street, Adviser. Director, Southwest Securities Group,
Suite 2444 Inc.
Dallas, TX 75202
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH TRUST DURING PAST 5 YEARS
--------------- ---------- -------------------
<S> <C> <C>
Dr. Jesse H. Parrish (71) Trustee Former President, Midland College. Higher
2805 Sentinel Education Consultant. Trustee of other mutual
Midland, TX 79701 funds managed by the Adviser.
William P. Kovacs (53) 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 other mutual funds
managed by the Adviser. Previously, Associate
Counsel, Vice President and Assistant Secretary,
Kemper Financial Services, Inc. (1989-1996);
previous to Of Counsel, Rudnick & Wolfe
(1997-1998); previous to Of Counsel, Shefsky &
Froelich (1998).
James S. Adams (39) 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 other mutual funds
managed by the Adviser.
William T. Devanney, Jr. (43) Vice President Senior Vice President, Corporate Taxes,
11815 N. Pennsylvania St. Corporate Taxes Bankers National and Great American
Carmel, IN 46032 Reserve. Senior Vice President,
Corporate Taxes, Conseco Equity Sales,
Inc. and Conseco Services LLC. Vice
President of other mutual funds
managed by the Adviser.
David N. Walthall (53) Trustee President, Chief Executive Officer
2435 N. Central Expressway and Director of Lyrick Corporation
Suite 1600
Richardson, TX 75080
</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.
50
<PAGE>
The following table shows the compensation of each disinterested Trustee for the
fiscal year ending December 31, 1998.
COMPENSATION TABLE
AGGREGATE TOTAL COMPENSATION FROM
FROM THE TRUST INVESTMENT COMPANIES IN THE TRUST
NAME OF PERSON, POSITION COMPENSATION COMPLEX PAID TO TRUSTEES
- ------------------------ ------------ ------------------------
William P. Daves, Jr. $9,000 $26,000
(1 other investment company)
Harold W. Hartley $9,000 $26,000
(1 other investment company)
Dr. R. Jan LeCroy $9,000 $26,000
(1 other investment company)
Dr. Jesse H. Parrish $9,000 $26,000
(1 other investment company)
David N. Walthall $6,000 $8,000
(1 other investment company)
TRUSTEES AND OFFICERS OF THE AMR TRUST
The AMR Trust Board provides broad supervision over the AMR Trust's affairs. AMR
is responsible for the management of the AMR Trust's assets, and the AMR Trust's
officers are responsible for its operations. 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 EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ------------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (51) Trustee and President President, AMR Investment Services, 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); American
AAdantage Mileage Funds (1995-Present).
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ------------- ----------------------------------------
<S> <C> <C>
Alan D. Feld (61) Trustee Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
1700 Pacific Avenue (1960-Present)#; Director, Clear Channel
Suite 4100 Communications (1984-Present); Director,
Dallas, Texas 75201 CenterPoint Properties, Inc. (1994-Present);
Trustee, American AAdvantage Funds (1996-Present);
American AAdvantage Mileage Funds (1996-Present).
Ben J. Fortson (66) Trustee President and CEO, Fortson Oil Company
301 Commerce Street (1958-Present); Director, Kimbell Art Foundation
Suite 3301 (1964-Present); Director, Burnett Foundation
Fort Worth, Texas 76102 (1987-Present); Honorary Trustee, Texas Christian
University (1986-Present); Trustee, American
AAdvantage Funds (1996-Present); American
AAdvantage Mileage Funds (1996-Present).
John S. Justin (82) 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, Moncrief Radiation Center (1985-Present);
Director, Texas New Mexico Enterprises
(1984-1993); Director, Texas New Mexico Power
Company (1979-1993); Trustee, American AAdvantage
Funds (1989-Present); American AAdvantage Mileage
Funds (1995-Present).
Stephen D. O'Sullivan (63)* Trustee Consultant (1994-Present); Vice President and
Controller (1985-1994), American Airlines, Inc.;
Trustee, American AAdvantage Funds (1987-Present);
American AAdvantage Mileage Funds (1995-Present).
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ------------- ----------------------------------------
<S> <C> <C>
Roger T. Staubach (57) Trustee Chairman of the Board and Chief Executive Officer
6750 LBJ Freeway of 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);
National Advisory Board, The Salvation Army;
Trustee, Institute for Aerobics Research; Member,
Executive Council, Daytop/Dallas; Member, National
Board of Governors, United Way of America; former
quarterback of the Dallas Cowboys professional
football team; Trustee, American AAdvantage Funds
(1995-Present); American AAdvantage Mileage Funds
(1995-Present).
Kneeland Youngblood (42) Trustee Managing Partner, Pharos Capital Group, LLC (a
100 Crescent Court private equity firm) (1998-Present); Trustee,
Suite 1740 Teachers Retirement System of Texas
Dallas, Texas 75201 (1993-Present); Director, United States Enrichment
Corporation (1993-1998), Director, Just For the
Kids (1995-Present); Director, Starwood Financial
Trust (1998-Present); Member, Council on Foreign
Relations (1995-Present); Trustee, American
AAdvantage Funds (1996-Present); American
AAdvantage Mileage Funds (1996-Present).
Nancy A. Eckl (36) Vice President Vice President, AMR Investment Services, Inc.
(1990-Present).
Michael W. Fields (45) Vice President Vice President, AMR Investment Services, Inc.
(1988-Present).
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ------------- ----------------------------------------
<S> <C> <C>
Barry Y. Greenberg (35) Vice President and Vice President, AMR Investment Services, Inc.
Assistant Secretary (1995-Present); Branch Chief (1992-1995) and Staff
Attorney (1988-1992), Securities and Exchange
Commission.
Rebecca L. Harris (32) Treasurer Vice President (1995-Present), Controller (1991-
1995), AMR Investment Services, Inc.
John B. Roberson (40) Vice President Vice President, AMR Investment Services, Inc.
(1991-Present).
Robert J. Zutz (46) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
1800 Massachusetts Ave. NW
Washington, D.C. 20036
</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 are deemed to be "interested persons" of the AMR
Trust as defined by the 1940 Act.
COMPENSATION - TRUSTEES OF AMR TRUST
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 flight
benefits. The AMR Trust compensates Mr. O'Sullivan up to $10,000 annually to
cover his personal flight service charges and the charges for his three adult
children, as well as any income tax charged on the value of these flight
benefits. 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, 1998.
54
<PAGE>
<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 $17,802 $ 0 $ 0 $35,605
Ben J. Fortson $17,519 $ 0 $ 0 $35,038
John S. Justin $ 809 $ 0 $ 0 $ 1,618
Stephen D. O'Sullivan $ 2,843 $ 0 $ 0 $ 5,686
Roger T. Staubach $ 8,711 $ 0 $ 0 $17,423
Kneeland Youngblood $39,782 $ 0 $ 0 $79,563
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 1, 1999, 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 Conseco Senior Health Insurance Company
Class A (formerly, American Travellers Life Insurance Co.) 10.08%
11815 North Pennsylvania St.
Carmel, Indiana 46032-4555
National Fidelity Life 5.05%
11815 North Pennsylvania St.
Carmel, Indiana 46032-4555
Philadelphia Life 5.05%
11815 North Pennsylvania St.
Carmel, Indiana 46032-4555
Capitol American Life Insurance Co. 47.10%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Merrill Lynch, Pierce, Fenner & Smith 17.59%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco Fixed Income Fund Merrill Lynch, Pierce, Fenner & Smith 90.09%
Class B 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco Fixed Income Fund Merrill Lynch, Pierce, Fenner & Smith 83.69%
Class C 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Legg Mason Wood Walker Inc. 12.30%
P.O. Box 1476
Baltimore, MD 21203-1476
Conseco High Yield Fund Conseco Life Insurance Company 6.00%
Class A 11815 North Pennsylvania St.
Carmel, IN 46032-4555
National Fidelity Life 63.62%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Merrill Lynch, Pierce, Fenner & Smith 17.33%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco High Yield Fund Merrill Lynch, Pierce, Fenner & Smith 76.77%
Class B 4800 Deer Lake Dr. East
Jacksonville, FL 32246-6486
Conseco High Yield Fund Merrill Lynch, Pierce, Fenner & Smith 84.75%
Class C 4800 Deer Lake Dr. East
Jacksonville, FL 32246-6486
Conseco Convertible Securities Fund Bankers Life and Casualty 99.93%
Class A 11815 North Pennsylvania St.
Carmel, IN 46032-4555
Conseco Convertible Securities Fund Conseco Capital Management, Inc. 17.04%
Class B 11825 North Pennsylvania St.
Carmel, IN 46032-4555
Merrill Lynch, Pierce, Fenner & Smith 80.36%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco Convertible Securities Fund Merrill Lynch, Pierce, Fenner & Smith 81.71%
Class C 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco Capital Management, Inc. 15.87%
11825 North Pennsylvania St.
Carmel, IN 46032-4555
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Conseco Balanced Fund American Travellers Life Insurance Co. 13.37%
Class A 11815 North Pennsylvania St.
Carmel, IN 46032-4555
Bankers Life and Casualty 6.68%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Philadelphia Life 6.68%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Charles Schwab & Co. Inc. 47.70%
101 Montgomery St.
San Francisco, CA 94104-4122
Conseco Balanced Fund Merrill Lynch, Pierce, Fenner & Smith 65.50%
Class B 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
State Street Bank & Trust Co. Cus. 5.30%
2575 S. Bayshore Drive #118
Miami, FL 33133-4745
Conseco Balanced Fund Merrill Lynch, Pierce, Fenner & Smith 56.42%
Class C 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Lucila G. Whisenant Cust. 5.87%
Kristina Kalle Whisenant
4511 Pinfish Ln.
Palmetto, FL 34221-5626
Mitchell M. Nunes 8.04%
8216 Mays Ave
Riverview, FL 33569-4428
State Street Bank & Trust Co. 7.78%
Cust. For the IRA of
R. Evelyn Golding
410 Dewolf Rd.
Brandon, FL 33511-6807
Conseco Equity Fund American Travellers Life Insurance Co. 14.41%
Class A 11815 North Pennsylvania St.
Carmel, IN 46032-4555
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Bankers Life and Casualty 7.24%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Philadelphia Life 7.24%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Charles Schwab & Co. Inc. 31.96%
101 Montgomery St.
San Francisco, CA 94104-4122
Conseco Equity Fund Merrill Lynch, Pierce, Fenner & Smith 71.29%
Class B 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco Equity Fund Merrill Lynch, Pierce, Fenner & Smith 86.60%
Class C 4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco International Fund Conseco Life Insurance Company 99.73%
Class A 11815 North Pennsylvania St.
Carmel, IN 46032-4555
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Conseco International Fund State Street Bank & Trust Co. 56.89%
Class B Cust. For the Rollover IRA of
Brian P. Sweeney
5136 Brennerton Drive
Portage, MI 49002-0561
Jeanne H. Walker 43.11%
Cust. Max E. Brooks III Utma-TX
1100 Van Horn Drive
College STA, TX 77845-6421
Conseco International Fund State Street Bank & Trust Co. 28.78%
Class C Cust. Roth Converted IRA 1998
FBO Regina A. Thompson
1807 Sun Valley Drive
Jefferson City, MO 65109-2038
State Street Bank & Trust Co. 28.78%
Cust. Roth Converted IRA 1998
FBO Paul V. Thompson
1807 Sun Valley Dr.
Jefferson City, MO 65109-2038
State Street Bank & Trust Co. 14.24%
Cust. Roth Converted IRA 1998
FBO Susan V. Nadolny
2080 NW 86th Ave
Sunrise, FL 33322-3818
State Street Bank & Trust Co. 28.19%
Cust. Roth Contribution IRA 1998
FBO Judith F. Clark
1939 NE 15th Ave.
Ft. Lauderdale, FL 33305-3222
Conseco 20 Fund Conseco Life Insurance Company 40.66%
Class A 11815 North Pennsylvania St.
Carmel, IN 46032-4555
Capitol American Life Insurance Co. 42.57%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith 5.37%
48000 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco 20 Fund Merrill Lynch, Pierce, Fenner & Smith 72.09%
Class B 48000 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco 20 Fund Merrill Lynch, Pierce, Fenner & Smith 69.96%
Class C 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.
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 Underwriting Agreement was approved
with respect to the Conseco Convertible Securities Fund on May 14, 1998. 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
60
<PAGE>
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 Balanced 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.
Following is information about the compensation received by the Distributor with
respect to each Fund for the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
==============================================================================================================
FUND AND CLASS COMPENSATION AMOUNT RETAINED BY AMOUNT REALLOWED BY
RECEIVED BY DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
==============================================================================================================
<S> <C> <C> <C>
Conseco Fixed Income
Class A $ 37,877 $ 4,140 $ 33,747
Class B 160,726 0 160,726
Class C 0 0 0
- --------------------------------------------------------------------------------------------------------------
Conseco High Yield
Class A 199,926 29,862 170,064
Class B 678,167 0 678,167
Class C 59,575 0 59,575
- --------------------------------------------------------------------------------------------------------------
Conseco Convertible
Securities* 0 0 0
Class A 0 0 0
Class B 57 0 57
Class C
- --------------------------------------------------------------------------------------------------------------
Conseco Balanced
Class A 24,595 3,544 21,051
Class B 67,034 0 67,034
Class C 9,685 0 9,685
- --------------------------------------------------------------------------------------------------------------
Conseco Equity
Class A 21,660 2,785 18,875
Class B 68,290 0 68,290
Class C 7,275 0 7,275
==============================================================================================================
FUND AND CLASS COMPENSATION AMOUNT RETAINED BY AMOUNT REALLOWED BY
RECEIVED BY DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
==============================================================================================================
Conseco International
(FISCAL YEAR ENDED
10/31/98)
Class A 1,302 171.45 1,131
Class B 111 0 111
Class C 15 0 15
- --------------------------------------------------------------------------------------------------------------
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
FUND AND CLASS COMPENSATION AMOUNT RETAINED BY AMOUNT REALLOWED BY
RECEIVED BY DISTRIBUTOR DISTRIBUTOR DISTRIBUTOR
==============================================================================================================
<S> <C> <C> <C>
Conseco 20
Class A 160,829 23,116 137,713
Class B 338,900 0 338,900
Class C 28,359 0 28,359
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* The Conseco Convertible Securities Fund commenced operations on September 28,
1998. The information with respect to that Fund is shown for the period
beginning September 28, 1998.
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 Balanced Fund
and Conseco Fixed Income Fund, and dated December 31, 1997 with respect to each
other class of Fund shares (and approved with respect to the Conseco Convertible
Securities Fund on May 14, 1998) (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
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 contractual arrangement 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 Balanced Fund and the Conseco
Fixed Income Fund were $9,508, $2,149 and $1,984, respectively.
For the fiscal year ended December 31, 1998, the 12b-1 fees attributable to each
class of shares is as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Conseco Fixed Income $111,004 $ 6,784 $ 1,484
- ------------------------------------------------------------------------------------------------------------------
Conseco High Yield 79,032 36,435 10,411
- ------------------------------------------------------------------------------------------------------------------
Conseco Convertible 32,632 3 3
Securities*
- ------------------------------------------------------------------------------------------------------------------
Conseco Balanced 78,752 3,716 6,355
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FUND CLASS A CLASS B CLASS C
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Conseco Equity 85,658 6,090 1,706
- ------------------------------------------------------------------------------------------------------------------
Conseco International
(FISCAL YEAR ENDED
10/31/98) 44,417 8
16
- ------------------------------------------------------------------------------------------------------------------
Conseco 20 99,488 26,070 12,542
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
PURCHASE, REDEMPTION AND PRICING OF SHARES
SHARE PRICES AND NET ASSET VALUE
Each Fund's shares are bought or sold at a price that is the Fund's net asset
value (NAV) per share. The NAV per share is determined for each class of shares
for each Fund as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern Time) on each business day by dividing the value of
the Fund's net assets attributable to a class (the class's pro rata share of the
value of the Fund's assets minus the class's pro rata share of the value of the
Fund's liabilities) by the number of shares of that class outstanding.
63
<PAGE>
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
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.
REDUCTIONS AND WAIVERS OF SALES CHARGES
REDUCTION OF CLASS A SALES CHARGE
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
64
<PAGE>
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
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.
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:
65
<PAGE>
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;
o by an omnibus account established by a sponsor for tax-qualified employee
benefit plans where the sponsor provides recordkeeping services for the
plans, and has entered into an agreement with the Distributor in connection
with such account;
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;
66
<PAGE>
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.
WAIVERS OF 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 redemptions from an omnibus account established by a sponsor for
tax-qualified employee benefit plans where the sponsor provides
recordkeeping services for the plans, and has entered into an agreement
with the Distributor in connection with such account;
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;
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);
67
<PAGE>
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.
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.
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.
INFORMATION ON CAPITALIZATION AND OTHER MATTERS
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.
68
<PAGE>
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.
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.
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
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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.
THE INTERNATIONAL PORTFOLIO
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.
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 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.
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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 should be classified as a separate partnership for federal income
tax purposes and is not a "publicly traded partnership." As a result, the
Portfolio is or should not be 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
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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. 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 --
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
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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 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
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.
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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. These rules may operate to increase the amount that a Fund
must distribute to satisfy the Distribution Requirement, which will be taxable
to the shareholders as ordinary income, and to increase the net capital gain
recognized by the Fund, without in either case increasing the case available to
the Fund. A Fund may elect to exclude certain transactions from the operation of
section 1256, although doing so may have the effect of increasing the relative
proportion of net short-term capital gain (taxable as ordinary income) and/or
increasing the amount of dividends that must be distributed to meet the
Distribution Requirement and avoid imposition of the Excise Tax. 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
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similar property will be deemed a constructive sale. The foregoing will not
apply, however, to any transaction during any taxable year that otherwise would
be treated as a constructive sale if the transaction is closed within 30 days
after the end of that year and the Fund holds the appreciated financial position
unhedged for 60 days after that closing (i.e., at no time during that 60-day
period is the Fund's risk of loss regarding that position reduced by reason of
certain specified transactions with respect to substantially similar or related
property, such as having an option to sell, being contractually obligated to
sell, making a short sale, or granting an option to buy substantially identical
stock or securities).
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..
FINANCIAL STATEMENTS
Audited financial statements for the Conseco Fixed Income Fund, Conseco High
Yield Fund, Conseco Convertible Securities Fund, Conseco Balanced Fund, Conseco
Equity Fund, and Conseco 20 Fund the for the fiscal year ended December 31, 1998
are incorporated by reference from the Trust's annual report to shareholders.
Audited financial statements for the Conseco International Fund for the fiscal
year ended October 31, 1998 are incorporated by reference from the Fund's annual
report to shareholders. Audited financial statements for the AMR Investment
Services Trust International Equity Portfolio for the fiscal year ended October
31, 1998 are included in the Conseco International Fund's annual report to
shareholders.
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APPENDIX A SECURITIES RATINGS
DESCRIPTION OF CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.'S CORPORATE BOND RATINGS:
Aaa - Bonds which are rated Aaa by Moody's Investors Service, Inc. ("Moody's")
are judged to be the best quality and carry the smallest degree of investment
risk. Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
period of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds. Such issues can
be regarded as having extremely poor prospects of ever attaining any real
investment standing.
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STANDARD & POOR'S CORPORATE BOND RATINGS:
AAA - This is the highest rating assigned by Standard & Poor's ("S&P") to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
BB/B/CCC/CC - Bonds rated BB, B, CCC, and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation.+ BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposure to adverse conditions.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in default, and payment of interest and/or repayment of
principal is in arrears.
Plus (+) or Minus (-): The ratings from AA to B may be modified by the addition
of a plus or minus sign to show relative standing within the major rating
categories.
PREFERRED STOCK RATINGS:
Both Moody's and S&P use the same designations for corporate bonds as they do
for preferred stock, except that in the case of Moody's preferred stock ratings,
the initial letter rating is not capitalized. While the descriptions are
tailored for preferred stocks and relative quality, distinctions are comparable
to those described above for corporate bonds.
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STATEMENT OF ADDITIONAL INFORMATION
CONSECO FUND GROUP
CONSECO FIXED INCOME FUND CONSECO BALANCED FUND
CONSECO HIGH YIELD FUND CONSECO EQUITY FUND
CONSECO CONVERTIBLE SECURITIES FUND CONSECO INTERNATIONAL FUND
CONSECO 20 FUND
CLASS Y SHARES
MARCH 12, 1999
This Statement of Additional Information ("SAI") is not a prospectus. It
contains additional information about the Conseco Fund Group (the "Trust") and
the seven series of the Trust: Conseco Fixed Income Fund, Conseco High Yield
Fund, Conseco Convertible Securities Fund, Conseco Balanced 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 March 12, 1999. You may obtain a
copy by contacting the Trust's Administrative Office, 11815 N. Pennsylvania
Street, Carmel, Indiana 46032 or by phoning 800-986-3384.
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TABLE OF CONTENTS
GENERAL INFORMATION.........................................................3
INVESTMENT RESTRICTIONS.....................................................3
INVESTMENT STRATEGIES.......................................................9
TEMPORARY DEFENSIVE POSTIONS...............................................13
PORTFOLIO TURNOVER.........................................................13
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES........................14
ADDITIONAL INFORMATION ABOUT THE MASTER-FEEDER STRUCTURE...................36
INVESTMENT PERFORMANCE.....................................................37
SECURITIES TRANSACTIONS....................................................40
MANAGEMENT.................................................................44
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES........................54
FUND EXPENSES..............................................................55
DISTRIBUTION ARRANGEMENTS..................................................56
PURCHASE, REDEMPTION AND PRICING OF SHARES.................................56
INFORMATION ON CAPITALIZATION AND OTHER MATTERS............................58
TAXES......................................................................59
FINANCIAL STATEMENTS.......................................................64
APPENDIX A SECURITIES RATINGS..............................................65
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GENERAL INFORMATION
The Trust was organized as a Massachusetts business trust on September 24, 1996.
The Trust is an open-end management investment company registered
with the Securities and Exchange Commission ("SEC") under the Investment Company
Act of 1940 (the "1940 Act"). The Trust is a "series" type of mutual fund which
issues seven 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 (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.
Prior to August 4, 1998, the Conseco Balanced Fund was known as the Conseco
Asset Allocation 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.
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.
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CONSECO EQUITY, CONSECO BALANCED AND CONSECO FIXED INCOME FUNDS
The Conseco Equity, Conseco Balanced 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 rate
futures contracts, stock index futures, futures contracts based on other
financial instruments, and options on such futures contracts; and (b)
Conseco Balanced 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;
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11. Make loans of its assets, except the Funds may enter into repurchase
agreements and lend portfolio securities in an amount not to exceed 15% of
the value of a Fund's total assets. Any loans of portfolio securities will
be made according to guidelines established by the SEC and the Board of
Trustees; or
12. Issue any senior security (as such term is defined in Section 18(f) of the
1940 Act), except as permitted herein and in Investment Restriction Nos. 1,
2 and 3. Obligations under interest rate swaps will not be treated as
senior securities for purposes of this restriction so long as they are
covered in accordance with applicable regulatory requirements. Other good
faith hedging transactions and similar investment strategies will also not
be treated as senior securities for purposes of this restriction so long as
they are covered in accordance with applicable regulatory requirements and
are structured consistent with current SEC interpretations.
CONSECO HIGH YIELD, CONSECO CONVERTIBLE SECURITIES AND CONSECO 20 FUNDS
The Conseco High Yield, Conseco Convertible Securities and Conseco 20 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 and the Conseco Convertible
Securities Fund's total assets, purchase the securities of any issuer if
(a) more than 5% of Fund's total assets would be invested in the securities
of that issuer or (b) the Fund would own more than 10% of the outstanding
voting securities of that issuer; this restriction does not apply to U.S.
Government securities (as defined in the Prospectus);
5. Purchase any security if thereafter 25% or more of the total assets of the
Fund would be invested in securities of issuers having their principal
business activities in the same industry; this restriction does not apply
to U.S. Government securities (as defined in the Prospectus);
6. Purchase or sell real estate, except that a Fund may purchase securities
which are issued by companies which invest in real estate or which are
secured by real estate or interests therein;
7. Make loans of its assets if, as a result, more than 33-1/3% of the Fund's
total assets would be lent to other parties except through (a) entering
into repurchase agreements and (b) purchasing debt instruments; or
8. Issue any senior security, except as permitted under the 1940 Act.
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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
nine 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;
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;
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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.)
8. Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of the
Portfolio's total assets; or
9. Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry, provided that: (i) this limitation
does not apply to obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities; (ii) municipalities and their agencies
and authorities are not deemed to be industries; and (iii) financial
service companies as a group are not considered a single industry for
purposes of this policy. Wholly-owned finance companies will be considered
to be in the industries of their parent companies if their activities are
primarily related to financing the activities of their parent companies.
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 and Conseco Fixed Income Funds and may be changed by the Trust's
Board of Trustees ("Board") without shareholder approval.
The CONSECO EQUITY 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 below investment grade security if as a result more than 35%
of the Fund's assets would be invested in below investment grade
securities.
The following restrictions are designated as non-fundamental with respect to the
Conseco Balanced Fund and may be changed by the Board without shareholder
approval.
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The CONSECO BALANCED FUND may not:
1. With respect to in excess of 15% of the Fund's assets, sell securities
short, except that the Fund may, without limit, make short sales against
the box.
2. Purchase any below investment grade security if as a result more than 35%
of the Fund's assets would be invested in below investment grade
securities.
3. Invest less than 25% of the Fund's assets in debt securities.
The following restrictions are designated as nonfundamental with respect to the
Conseco High Yield, Conseco Convertible Securities and Conseco 20 Funds and may
be changed by the Board without shareholder approval.
The CONSECO HIGH YIELD, CONSECO CONVERTIBLE SECURITIES and CONSECO 20 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. Invest more than 15% of its net assets in illiquid securities, including
time deposits and repurchase agreements that mature in more than seven
days; or
2. Purchase securities on margin, effect short sales (except that the
Portfolio may obtain such short term credits as may be necessary for the
clearance of purchases or sales of securities) or purchase or sell call
options or engage in the writing of such options.
3. Invest more than 10% of its total assets in the securities of other
investment companies. The Portfolio may incur duplicate advisory fees or
management fees when investing in another mutual fund.
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.
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INVESTMENT STRATEGIES
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO FIXED INCOME
FUND may:
o Invest in debt securities which the Adviser believes 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.
o 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" below for further information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO HIGH YIELD
FUND may:
o Invest in below investment grade securities which 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 Investors Service, Inc. ("Moody's") or D by Standard &
Poor's ("S&P"), securities comparably rated by another national statistical
rating organization ("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.
o 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, 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, including municipal securities.
o Invest in zero coupon securities and payment-in-kind securities.
o 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.
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o Invest in private placements, securities traded pursuant to Rule 144A under
the 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.
o 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" below for further information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO CONVERTIBLE
SECURITIES FUND may:
o Invest in securities rated as low as CCC/Caa. See "Description of
Securities and Investment Techniques" below. The Appendix to this SAI
describes Moody's and S&P's rating categories.
o Invest in zero coupon securities and payment-in-kind securities.
o As a non-fundamental policy, 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. Investments in foreign securities may involve risks in
addition to those of U.S. investments. See "Foreign Securities" below for
further information.
o Invest in private placements, securities traded pursuant to Rule 144A under
the 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.
o Use 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 call and put options and purchasing options; purchasing and
selling, for hedging purposes, interest rate and other futures contracts,
and purchasing and writing options on such futures contracts; entering into
foreign currency futures contracts, forward contracts and options on
foreign currencies; borrowing from banks to purchase securities; investing
in securities of other investment companies; entering into repurchase
agreements, reverse repurchase agreements and dollar rolls; investing in
when-issued or delayed delivery securities; selling securities short, and
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entering into swaps and other interest rate transactions. See "Description
of Securities and Investment Techniques" below for further information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO BALANCED FUND
may:
o 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. As
a non-fundamental policy, the Fund maintains at least 25% of the value of
its assets in debt securities.
o 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, if the Adviser believes that inflationary or monetary
conditions warrant a significant investment in companies involved in
precious metals.
o Invest in high yield, high risk below investment grade securities which are
not believed to involve undue risk to income or principal. The Conseco
Balanced Fund does not intend to invest more than 25% of its total assets
(measured at the time of investment) in below investment grade 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 below investment grade securities, see "Description of Securities and
Investment Techniques" below. The Fund may also invest in investment grade
debt securities.
o Invest in zero coupon securities and payment-in-kind securities.
o 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 Fund
will not invest more than 50% of its total assets (measured at the time of
investment) in foreign securities. See "Description of Securities and
Investment Techniques" below for further information.
o 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" below for further information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO EQUITY FUND
may:
o Use 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
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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" below further information.
o Invest up to 5% of its assets in below investment grade securities. The
Fund will not invest in rated fixed income securities which are rated below
CCC/Caa. See "Appendix A" to this SAI for further discussion regarding
securities ratings. For information about the risks associated with below
investment grade securities, see "Description of Securities and Investment
Techniques" below.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO INTERNATIONAL
FUND may:
o Invest up to 20% of total assets in debt securities that are investment
grade at the time of purchase, including obligations of the U.S.
Government, its agencies and instrumentalities, corporate debt securities,
mortgage-backed securities, asset-backed securities, master-demand notes,
Yankeedollar and Eurodollar bank certificates of deposit, time deposits,
bankers' acceptances, commercial paper and other notes, and other debt
securities. Investment grade securities include securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities, as
well as securities rated in one of the four highest rating categories by
all rating organizations rating that security (such as S & P or Moody's).
Obligations rated in the fourth highest rating category are limited to 25%
of each of the Fund's debt allocations. The Fund may invest up to 20% of
its total assets in non-U.S. debt securities that are rated at the time of
purchase in one of the three highest rating categories by any rating
organization or, if unrated, are deemed to be of comparable quality by the
applicable investment adviser and traded publicly on a world market. The
Fund, at the discretion of the investment advisers, may retain a debt
security that has been downgraded below the initial investment criteria.
o Engage in dollar rolls or purchase or sell securities on a when-issued or
forward commitment basis.
o Invest in other investment companies to the extent permitted by the 1940
Act or exemptive relief granted by the SEC.
o Loan securities to broker-dealers or other institutional investors.
o Enter into repurchase agreements.
o Purchase securities in private placement offerings 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.
See "Description of Securities and Investment Techniques" below for more
information.
In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO 20 FUND may:
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o Invest 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 below investment grade securities.
o 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.
o Use 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" below for further
information.
TEMPORARY DEFENSIVE POSTIONS
When unusual market or other conditions warrant, a Fund may temporarily depart
from its investment objective. In assuming a temporary defensive position, each
Fund may make investments as follow:
Conseco High Yield Fund may invest in money market instruments without limit.
Conseco Balanced Fund may invest in money market instruments without limit.
Conseco Equity Fund may invest in money market instruments without limit.
The International Portfolio may invest in cash or cash equivalent short-term
investment grade obligations, including: obligations of the U.S. Government, its
agencies and instrumentalities; corporate debt securities, such as commercial
paper, master demand notes, loan participation interests, medium-term notes and
funding agreements; Yankeedollar and Eurodollar bank certificates of deposit,
time deposits, and banker's acceptances; asset-backed securities; and repurchase
agreements involving the foregoing obligations.
Conseco 20 Fund may invest without limit in short-term debt securities and cash
and money market instruments.
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. Because the Adviser's active management style, our Funds
generally have a higher portfolio turnover than other funds and therefore, may
have higher taxable distributions and increased trading costs which may impact
performance. The following is a list of the Funds' portfolio turnover rates for
the fiscal year ended December 31, 1997 and 1998:
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YEAR ENDED
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FUND NAME: 1997 1998
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Conseco Fixed Income Fund 367.82% 420.83%
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Conseco High Yield Fund* n/a 432.08%
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Conseco Convertible Securities Fund* n/a 12.95%
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Conseco Balanced Fund 506.64% 341.20%
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Conseco Equity Fund 199.12% 350.13%
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Conseco International Fund 15% 24%
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Conseco 20 Fund* n/a 411.71%
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* Because these Funds' inception dates were in 1998, there is no portfolio
turnover rate for 1997.
Turnover rates in excess of 100% generally result in higher transaction costs
and a possible increase in realized short-term capital gains or losses.
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES
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 below.
The investment objectives of the Funds are not fundamental; the investment
objective of the International Portfolio is fundamental. Except as otherwise
noted, all investment policies and practices described in this 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.
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.
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 Convertible Securities,
Conseco Balanced and Conseco Equity Funds 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
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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
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.
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.
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, 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.
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<PAGE>
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.
BELOW INVESTMENT GRADE SECURITIES
IN GENERAL. The Funds (except the Conseco International Fund and
Portfolio) may invest in below investment grade securities. Below investment
grade securities (also referred to as "high yield securities") are securities
rated BB+ or lower by S&P or Ba1 or lower by Moody's, securities comparably
rated by another NRSRO, or unrated securities of equivalent quality. Below
investment grade securities are deemed by the rating agencies to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. Below investment grade 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.
Below investment grade 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. Below investment grade
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.
Subsequent to purchase by a Fund (except the Conseco International Fund or the
Conseco High Yield 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
and this SAI.
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 below investment
grade 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. Below investment grade 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 below investment grade
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
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<PAGE>
generally result in increased volatility in the market prices of these
securities and thus in a Fund's net asset value.
PAYMENT EXPECTATIONS. Below investment grade 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 below investment grade 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. Below investment grade 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
below investment grade securities, especially in a thinly traded market.
Because of the many risks involved in investing in below investment grade
securities, the success of such investments is dependent upon the credit
analysis of the Adviser. Although the market for below investment grade
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. 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
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
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<PAGE>
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.
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.
MORTGAGE-BACKED SECURITIES
The Funds (except the Conseco International Fund and 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
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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
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
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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.
ZERO COUPON BONDS
The Conseco High Yield, Conseco Convertible Securities, Conseco Balanced and
Conseco 20 Funds may invest in zero coupon securities. Zero coupon bonds are
debt obligations which make no fixed interest payments but instead are issued at
a significant discount from face value. Like other debt securities, the market
price can reflect a premium or discount, in addition to the original issue
discount, reflecting the market's judgment as to the issuer's creditworthiness,
the interest rate or other similar factors. The original issue discount
approximates the total amount of interest the bonds will accrue and compound
over the period until maturity (or the first interest payment date) at a rate of
interest reflecting the market rate at the time of issuance. Because zero coupon
bonds do not make periodic interest payments, their prices can be very volatile
when market interest rates change.
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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, Conseco Convertible Securities and Conseco Balanced
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.
TRUST ORIGINATED PREFERRED SECURITIES
The Conseco High Yield and Conseco Convertible Securities Funds may 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 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 a 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 and Conseco Convertible Securities Funds may invest in
loan participations or assignments. In purchasing a loan participation or
assignment, a Fund acquires some or all of the interest of a bank or other
lending institution in a loan to a corporate borrower. Both the lending bank and
the borrower may be deemed to be "issuers" of a loan participation. 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 a Fund will be exposed to a risk of loss if the borrower defaults.
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. Loan
participations may also be purchased by a Fund when the borrowing company is
already in default. Borrowers that are in bankruptcy may pay only a small
portion of the
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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. In purchasing a loan
participation, a Fund may have less protection under the federal securities laws
than it has in purchasing traditional types of securities. 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. A
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 a Fund will be illiquid and therefore subject to the
Fund's limit on illiquid investments.
EURODOLLAR AND YANKEEDOLLAR OBLIGATIONS
Eurodollar obligations are U.S. dollar obligations issued outside the United
States by domestic or foreign entities, while Yankeedollar obligations are U.S.
dollar obligations issued inside the United States by foreign entities. There is
generally less publicly available information about foreign issuers and there
may be less governmental regulation and supervision of foreign stock exchanges,
brokers and listed companies. Foreign issuers may use different accounting and
financial standards, and the addition of foreign governmental restrictions may
affect adversely the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements.
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
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
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rates, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions on foreign investments or repatriation of
capital. In addition, with respect to certain countries, there is the
possibility of nationalization or expropriation of assets; confiscatory
taxation; political, social or financial instability; and war or other
diplomatic developments that could adversely affect investments in those
countries. Since a Fund may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the value of securities held by the Fund and the unrealized
appreciation or depreciation of investments so far as U.S. investors are
concerned. A Fund generally will incur costs in connection with conversion
between various currencies.
There may be less publicly available information about a foreign company than
about a U.S. company, and foreign companies may not be subject to accounting,
auditing, and financial reporting standards and requirements comparable to or as
uniform as those to which U.S. companies are subject. Foreign securities
markets, while growing in volume, have, for the most part, substantially less
volume than U.S. markets. Securities of many foreign companies are less liquid
and their prices more volatile than securities of comparable U.S. companies.
Transaction costs, custodial fees and management costs in non-U.S. securities
markets are generally higher than in U.S. securities markets. There is generally
less government supervision and regulation of exchanges, brokers, and issuers
than there is in the United States. A Fund might have greater difficulty taking
appropriate legal action with respect to foreign investments in non-U.S. courts
than with respect to domestic issuers in U.S. courts. In addition, transactions
in foreign securities may involve 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
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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.
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. A
sale of a when-issued security also involves the risk that the other party will
be unable to settle the transaction. Dollar rolls are a type of forward
commitment transaction. 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
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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.
DOLLAR ROLLS (CONSECO INTERNATIONAL FUND)
Purchases and sales of securities on a forward commitment basis involve a
commitment to purchase or sell securities with payment and delivery to take
place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. Forward commitment transactions are executed for
existing obligations, whereas in a when-issued transaction, the obligations have
not yet been issued. When purchasing securities on a when-issued or forward
commitment basis, a segregated account of liquid assets at least equal to the
value of purchase commitments for such securities will be maintained until the
settlement date
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;
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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.
COMMERCIAL PAPER
Commercial paper refers to promissory notes representing an unsecured debt of a
corporation or finance company with a fixed maturity of no more than 270 days. A
variable amount master demand note (which is a type of commercial paper)
represents a direct borrowing arrangement involving periodically fluctuating
rates of interest under a letter agreement between a commercial paper issuer and
an institutional lender pursuant to which the lender may determine to invest
varying amounts.
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.
However, to minimize this 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.
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
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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
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
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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 tenth 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.
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.
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.
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STOCK INDEX FUTURES CONTRACTS (CONSECO CONVERTIBLE SECURITIES, CONSECO
BALANCED, CONSECO EQUITY 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:
I. 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 commissions;
II. 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
III. 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 Balanced 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
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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. Each of the Funds may purchase options on
futures contracts. Conseco Convertible Securities Fund may also write options on
such contracts. When a Fund purchases a futures option, it acquires 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
would remain obligated to meet margin requirements and continue to incur losses
until the position is closed.
To the extent that a Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a CFTC-regulated exchange,
in each case that is not for BONA FIDE hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums
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required to establish these positions (excluding the amount by which options are
"in-the-money" at the time of purchase) may not exceed 5% of the liquidation
value of the Fund's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts the Fund has entered into.
OPTIONS ON SECURITIES AND SECURITIES INDICES
The Funds (except the Conseco International Fund and Portfolio) 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 Conseco Convertible Securities Fund also may write call and put
options, and each of the other Funds may 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 CALL AND 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 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 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 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 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.
The Funds (except Conseco Convertible Securities 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
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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. The Conseco Convertible Securities Fund may write call and put
options that are not "covered" or "secured."
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. The purchase of such
options may not enable a Fund to hedge effectively against stock market risk if
they are not highly correlated with the value of its securities. Moreover, the
ability to hedge effectively depends upon the ability to predict movements in
the stock market, which cannot be done accurately in all cases.
RISKS OF OPTIONS TRANSACTIONS. The purchase and writing of options
involves certain risks. During the option period, the covered call writer has,
in return for the premium on the option, given up the opportunity to profit from
a price increase in the underlying securities above the exercise price, and, as
long as its obligation as a writer continues, has retained the risk of loss if
the price of the underlying security declines. The writer of an option has no
control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it
cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver or purchase the underlying
securities at the exercise price. If a put or call option purchased by a Fund is
not sold when it has remaining value, and if the market price of the underlying
security, in the case of a put, remains equal to or greater than the exercise
price or, in the case of a call, remains less than or equal to the exercise
price, the Fund will lose its entire investment in the option. Also, where a put
or call option on a particular security is purchased to hedge against price
movements in a related security, the price of the put or call option may move
more or less than the price of the related security.
There can be no assurance that a liquid market will exist when a Fund seeks to
close out an option position. If a Fund cannot effect a closing transaction, it
will not be able to sell the underlying security or securities in a segregated
account while the previously written option remains outstanding, even though it
might otherwise be advantageous to do so. Possible reasons for the absence of a
liquid secondary market on a national securities exchange could include:
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.
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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 (ALL FUNDS EXCEPT CONSECO FIXED INCOME AND CONSECO
EQUITY 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 and the Conseco Convertible Securities
Fund, a Fund will not (1) commit more than 15 percent of its total assets
computed at market value at the time of commitment to foreign currency futures
or forward currency contracts, or (2) enter into a foreign currency contract
with a term of greater than one year. The Conseco Convertible Securities Fund
will not commit more than 15 percent of its total assets computed at market
value at the time of commitment to foreign currency futures or forward currency
contracts, but it may 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 HIGH YIELD, CONSECO CONVERTIBLE
SECURITIES, CONSECO BALANCED AND CONSECO 20 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
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another currency) in relation to a foreign currency in which portfolio
securities of the Fund may be denominated. A call option on a foreign currency
gives the purchaser the right to buy, and a put option the right to sell, a
certain amount of foreign currency at a specified price during a fixed period of
time. A Fund may enter into closing sale transactions with respect to such
options, exercise them, or permit them to expire.
A Fund may employ hedging strategies with options on currencies before the Fund
purchases a foreign security denominated in the hedged currency, during the
period the Fund holds a foreign security, or between the day a foreign security
is purchased or sold and the date on which payment therefor is made or received.
Hedging against a change in the value of a foreign currency in the foregoing
manner does not eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. Furthermore, such
hedging transactions reduce or preclude the opportunity for gain if the value of
the hedged currency increases relative to the U.S. dollar. The Funds will
purchase options on foreign currencies only for hedging purposes and will not
speculate in options on foreign currencies. The Funds may invest in options on
foreign currency which are either listed on a domestic securities exchange or
traded on a recognized foreign exchange.
An option position on a foreign currency may be closed out only on an exchange
which provides a secondary market for an option of the same series. Although the
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.
SEGREGATION AND COVER FOR OPTIONS, FUTURES AND OTHER FINANCIAL INSTRUMENTS
The use of the financial instruments discussed above, I.E., interest rate
transactions (including swaps, caps, floors and collars), futures contracts,
options on future contacts, options on securities and securities indices, and
forward contracts (collectively, "Financial Instruments"), may be subject to
applicable regulations of the SEC, the several exchanges upon which they are
traded, and/or the Commodity Futures Trading Commission ("CFTC").
Each Fund is required to maintain assets as "cover," maintain segregated
accounts or make margin payments when it takes positions in Financial
Instruments involving obligations to third parties (I.E., Financial Instruments
other than purchased options). No Fund will enter into such transactions unless
it owns either (1) an offsetting ("covered") position in securities, currencies
or other options, futures contracts or forward contracts, or (2) cash and liquid
assets with a value, marked-to-market daily, sufficient to cover its potential
obligations to the extent not covered as provided in (1) above. Each Fund will
comply with SEC guidelines regarding cover for these instruments and will, if
the guidelines so require, set aside cash or liquid assets in a segregated
account with its custodian in the prescribed amount as determined daily.
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 High Yield, Conseco Convertible Securities, Conseco
International and Conseco 20 Funds will not make such loans if, as a result, the
aggregate amount of all
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outstanding securities loans would exceed 33 1/3% of the Fund's total assets. As
a fundamental policy of the Conseco Fixed Income, Conseco Equity, and the
Conseco Balanced Funds, 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
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.
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 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. 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.
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 generally 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
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be less expensive and more expedient for the Fund to invest in a foreign
investment company in a country which permits direct foreign investment.
Investment companies in which the Funds may invest charge advisory and
administrative fees and may also assess a sales load and/or distribution fees.
Therefore, investors in a Fund that invests in other investment companies would
indirectly bear costs associated with those investments as well as the costs
associated with investing in the Fund. The percentage limitations described
above significantly limit the costs a Fund may incur in connection with such
investments.
SHORT SALES (ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND)
The Funds (except Conseco International Fund and Portfolio) may effect short
sales. 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.
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 nine 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.
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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 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" below.
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.
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Based on the 30-day period ended December 31, 1998, the average yield for Class
Y of the Conseco High Yield Fund was 8.85%.
Based on the 30-day period ended December 31, 1998, the average yield for Class
Y of the Conseco Fixed Income Fund was 5.36%.
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:
P (1+T)n=ERV
Where:
P = a hypothetical initial payment of $1,000.
T = the average annual total return.
n = the number of years.
ERV = the ending redeemable value at the end of the stated period of a
hypothetical $1,000 payment made at the beginning of the stated period.
The cumulative total return will be based upon a stated period and will be
computed by dividing the ending redeemable value of a hypothetical investment by
the value of the initial investment (assuming reinvestment of all
distributions).
Each investment performance figure will be carried to the nearest hundredth of
one percent.
ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31,1998
================================================================================
FUND ONE YEAR PERIOD FROM INCEPTION
================================================================================
Conseco Fixed Income 8.32% 18.27%
- --------------------------------------------------------------------------------
Conseco High Yield N/A 1.36%
- --------------------------------------------------------------------------------
Conseco Convertible Securities* N/A N/A
- --------------------------------------------------------------------------------
Conseco Balanced 12.90% 33.07%
- --------------------------------------------------------------------------------
Conseco Equity 16.82% 44.28%
- --------------------------------------------------------------------------------
Conseco International** N/A 9.80%
- --------------------------------------------------------------------------------
Conseco 20 N/A 2.84%
- --------------------------------------------------------------------------------
* Because the Fund is new it does not have performance to report.
** Because there have been no sales of Class Y shares as of 12/31/98, Class A
performance is presented here. Class A shares are not offered in this SAI.
Class Y shares would have substantially similar annual returns because the
shares are invested in he same portfolio of securities as Class A and would
differ only to the extent that Class Y shares have lower expenses than Class A
shares.
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
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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.
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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.
The Merrill Lynch Convertible Securities Index is a market capitalization
weighted index of over 450 non-mandatory domestic corporate convertible
securities, representing approximately 95% of the total outstanding market value
of U.S. convertible securities. To be included in the index, bonds and preferred
stocks must be convertible only to common stock and have a market value or
original par value of at least $500 million.
The Boston Convertible Securities Index is a market capitalization weighted
index of over 250 convertible bonds and preferred stocks rated B- or above. To
be included in the index, convertible bonds must have an original par value of
at least $50 million and preferred stocks must have a minimum of 500,000 shares
outstanding. The index also includes U.S. dollar-denominated Eurobonds that have
been issued by U.S. domiciled companies, are rated B- or above, and have an
original par value of at least $100 million.
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.
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SECURITIES TRANSACTIONS
ALL FUNDS EXCEPT CONSECO INTERNATIONAL FUND
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.
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.
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
41
<PAGE>
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 years ended December 31, 1997 and 1998, the following brokerage
commissions were paid by the Funds:
FUND 1997 1998
- ---- ---- ----
Conseco Fixed Income $ 0 $ 0
Conseco High Yield* N/A $ 0
Conseco Convertible Securities+ N/A $ 8,567
Conseco Balanced $ 37,658 $107,448
Conseco Equity $215,359 $624,839
Conseco 20* N/A $255,305
* The Conseco High Yield and Conseco 20 Funds commenced operations on January 1,
1998.
+ The Conseco Convertible Securities Fund commenced operations on
September 28, 1998. The amount listed is for the fiscal period beginning
September 28, 1998.
During the fiscal year ended December 31, 1997 and December 31, 1998, no Fund
paid commissions to any affiliated brokers.
During the fiscal year ended December 31, 1998, the Fixed Income, Balanced and
Convertible Securities Funds acquired the securities of its "regular brokers or
dealers" (as defined in the 1940 Act) ("Regular B/Ds") as follows: Lehman
Brothers Holdings, Inc., Paine Webber Group, Salomon, Smith Barney, Inc., J.P.
Morgan Securities, and Merrill Lynch.
Additionally, at December 31, 1998, the following Funds held the securities of
its Regular B/Ds with an aggregate value as follows:
Conseco Fixed Income:
Lehman Brothers Holdings, Inc. $1,297,098
Paine Webber Group $215,576
Salomon, Smith Barney Inc. $102,455
J.P. Morgan Securities $426,234
Conseco Balanced:
Lehman Brothers Holdings, Inc. $629,177
Conseco Convertible Securities:
Merrill Lynch $1,142,500
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 will place its
own orders to execute securities transactions which are designed to implement
the Portfolio's investment objective and policies. 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 will be considered when making these determinations. Pursuant
to written guidelines approved by the AMR Trust Board, as appropriate, an
investment adviser of the Portfolio, or its affiliated broker-dealer, may
execute portfolio
42
<PAGE>
transactions and receive usual and customary brokerage commissions (within the
meaning of Rule 17e-1 of the 1940 Act) for doing so. The Portfolio's turnover
rate, or the frequency of portfolio transactions, will vary from year to year
depending on market conditions and the Portfolio's cash flows. High portfolio
activity increases the Portfolio's transaction costs, including brokerage
commissions, and may result in a greater number of taxable transactions.
In executing portfolio transactions and 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, 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 a 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 a 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, 1996, 1997 and 1998, the following
brokerage commissions were paid by the Portfolio:
1996 1997 1998
---- ---- ----
$544,844 $ 956,160 $1,833,458
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, 1996, the Portfolio paid the following
commissions to affiliated brokers:
BROKER AFFILIATED WITH COMMISSION
- ------ --------------- ----------
Fleming Martin Rowe-Price Fleming International, Inc. $2,142
Jardine Fleming Rowe-Price Fleming International, Inc. $1,002
43
<PAGE>
BROKER AFFILIATED WITH COMMISSION
- ------ --------------- ----------
Ord Minnett Rowe-Price Fleming International, Inc. $2,051
Robert Fleming & Co. Rowe-Price Fleming International, Inc. $20,129
Morgan Stanley Intl. Morgan Stanley Asset Management Inc. $3,892
The percentage of total commissions of the Portfolio paid to affiliated brokers
in 1996 was 2.68%. The transactions represented 2.2% of the Portfolio's total
dollar value of portfolio transactions for the fiscal year ended October 31,
1996.
During the fiscal year ended October 31, 1997, the Portfolio paid the following
commissions to affiliated brokers:
BROKER AFFILIATED WITH COMMISSION
- ------ --------------- ----------
Jardine Fleming Rowe-Price Fleming International, Inc. $3,260
Ord Minnett Rowe-Price Fleming International, Inc. $13,141
Robert Fleming & Co. Rowe-Price Fleming International, Inc. $81,109
Morgan Stanley Intl. Morgan Stanley Asset Management Inc. $5,413
Merrill Lynch & Co. Hotchkis and Wiley $50,428
The percentage of total commissions of the Portfolio paid to affiliated brokers
in 1997 was16.04%. The transactions represented 9.2% of the Portfolio's total
dollar value of portfolio transactions for the fiscal year ended October 31,
1997.
During the fiscal year ended October 31, 1998, the Portfolio paid the following
commissions to affiliated brokers:
<TABLE>
<CAPTION>
PORTFOLIO BROKER AFFILIATED WITH COMMISSION
- --------- ------ --------------- ----------
<S> <C> <C> <C>
International Equity Merrill Lynch & Co. Hotchkis and Wiley $29,669
International Equity Morgan Stanley Intl. Morgan Stanley Asset Management $30,057
International Equity Robert Fleming & Co. Rowe-Price Fleming International, Inc. $93,606
International Equity Ord Minnett Rowe-Price Fleming International, Inc. $13,959
International Equity Jardine Fleming Rowe-Price Fleming International, Inc. $3,846
</TABLE>
44
<PAGE>
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 Adviser manages and serves as
sub-adviser to other registered investment companies and manages the
invested assets of Conseco, 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, 1998, the Adviser managed in excess of $35.3 billion in assets.
The Investment Advisory Agreements, dated March 28, 1997, between the Adviser
and the Conseco Equity Fund, Conseco Balanced Fund and Conseco Fixed Income
Fund, and the Investment Advisory Agreement dated December 31, 1997 between the
Adviser and the Conseco High Yield Fund, Conseco Convertible Securities Fund,
Conseco International Fund and Conseco 20 Fund (the agreement was approved with
respect to the Conseco Convertible Securities Fund on May 14, 1997), provide
that the Adviser shall not be liable for any error in judgment or mistake of law
or for any loss suffered by a Fund in connection with any investment policy or
the purchase, sale or redemption of any securities on the recommendations of the
Adviser. The Agreements provide that the Adviser is not protected against any
liability to a Fund or its security holders for which the Adviser shall
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties imposed upon it by the
Agreements or the violation of any applicable law.
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 Balanced 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, 1.00% of the average daily
net asset value of the Conseco International Fund, and 0.85% of the average
daily net asset value of the Conseco Convertible Securities 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.
Pursuant to a contractual arrangement with the Trust, the Adviser, along with
the Funds' administrator and distributor, has agreed to waive fees and/or
reimburse expenses through April 30, 2000, so that annual operating expenses of
the Funds are limited to the following net expenses:
45
<PAGE>
NET EXPENSES
------------
FUND CLASS Y SHARES
---- --------------
Conseco Fixed Income 0.60%
Conseco High Yield 0.90%
Conseco Convertible Securities 1.05%
Conseco Balanced 1.00%
Conseco Equity 1.00%
Conseco International 1.75%
Conseco 20 1.25%
This Arrangement does not cover interest, taxes, brokerage commissions, and
extraordinary expenses.
ADVISORY FEES ACCRUED AMOUNT REIMBURSED/WAIVED
FISCAL YEAR ENDED FISCAL YEAR ENDED
FUND DECEMBER 31* DECEMBER 31*
---- ------------ ------------
1997 1998 1997 1998
---- ---- ---- ----
Conseco Fixed Income $58,632 146,274 $141,110 $146,274
Conseco High Yield N/A 145,966 N/A $145,966
Convertible Securities+ N/A 55,482 N/A $ 38,398
Conseco Balanced $ 63,605 166,164 $125,654 $166,164
Conseco Equity $286,410 534,249 $96,817 $375,909
Conseco International* N/A 0 N/A 0
Conseco 20 N/A 166,646 N/A $ 98,505
* The Conseco International Fund's fiscal year end is October 31. The Fund pays
a pro rata portion of the Portfolio's expenses, which include investment
advisory and portfolio management fees.
+ The Convertible Securities Fund commenced operations on September 28, 1998.
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.
OTHER SERVICE PROVIDERS
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
46
<PAGE>
January 2, 1997 and amended December 31, 1997. The Administration Agreement was
approved with respect to the Conseco Convertible Securities Fund on May 14,
1998. 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, 1998, the following administration fees
were accrued:
-----------------------------------------------------------
FUND FEES PAID
-----------------------------------------------------------
Conseco Fixed Income $ 65,007
-----------------------------------------------------------
Conseco High Yield $ 41,707
-----------------------------------------------------------
Conseco Convertible Securities $ 13,055
-----------------------------------------------------------
Conseco Balanced $ 47,477
-----------------------------------------------------------
Conseco Equity $152,515
-----------------------------------------------------------
Conseco International $ 66,645
-----------------------------------------------------------
Conseco 20 $ 47,614
-----------------------------------------------------------
47
<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 Bank and Trust Company serves as custodian of
the assets of the Conseco International Fund and of the International Portfolio.
TRANSFER AGENCY SERVICES. State Street Bank and Trust Company is the transfer
agent for each Fund.
INDEPENDENT ACCOUNTANTS/AUDITORS. PricewaterhouseCoopers LLP, 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
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.
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
48
<PAGE>
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 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 in
"Management." The Trust's officers supervise the daily business operations 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> <C>
William P. Daves, Jr. (73) Chairman of the Board, Consultant to insurance and healthcare
5723 Trail Meadow Trustee industries. Director, President and Chief
Dallas, TX 75230 Executive Officer, FFG Insurance Co. Chairman of
the Board and Trustee of other mutual funds
managed by the Adviser.
Maxwell E. Bublitz* (43) President and Trustee Chartered Financial Analyst. President and
11825 N. Pennsylvania St. Director, Adviser. Previously,
Carmel, IN 46032 Senior Vice President, Adviser. President and
Trustee of other mutual funds managed by the
Adviser.
Gregory J. Hahn* (38) Vice President for Chartered Financial Analyst. Senior Vice
11825 N. Pennsylvania St. Investments and Trustee President, Adviser. Portfolio Manager of the
Carmel, IN 46032 fixed income portion of Balanced and Fixed Income
Funds. Trustee and portfolio manager of other
mutual funds managed by the
Adviser.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH TRUST DURING PAST 5 YEARS
--------------- ---------- -------------------
<S> <C> <C> <C>
Harold W. Hartley (75) Trustee Retired. Chartered Financial Analyst. Director,
317 Peppard Drive, S.W. Ennis Business Forms, Inc. Previously,
Ft. Myers Beach, Fl 33913 Executive Vice President, Tenneco Financial
Services, Inc. Trustee of other mutual funds managed by
the Adviser.
Dr. R. Jan LeCroy (68) Trustee Retired. President, Dallas Citizens Council.
Dallas Citizens Council Trustee of other mutual funds managed by the
1201 Main Street, Adviser. Director, Southwest Securities Group,
Suite 2444 Inc.
Dallas, TX 75202
Dr. Jesse H. Parrish (71) Trustee Former President, Midland College. Higher
2805 Sentinel Education Consultant. Trustee of other mutual
Midland, TX 79701 funds managed by the Adviser.
William P. Kovacs (53) 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 other mutual funds
managed by the Adviser. Previously, Associate
Counsel, Vice President and Assistant Secretary,
Kemper Financial Services, Inc. (1989-1996);
previous to Of Counsel, Rudnick & Wolfe
(1997-1998); previous to Of Counsel, Shefsky &
Froelich (1998).
James S. Adams (39) 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 other mutual funds
managed by the Adviser.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH TRUST DURING PAST 5 YEARS
--------------- ---------- -------------------
<S> <C> <C> <C>
William T. Devanney, Jr. (43) Vice President, Senior Vice President, Corporate Taxes,
11815 N. Pennsylvania St. Corporate Taxes Bankers National and Great American
Carmel, IN 46032 Reserve. Senior Vice President,
Corporate Taxes, Conseco Equity Sales,
Inc. and Conseco Services LLC. Vice
President of other mutual funds
managed by the Adviser.
David N. Walthall (53) Trustee President, Chief Executive Officer
2435 N. Central Expressway and Director of Lyrick Corporation
Suite 1600
Richardson, TX 75080
</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, 1998.
COMPENSATION TABLE
<TABLE>
<CAPTION>
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. $9,000 $26,000
(1 other investment company)
Harold W. Hartley $9,000 $26,000
(1 other investment company)
Dr. R. Jan LeCroy $9,000 $26,000
(1 other investment company)
Dr. Jesse H. Parrish $9,000 $26,000
(1 other investment company)
David N. Walthall $6,000 $8,000
(1 other investment company)
</TABLE>
TRUSTEES AND OFFICERS OF THE AMR TRUST
The AMR Trust Board provides broad supervision over the AMR Trust's affairs. AMR
is responsible for the management of the AMR Trust's assets, and the AMR Trust's
officers are responsible for its operations. The Trustees and officers of the
AMR Trust are listed below, together with their principal
51
<PAGE>
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 EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (51) Trustee and President President, AMR Investment Services, 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); American AAdvantage Mileage Funds
(1995-Present).
Alan D. Feld (61) Trustee Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
(1960-Present)#; Director, Clear Channel Communications
(1984-Present); Director, CenterPoint Properties, Inc.
(1994-Present); Trustee, American AAdvantage Funds
(1996-Present); American AAdvantage Mileage Funds
(1996-Present).
Ben J. Fortson (66) Trustee President and CEO, Fortson Oil Company (1958-Present);
301 Commerce Street Director, Kimbell Art Foundation (1964-Present); Director,
Suite 3301 Burnett Foundation (1987-Present); Honorary Trustee, Texas
Fort Worth, Texas 76102 Christian University (1986-Present); Trustee, American
AAdvantage Funds (1996-Present); American AAdvantage Mileage
Funds (1996-Present).
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
John S. Justin (82) Trustee Chairman and Chief Executive Officer, Justin Industries,
2821 West Seventh Street Inc. (a diversified holding company) (1969-Present);
Fort Worth, Texas 76107 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,
Moncrief Radiation Center (1985-Present); Director, Texas
New Mexico Enterprises (1984-1993); Director, Texas New
Mexico Power Company (1979-1993); Trustee, American
AAdvantage Funds (1989-Present); American AAdvantage Mileage
Funds (1995-Present).
Stephen D. O'Sullivan (63)* Trustee Consultant (1994-Present); Vice President and Controller
(1985-1994), American Airlines, Inc.; Trustee, American
AAdvantage Funds (1987-Present); American AAdvantage Mileage
Funds (1995-Present).
Roger T. Staubach (57) Trustee Chairman of the Board and Chief Executive Officer of
6750 LBJ Freeway Staubach Company (a commercial real estate company)
The Dallas, Texas 75240 (1982-Present); Director, Halliburton Company
(1991-Present); Director, Brinker International
(1993-Present); Director, International Home Foods, Inc.
(1997-Present); National Advisory Board, The Salvation Army;
Trustee, Institute for Aerobics Research; Member, Executive
Council, Daytop/Dallas; Member, National Board of Governors,
United Way of America; former quarterback of the Dallas
Cowboys professional football team; Trustee, American
AAdvantage Funds (1995-Present); American AAdvantage Mileage
Funds (1995-Present).
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
Kneeland Youngblood (42) Trustee Managing Partner, Pharos Capital Group, LLC (a private
100 Crescent Court equity firm) (1998-Present); Trustee, Teachers
Suite 1740 Retirement System of Texas (1993-Present); Director, United
Dallas, Texas 75201 States Enrichment Corporation (1993-1998), Director, Just
For the Kids (1995-Present); Director, Starwood Financial
Trust (1998-Present); Member, Council on Foreign Relations
(1995-Present); Trustee, American AAdvantage Funds
(1996-Present); American AAdvantage Mileage Funds
(1996-Present).
Nancy A. Eckl (36) Vice President Vice President, AMR Investment Services, Inc.
(1990-Present).
Michael W. Fields (45) Vice President Vice President, AMR Investment Services, Inc.
(1988-Present).
Barry Y. Greenberg (35) Vice President and Vice President, AMR Investment Services, Inc. Assistant
Secretary (1995-Present); Branch Chief (1992-1995) and Staff
Attorney (1988-1992), Securities and Exchange Commission.
Rebecca L. Harris (32) Treasurer Vice President (1995-Present), Controller (1991- 1995), AMR
Investment Services, Inc.
John B. Roberson (40) Vice President Vice President, AMR Investment Services, Inc.
(1991-Present).
Robert J. Zutz (46) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
1800 Massachusetts Ave. NW
Washington, D.C. 20036
</TABLE>
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<PAGE>
# 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 are deemed to be "interested persons" of the AMR
Trust as defined by the 1940 Act.
COMPENSATION - TRUSTEES OF AMR TRUST
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 flight
benefits. The AMR Trust compensates Mr. O'Sullivan up to $10,000 annually to
cover his personal flight service charges and the charges for his three adult
children, as well as any income tax charged on the value of these flight
benefits. 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, 1998.
<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 $17,802 $ 0 $ 0 $35,605
Ben J. Fortson $17,519 $ 0 $ 0 $35,038
John S. Justin $809 $ 0 $ 0 $1,618
Stephen D. O'Sullivan $2,843 $ 0 $ 0 $5,686
Roger T. Staubach $8,711 $ 0 $ 0 $17,423
Kneeland Youngblood $39,782 $ 0 $ 0 $79,563
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of February 1, 1999, 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.
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
Conseco Fixed Income Fund Conseco Save 401K Plan 66.69%
Class Y 11825 North Pennsylvania St.
Carmel, IN 46032-4555
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
- --------- ---------------- -------------
<S> <C> <C>
National City Bank Indiana C/F 11.34%
Community Foundation of Boone
County
P.O. Box 94984
Cleveland, OH 44101-4984
Commerce Bank FBO 19.59%
Banker University Endowment
Mutual Funds
8th and Grove
Baldwin City, KS 66006
Conseco High Yield Fund Class Y Merrill Lynch, Pierce Fenner & Smith 92.01%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco Convertible Securities Fund Conseco Capital Management, Inc. 86.80%
Class Y 11825 North Pennsylvania St.
Carmel, IN 46032-4555
Conseco Balanced Fund Class Y Conseco Save 401K 89.78%
11825 North Pennsylvania St
Carmel, IN 46032-4555
Conseco Equity Fund Class Y Conseco Save 401K Plan/BNL 82.96%
11825 N. Pennsylvania St.
Carmel, IN 46032-4555
Conseco 20 Fund Class Y Merrill Lynch, Pierce, Fenner & Smith 91.39%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette Securities 8.61%
Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-2052
</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
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<PAGE>
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 Underwriting Agreement was approved
with respect to the Conseco Convertible Securities Fund on May 14, 1998. 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, REDEMPTION AND PRICING OF SHARES
SHARE PRICES AND NET ASSET VALUE
Each Fund's shares are bought or sold at a price that is the Fund's net asset
value (NAV) per share. The NAV per share is determined for each class of shares
for each Fund as of the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern Time) on each business day by dividing the value of
the Fund's net assets attributable to a class (the class's pro rata share of the
value of the Fund's assets minus the class's 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
57
<PAGE>
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
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.
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.
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
58
<PAGE>
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.
INFORMATION ON CAPITALIZATION AND OTHER MATTERS
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.
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 Class Y 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
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.
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<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.
THE INTERNATIONAL PORTFOLIO
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.
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
60
<PAGE>
(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 limited, in
respect of any one issuer, to an amount that does not exceed 5% of the value of
the Fund's total assets and that does not represent more than 10% of the
issuer's outstanding voting securities, and (ii) not more than 25% of the value
of its total assets may be invested in securities (other than U.S. Government
securities or the securities of other RICs) of any one issuer. The Conseco
International Fund, as an investor in the Portfolio, is deemed to own a
proportionate share of the Portfolio's assets, and to earn a proportionate share
of the Portfolio's income, for purposes of determining whether the Fund
satisfies the requirements described above to qualify as a RIC.
If Fund shares are sold at a loss after being held for six months or less, the
loss will be treated as long-term, instead of short-term, capital loss to the
extent of any capital gain distributions received on those shares.
Distributions, if any, in excess of a Fund's current or accumulated earnings and
profits, as computed for federal income tax purposes, will constitute a return
of capital, which first will reduce a shareholder's tax basis in the Fund's
shares and then (after such basis is reduced to zero) generally will give rise
to capital gains. Under the Taxpayer Relief Act of 1997 ("Tax Act"), different
maximum tax rates apply to a non-corporate taxpayer's net capital gain (the
excess of net long-term capital gain over net short-term capital loss) depending
on the taxpayer's holding period and marginal rate of federal income tax --
generally, 28% for gain recognized on capital assets held for more than one year
but not more than 18 months and 20% (10% for taxpayers in the 15% marginal tax
bracket) for gain recognized on capital assets held for more than 18 months.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
At the time of an investor's purchase of shares of a Fund, a portion of the
purchase price is often attributable to unrealized appreciation in the Fund's
portfolio or undistributed taxable income. Consequently, subsequent
distributions from that appreciation (when realized) or income may be taxable to
the investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for the shares
and the distributions in reality represent a return of a portion of the purchase
price.
Each Fund will be subject to a nondeductible 4% federal excise tax ("Excise
Tax") on certain amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum distribution
requirements. Each Fund intends under normal circumstances to avoid liability
for such tax by satisfying those distribution requirements.
THE RELATIONSHIP OF THE CONSECO INTERNATIONAL FUND AND THE PORTFOLIO
The Portfolio should be classified as a separate partnership for federal income
tax purposes and is not a "publicly traded partnership." As a result, the
Portfolio should not be 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
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<PAGE>
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. 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 --
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
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<PAGE>
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 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.
63
<PAGE>
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.
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. These rules may operate to increase the amount that a Fund
must distribute to satisfy the Distribution Requirement, which will be taxable
to the shareholders as ordinary income, and to increase the net capital gain
recognized by the Fund, without in either case increasing the case available to
the Fund. A Fund may elect to exclude certain transactions from the operation of
section 1256, although doing so may have the effect of increasing the relative
proportion of net short-term capital gain (taxable as ordinary income) and/or
increasing the amount of dividends that must be distributed to meet the
Distribution Requirement and avoid imposition of the Excise Tax. 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.
64
<PAGE>
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 will not apply, however, to any transaction
during any taxable year that otherwise would be treated as a constructive sale
if the transaction is closed within 30 days after the end of that year and the
Fund holds the appreciated financial position unhedged for 60 days after that
closing (i.e., at no time during that 60-day period is the Fund's risk of loss
regarding that position reduced by reason of certain specified transactions with
respect to substantially similar or related property, such as having an option
to sell, being contractually obligated to sell, making a short sale, or granting
an option to buy substantially identical stock or securities).
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.
FINANCIAL STATEMENTS
Audited financial statements for the Conseco Fixed Income Fund, Conseco High
Yield Fund, and Conseco Convertible Securities Fund, Conseco Balanced Fund,
Conseco Equity Fund and Conseco 20 Fund the for the fiscal year ended December
31, 1998 are incorporated by reference from the Trust's annual report to
shareholders.
Audited financial statements for the Conseco International for the fiscal year
ended October 31, 1998 are incorporated by reference from the Fund's annual
report to shareholders. Audited financial statements for the AMR Investment
Services Trust International Equity Portfolio for the fiscal year ended October
31, 1998 are included in the Conseco International Fund's annual report to
shareholders.
65
<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.
66
<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.
67
<PAGE>
CONSECO FUND GROUP
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Convertible Securities Fund
Conseco Balanced Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
REGISTRATION STATEMENT ON FORM N-1A
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Agreement and Declaration of Trust. Incorporated by
reference to Registrant's registration statement, SEC
File No. 333-13185, filed on October 1, 1996.
(b) By-laws. Incorporated by reference to Registrant's
registration statement, SEC File No. 333-13185, filed
on October 1, 1996.
(c)(1) Agreement and Declaration of Trust of Conseco Fund
Group, Articles V, VI, VII, VIII, and X. Incorporated
by reference to Registrant's registration statement,
SEC File No. 333-13185, filed on October 1, 1996.
(2) By-laws of Conseco Fund Group, Articles II, V, and
VII. Incorporated by reference to Registrant's
registration statement, SEC File No. 333-13185, filed
on October 1, 1996.
(d)(1) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Conseco Equity Fund. Incorporated by
reference to Post-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-13185, filed
July 30, 1997.
(2) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Conseco Asset Allocation Fund.
Incorporated by reference to Post-Effective Amendment
No. 1 to the registration statement, SEC File No.
333-13185, filed July 30, 1997.
(3) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Conseco Fixed Income Fund.
Incorporated by reference to Post-Effective Amendment
No. 1 to the registration statement, SEC File No.
333-13185, filed July 30, 1997.
(4) Investment Advisory Agreement between Conseco Fund
Group, on behalf of the Conseco 20 Fund, the Conseco
High Yield Fund, the Conseco International Fund and
the Conseco Convertible Securities Fund, and Conseco
Capital Management, Inc. Incorporated by reference to
Post-Effective Amendment No. 6 to the registration
statement, SEC File No. 333-13185, filed April 29,
1998.
<PAGE>
(5) Schedule A to the Investment Advisory Agreement
between Conseco Fund Group, on behalf of the Conseco
20 Fund, the Conseco High Yield Fund, the Conseco
International Fund and the Conseco Convertible
Securities Fund, and Conseco Capital Management, Inc.
Incorporated by reference to Post-Effective Amendment
No. 8 to the registration statement, SEC File No.
333-13185, filed July 15, 1998.
(e)(1) Amended and Restated Principal Underwriting Agreement
between Conseco Fund Group and Conseco Equity Sales,
Inc. Incorporated by reference to Post-Effective
Amendment No. 6 to the registration statement, SEC
File No. 333-13185, filed April 29, 1998.
(2) Schedule A to the Amended and Restated Principal
Underwriting Agreement. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(f) Bonus, profit sharing or pension plans - None.
(g)(1) Custody Agreement between Conseco Fund Group and The
Bank of New York. Incorporated by reference to
Post-Effective Amendment No. 4 to the registration
statement, SEC File No. 333-13185, filed December 29,
1997.
(2) Custody Agreement between Conseco Fund Group and
State Street Bank and Trust Company with respect to
the Conseco International Fund. Incorporated by
reference to Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 333-13185, filed
July 15, 1998.
(h)(1) Amended and Restated Administration Agreement between
Conseco Fund Group and Conseco Services, LLC.
Incorporated by reference to Post-Effective Amendment
No. 6 to the registration statement, SEC File No.
333-13185, filed April 29, 1998.
(2) Schedule A to the Amended and Restated Administration
Agreement. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(3) Sub-Administration Agreement between Conseco
Services, LLC and The Bank of New York. Incorporated
by reference to Post-Effective Amendment No. 4 to the
registration statement, SEC File No. 333-13185, filed
December 29, 1997.
(4) Sub-Administration Agreement between Conseco
Services, LLC and AMR Investment Services, Inc.
Incorporated by reference to Post-Effective Amendment
No. 8 to the registration statement, SEC File No.
333-13185, filed July 15, 1998.
(5) Fund Accounting Agreement between Conseco Services,
LLC and The Bank of New York. Incorporated by
reference to Post-Effective Amendment No. 4 to the
registration statement, SEC File No. 333-13185, filed
December 29, 1997.
(6) Transfer Agency Agreement between Conseco Fund Group
and State Street Bank and Trust Company. Incorporated
by reference to Post-Effective Amendment No. 4 to the
registration statement, SEC File No. 333-13185, filed
December 29, 1997.
(7) Agreement Among AMR Investment Services Trust, AMR
Investment Services, Inc., and Conseco Fund Group and
Conseco Capital Management, Inc. Incorporated by
reference to Post-Effective Amendment No. 6 to the
registration statement, SEC File No. 333-13185, filed
April 29, 1998.
(i) Opinion and Consent of Counsel as to the Legality of
the Securities being Registered. None.
(j) Consent of Independent Accountants. Filed herewith.
(k) Financial statements omitted from prospectus - None.
<PAGE>
(l) Letter of investment intent - None.
(m)(1) Class A Plan of Distribution and Service pursuant to
Rule 12b-1 with Respect to the Conseco Equity Fund.
Incorporated by reference to Post-Effective Amendment
No. 1 to the registration statement, SEC File No.
333-13185, filed July 30, 1997.
(2) Class A Plan of Distribution and Service pursuant to
Rule 12b-1 with Respect to the Conseco Asset
Allocation Fund. Incorporated by reference to
Post-Effective Amendment No. 1 to the registration
statement, SEC File No. 333-13185, filed July 30,
1997.
(3) Class A Plan of Distribution and Service pursuant to
Rule 12b-1 with Respect to the Conseco Fixed Income
Fund. Incorporated by reference to Post-Effective
Amendment No. 1 to the registration statement, SEC
File No. 333-13185, filed July 30, 1997.
(4) Plan of Distribution and Service pursuant to Rule
12b-1. Incorporated by reference to Post-Effective
Amendment No. 6 to the registration statement, SEC
File No. 333-13185, filed April 29, 1998.
(5) Schedule A to the Plan of Distribution and Service
pursuant to Rule 12b-1. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(6) Selling Group Agreement. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(n) Financial Data Schedule. Filed Herewith.
(o)(1) Amended and Restated Multiple Class Plan Pursuant to
Rule 18f-3. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(2) Schedule A to the Amended and Restated Multiple Class
Plan Pursuant to Rule 18f-3. Incorporated by
reference to Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 333-13185, filed
July 15, 1998.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The following information concerns the principal companies that may be deemed to
be controlled by or under common control with Registrant (all 100% owned unless
indicated otherwise):
CONSECO, INC. (IN) - (publicly traded)
Conseco Capital Management, Inc. (DE)
Marketing Distribution Systems Consulting Group, Inc. (DE)
MDS of New Jersey, Inc. (NJ)
Conseco Equity Sales, Inc. (TX)
Conseco Risk Management, Inc. (IN)
Conseco Mortgage Capital, Inc. (DE)
Conseco Group Risk Management Company (MS)
Green Tree Financial Corporation (DE)
CIHC, Incorporated (DE)
Conseco Services, LLC (IN)
Conseco Marketing, LLC (IN)
Conseco Financial Services, Inc. (DE)
Bankers National Life Insurance Company (TX)
National Fidelity Life Insurance Company (MO)
Bankers Life Insurance Company of Illinois (IL)
Bankers Life & Casualty Company (IL)
Certified Life Insurance Company (IL)
Jefferson National Life Insurance Company of Texas (TX)
Conseco Direct Life Insurance Company (PA)
Conseco Annuity Assurance Company (IL)
Vulcan Life Insurance Company (IN)
Conseco Senior Health Insurance Company (PA)
Continental Life Insurance Company (TX)
United General Life Insurance Company (TX)
Conseco Life Insurance Company of New York (NY)
Conseco Variable Insurance Company (TX)
Providential Life Insurance Company (AR)
Washington National Corporation (DE)
Washington National Insurance Company (IL)
United Presidential Corporation (IN)
United Presidential Life
Insurance Company (IN)
Wabash Life Insurance Company (KY)
Conseco Life Insurance Company (IN)
Lincoln American Life Insurance Company (TN)
Pioneer Financial Services, Inc. (DE)
Geneva International Insurance Company, Inc.
(Turks and Caicos Islands)
Pioneer Life Insurance Company (IL)
Health and Life Insurance Company of
America (IL)
Manhattan National Life Insurance
Company (IL)
Conseco Medical Insurance
Company (IL)
Capitol American Financial Corporation (OH)
Conseco Health Insurance Company (AZ)
Frontier National Life Insurance Company (OH)
Consumer Acceptance Corporation (IN)
General Acceptance Corporation (IN)
NAL Financial Group, Inc. (DE)
Conseco Series Trust (Massachusetts)*
Conseco Fund Group (Massachusetts) (publicly held)**
Conseco Strategic Income Fund (Massachusetts) (publicly held)***
* The shares of Conseco Series Trust currently are sold to insurance
separate accounts which are both affiliated and unaffiliated.
** The shares of the Conseco Fund Group are sold to the public; Conseco
affiliates currently hold in excess of 55% of its shares.
*** The shares of the Conseco Strategic Income Fund, a closed-end management
investment company, are traded on the New York Stock Exchange.
ITEM 25. INDEMNIFICATION.
Reference is made to Articles II and V of the Agreement and Declaration
of Trust, which are incorporated by reference to the Registrant's registration
statement, SEC File No. 333-13185, filed previously on October 1, 1996.
ITEM 26. 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.
Rollin M. Dick, Director, Executive Vice President and Chief Financial
Officer of Conseco, Inc., Carmel, Indiana. Mr. Dick is an officer and/or
director of various affiliates of the Adviser. He is a director of Brightpoint,
<PAGE>
Inc., Indianapolis, Indiana and General Acceptance Corporation, Bloomington,
Indiana. Additionally, Mr. Dick is a director of approximately ten non-public
companies, which are believed to be not affiliated with Conseco, Inc.
Maxwell E. Bublitz, President and Director; Executive Vice President of
Conseco, Inc.; President and Trustee of Conseco Series Trust; President and
Trustee of Conseco Strategic Income Fund
Albert J. Gutierrez, Senior Vice President, Investment Officer.
Gregory J. Hahn, Senior Vice President, Portfolio Analytics; Trustee of
Conseco Strategic Income Fund
Thomas A. Meyers, Senior Vice President, Director of Marketing.
Thomas J. Pence, Senior Vice President.
William P. Kovacs, Senior Counsel and Secretary; Chief Compliance
Officer and Director; Vice President and Secretary of Conseco Series Trust; Vice
President and Secretary of Conseco Strategic Income Fund; Vice President and
Secretary of Conseco Equity Sales, Inc.; Vice President and Secretary of Conseco
Financial Services, Inc.
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 27. PRINCIPAL UNDERWRITERS.
Conseco Equity Sales, Inc. serves as the Registrant's principal
underwriter.
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. Kovacs Vice President, Senior Counsel, Vice President and Secretary
Secretary, and Director
James S. Adams Senior Vice President, Treasurer, Treasurer, Principal Financial and
and Director Accounting Officer
William T. Devanney, Jr. Senior Vice President, Corporate Vice President, Corporate Taxes
Taxes
</TABLE>
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
For the Conseco Fixed Income Fund, Conseco High Yield Fund, Conseco
Convertible Securities Fund, Conseco Balanced Fund, Conseco Equity Fund and
Conseco 20 Fund: 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 Funds' custodian, The Bank of New York, 90 Washington Street,
22nd Floor, New York, New York 10826.
For the Conseco International Fund: The accounts, books and other
documents required to be maintained by the Registrant pursuant to Section 3.1(a)
of the Investment Company Act of 1940 and the rules promulgated thereunder are
in the possession of the Adviser or the Fund's custodian, State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110.
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS. None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, Conseco Fund Group, certifies
that it meets all of the requirements for effectiveness of this Post-Effective
Amendment No. 11 to the Registration Statement under rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 11
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of Carmel and State of Indiana on the 12th day of March, 1999.
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, this
Post-Effective Amendment No. 11 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 March 12, 1999
- ------------------------------ Officer) and Trustee
Maxwell E. Bublitz
/s/ James S. Adams Treasurer (Principal Financial March 12, 1999
- ------------------------------ and Accounting Officer)
James S. Adams
/s/ William P. Daves, Jr. Chairman of the Board and Trustee March 12, 1999
- ------------------------------
William P. Daves, Jr.
/s/ Gregory J. Hahn Trustee March 12, 1999
- ------------------------------
Gregory J. Hahn
/s/ Harold W. Hartley Trustee March 12, 1999
- ------------------------------
Harold W. Hartley
/s/ Dr. R. Jan LeCroy Trustee March 12, 1999
- ------------------------------
Dr. R. Jan LeCroy
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Dr. Jesse H. Parrish Trustee March 12, 1999
- ------------------------------
Dr. Jesse H. Parrish
/s/ David N. Walthall Trustee March 12, 1999
- ------------------------------
David N. Walthall
/s/ William P. Kovacs
- ------------------------------
By: William P. Kovacs
Attorney-In-Fact
</TABLE>
<PAGE>
SIGNATURES
AMR Investment Services Trust has duly caused this Post-Effective
Amendment No. 11 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 March 12, 1999.
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. 11 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ William F. Quinn President and Trustee March 12, 1999
- ---------------------------------------
William F. Quinn
/s/ Alan D. Feld Trustee March 12, 1999
- ---------------------------------------
Alan D. Feld*
/s/ Ben J. Fortson
- ---------------------------------------
Ben J. Fortson* Trustee March 12, 1999
/s/ John S. Justin
- ---------------------------------------
John S. Justin* Trustee March 12, 1999
/s/ Stephen D. O'Sullivan
- ---------------------------------------
Stephen D. O'Sullivan* Trustee March 12, 1999
/s/ Roger T. Staubach
- ---------------------------------------
Roger T. Staubach* Trustee March 12, 1999
/s/ Kneeland Youngblood
- ---------------------------------------
Kneeland Youngblood* Trustee March 12, 1999
*By: /s/ William F. Quinn
----------------------------------
William F. Quinn, Attorney-In-Fact
</TABLE>
<PAGE>
CONSECO FUND GROUP
Conseco Fixed Income Fund
Conseco High Yield Fund
Conseco Convertible Securities Fund
Conseco Balanced Fund
Conseco Equity Fund
Conseco International Fund
Conseco 20 Fund
EXHIBIT INDEX
(a) Agreement and Declaration of Trust. Incorporated by
reference to Registrant's registration statement, SEC
File No. 333-13185, filed on October 1, 1996.
(b) By-laws. Incorporated by reference to Registrant's
registration statement, SEC File No. 333-13185, filed
on October 1, 1996.
(c)(1) Agreement and Declaration of Trust of Conseco Fund
Group, Articles V, VI, VII, VIII, and X. Incorporated
by reference to Registrant's registration statement,
SEC File No. 333-13185, filed on October 1, 1996.
(2) By-laws of Conseco Fund Group, Articles II, V, and
VII. Incorporated by reference to Registrant's
registration statement, SEC File No. 333-13185, filed
on October 1, 1996.
(d)(1) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Conseco Equity Fund. Incorporated by
reference to Post-Effective Amendment No. 1 to the
registration statement, SEC File No. 333-13185, filed
July 30, 1997.
(2) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Conseco Asset Allocation Fund.
Incorporated by reference to Post-Effective Amendment
No. 1 to the registration statement, SEC File No.
333-13185, filed July 30, 1997.
(3) Investment Advisory Agreement between Conseco Fund
Group and Conseco Capital Management, Inc. with
respect to the Conseco Fixed Income Fund.
Incorporated by reference to Post-Effective Amendment
No. 1 to the registration statement, SEC File No.
333-13185, filed July 30, 1997.
(4) Investment Advisory Agreement between Conseco Fund
Group, on behalf of the Conseco 20 Fund, the Conseco
High Yield Fund, the Conseco International Fund and
the Conseco Convertible Securities Fund, and Conseco
Capital Management, Inc. Incorporated by reference to
Post-Effective Amendment No. 6 to the registration
statement, SEC File No. 333-13185, filed April 29,
1998.
(5) Schedule A to the Investment Advisory Agreement
between Conseco Fund Group, on behalf of the Conseco
20 Fund, the Conseco High Yield Fund, the Conseco
International Fund and the Conseco Convertible
Securities Fund, and Conseco Capital Management, Inc.
Incorporated by reference to Post-Effective Amendment
No. 8 to the registration statement, SEC File No.
333-13185, filed July 15, 1998.
<PAGE>
(e)(1) Amended and Restated Principal Underwriting Agreement
between Conseco Fund Group and Conseco Equity Sales,
Inc. Incorporated by reference to Post-Effective
Amendment No. 6 to the registration statement, SEC
File No. 333-13185, filed April 29, 1998.
(2) Schedule A to the Amended and Restated Principal
Underwriting Agreement. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(f) Bonus, profit sharing or pension plans - None.
(g)(1) Custody Agreement between Conseco Fund Group and The
Bank of New York. Incorporated by reference to
Post-Effective Amendment No. 4 to the registration
statement, SEC File No. 333-13185, filed December 29,
1997.
(2) Custody Agreement between Conseco Fund Group and
State Street Bank and Trust Company with respect to
the Conseco International Fund. Incorporated by
reference to Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 333-13185, filed
July 15, 1998.
(h)(1) Amended and Restated Administration Agreement between
Conseco Fund Group and Conseco Services, LLC.
Incorporated by reference to Post-Effective Amendment
No. 6 to the registration statement, SEC File No.
333-13185, filed April 29, 1998.
(2) Schedule A to the Amended and Restated Administration
Agreement. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(3) Sub-Administration Agreement between Conseco
Services, LLC and The Bank of New York. Incorporated
by reference to Post-Effective Amendment No. 4 to the
registration statement, SEC File No. 333-13185, filed
December 29, 1997.
(4) Sub-Administration Agreement between Conseco
Services, LLC and AMR Investment Services, Inc.
Incorporated by reference to Post-Effective Amendment
No. 8 to the registration statement, SEC File No.
333-13185, filed July 15, 1998.
(5) Fund Accounting Agreement between Conseco Services,
LLC and The Bank of New York. Incorporated by
reference to Post-Effective Amendment No. 4 to the
registration statement, SEC File No. 333-13185, filed
December 29, 1997.
(6) Transfer Agency Agreement between Conseco Fund Group
and State Street Bank and Trust Company. Incorporated
by reference to Post-Effective Amendment No. 4 to the
registration statement, SEC File No. 333-13185, filed
December 29, 1997.
(7) Agreement Among AMR Investment Services Trust, AMR
Investment Services, Inc., and Conseco Fund Group and
Conseco Capital Management, Inc. Incorporated by
reference to Post-Effective Amendment No. 6 to the
registration statement, SEC File No. 333-13185, filed
April 29, 1998.
(i) Consent of Counsel. None.
(j) Consent of Independent Accountants. Filed herewith.
(k) Financial statements omitted from prospectus - None.
(l) Letter of investment intent - None.
<PAGE>
(m)(1) Class A Plan of Distribution and Service pursuant to
Rule 12b-1 with Respect to the Conseco Equity Fund.
Incorporated by reference to Post-Effective Amendment
No. 1 to the registration statement, SEC File No.
333-13185, filed July 30, 1997.
(2) Class A Plan of Distribution and Service pursuant to
Rule 12b-1 with Respect to the Conseco Asset
Allocation Fund. Incorporated by reference to
Post-Effective Amendment No. 1 to the registration
statement, SEC File No. 333-13185, filed July 30,
1997.
(3) Class A Plan of Distribution and Service pursuant to
Rule 12b-1 with Respect to the Conseco Fixed Income
Fund. Incorporated by reference to Post-Effective
Amendment No. 1 to the registration statement, SEC
File No. 333-13185, filed July 30, 1997.
(4) Plan of Distribution and Service pursuant to Rule
12b-1. Incorporated by reference to Post-Effective
Amendment No. 6 to the registration statement, SEC
File No. 333-13185, filed April 29, 1998.
(5) Schedule A to the Plan of Distribution and Service
pursuant to Rule 12b-1. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(6) Selling Group Agreement. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(n) Financial Data Schedule. Filed Herewith.
(o)(1) Amended and Restated Multiple Class Plan Pursuant to
Rule 18f-3. Incorporated by reference to
Post-Effective Amendment No. 8 to the registration
statement, SEC File No. 333-13185, filed July 15,
1998.
(2) Schedule A to the Amended and Restated Multiple Class
Plan Pursuant to Rule 18f-3. Incorporated by
reference to Post-Effective Amendment No. 8 to the
registration statement, SEC File No. 333-13185, filed
July 15, 1998.
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent
Accountants/Auditors" and to the use of our report on the financial statements
of AMR Investment Services Trust - International Equity Portfolio dated December
17, 1998 in the Registration Statement (Form N-1A) of Conseco Fund Group filed
with the Securities and Exchange Commission in this Post-Effective Amendment No.
11 to the Registration Statement under the Securities Act of 1933 (File No.
333-13185) and this Amendment No. 12 to the Registration Statement under the
Investment Company Act of 1940 (File No. 811-07839).
/s/ ERNST & YOUNG LLP
Dallas, Texas
March 12, 1999
<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 10/31/98 FINANCIAL STATEMENTS OF THE
INTERNATIONAL FUND OF THE CONSECO FUND GROUP AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> INTERNATIONAL FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> JAN-02-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 10,512,192
<INVESTMENTS-AT-VALUE> 10,555,166
<RECEIVABLES> 13
<ASSETS-OTHER> 98,162
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,653,341
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 211,836
<TOTAL-LIABILITIES> 211,836
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,035,973
<SHARES-COMMON-STOCK> 1,002,562
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 63,724
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 298,834
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,974
<NET-ASSETS> 10,441,505
<DIVIDEND-INCOME> 229,380
<INTEREST-INCOME> 25,078
<OTHER-INCOME> 10,691
<EXPENSES-NET> (201,425)
<NET-INVESTMENT-INCOME> 63,724
<REALIZED-GAINS-CURRENT> 298,834
<APPREC-INCREASE-CURRENT> 42,974
<NET-CHANGE-FROM-OPS> 405,532
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,003,183
<NUMBER-OF-SHARES-REDEEMED> 621
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,441,505
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 251,238
<AVERAGE-NET-ASSETS> 10,800,791
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> .35
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.41
<EXPENSE-RATIO> 2.25
<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 10/31/98 FINANCIAL STATEMENTS OF THE
INTERNATIONAL FUND OF THE CONSECO
FUND GROUP AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 002
<NAME> INTERNATIONAL FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> JUN-30-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 10,512,192
<INVESTMENTS-AT-VALUE> 10,555,166
<RECEIVABLES> 13
<ASSETS-OTHER> 98,162
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,653,341
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 211,836
<TOTAL-LIABILITIES> 211,836
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,035,973
<SHARES-COMMON-STOCK> 413
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 63,724
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 298,834
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,974
<NET-ASSETS> 10,441,505
<DIVIDEND-INCOME> 229,380
<INTEREST-INCOME> 25,078
<OTHER-INCOME> 10,691
<EXPENSES-NET> (201,425)
<NET-INVESTMENT-INCOME> 63,724
<REALIZED-GAINS-CURRENT> 298,834
<APPREC-INCREASE-CURRENT> 42,974
<NET-CHANGE-FROM-OPS> 405,532
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 413
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,441,505
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 251,238
<AVERAGE-NET-ASSETS> 2,484
<PER-SHARE-NAV-BEGIN> 11.38
<PER-SHARE-NII> (.02)
<PER-SHARE-GAIN-APPREC> (.97)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.39
<EXPENSE-RATIO> 2.75
<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 10/31/98 FINANCIAL STATEMENTS OF THE
INTERNATIONAL FUND OF THE CONSECO
FUND GROUP AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 003
<NAME> INTERNATIONAL FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> APR-08-1998
<PERIOD-END> OCT-31-1998
<INVESTMENTS-AT-COST> 10,512,192
<INVESTMENTS-AT-VALUE> 10,555,166
<RECEIVABLES> 13
<ASSETS-OTHER> 98,162
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10,653,341
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 211,836
<TOTAL-LIABILITIES> 211,836
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,035,973
<SHARES-COMMON-STOCK> 302
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 63,724
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 298,834
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 42,974
<NET-ASSETS> 10,441,505
<DIVIDEND-INCOME> 229,380
<INTEREST-INCOME> 25,078
<OTHER-INCOME> 10,691
<EXPENSES-NET> (201,425)
<NET-INVESTMENT-INCOME> 63,724
<REALIZED-GAINS-CURRENT> 298,834
<APPREC-INCREASE-CURRENT> 42,974
<NET-CHANGE-FROM-OPS> 405,532
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 302
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,441,505
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 251,238
<AVERAGE-NET-ASSETS> 3,049
<PER-SHARE-NAV-BEGIN> 11.50
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> (1.13)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.40
<EXPENSE-RATIO> 2.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> BALANCED FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 29,152,725
<INVESTMENTS-AT-VALUE> 31,801,973
<RECEIVABLES> 608,650
<ASSETS-OTHER> 778,254
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,188,877
<PAYABLE-FOR-SECURITIES> 324,324
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 164,780
<TOTAL-LIABILITIES> 489,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,806,276
<SHARES-COMMON-STOCK> 2,229,409
<SHARES-COMMON-PRIOR> 100,187
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (755,751)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,649,248
<NET-ASSETS> 32,699,773
<DIVIDEND-INCOME> 194,224
<INTEREST-INCOME> 760,272
<OTHER-INCOME> 0
<EXPENSES-NET> 326,888
<NET-INVESTMENT-INCOME> 627,608
<REALIZED-GAINS-CURRENT> (744,651)
<APPREC-INCREASE-CURRENT> 2,078,143
<NET-CHANGE-FROM-OPS> 1,961,100
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 635,191
<DISTRIBUTIONS-OF-GAINS> 151,111
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,162,683
<NUMBER-OF-SHARES-REDEEMED> 55,558
<SHARES-REINVESTED> 22,097
<NET-CHANGE-IN-ASSETS> 19,587,118
<ACCUMULATED-NII-PRIOR> 6,516
<ACCUMULATED-GAINS-PRIOR> 140,011
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 166,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 546,313
<AVERAGE-NET-ASSETS> 23,924,283
<PER-SHARE-NAV-BEGIN> 10.73
<PER-SHARE-NII> .30
<PER-SHARE-GAIN-APPREC> 1.03
<PER-SHARE-DIVIDEND> .24
<PER-SHARE-DISTRIBUTIONS> .13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.69
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> BALANCED FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 29,152,725
<INVESTMENTS-AT-VALUE> 31,801,973
<RECEIVABLES> 608,650
<ASSETS-OTHER> 778,254
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,188,877
<PAYABLE-FOR-SECURITIES> 324,324
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 164,780
<TOTAL-LIABILITIES> 489,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,806,276
<SHARES-COMMON-STOCK> 112,115
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (755,751)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,649,248
<NET-ASSETS> 32,699,773
<DIVIDEND-INCOME> 194,224
<INTEREST-INCOME> 760,272
<OTHER-INCOME> 0
<EXPENSES-NET> 326,888
<NET-INVESTMENT-INCOME> 627,608
<REALIZED-GAINS-CURRENT> (744,651)
<APPREC-INCREASE-CURRENT> 2,078,143
<NET-CHANGE-FROM-OPS> 1,961,100
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 635,191
<DISTRIBUTIONS-OF-GAINS> (151,111)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 115,703
<NUMBER-OF-SHARES-REDEEMED> 4,019
<SHARES-REINVESTED> 431
<NET-CHANGE-IN-ASSETS> 19,587,118
<ACCUMULATED-NII-PRIOR> 6,516
<ACCUMULATED-GAINS-PRIOR> 140,011
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 166,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 546,313
<AVERAGE-NET-ASSETS> 23,924,283
<PER-SHARE-NAV-BEGIN> 11.20
<PER-SHARE-NII> .19
<PER-SHARE-GAIN-APPREC> .57
<PER-SHARE-DIVIDEND> .22
<PER-SHARE-DISTRIBUTIONS> .13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.61
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> BALANCED FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 29,152,725
<INVESTMENTS-AT-VALUE> 31,801,973
<RECEIVABLES> 608,650
<ASSETS-OTHER> 778,254
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,188,877
<PAYABLE-FOR-SECURITIES> 324,324
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 164,780
<TOTAL-LIABILITIES> 489,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,806,276
<SHARES-COMMON-STOCK> 102,592
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<NET-ASSETS> 32,699,773
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<INTEREST-INCOME> 760,272
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<EXPENSES-NET> 326,888
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<REALIZED-GAINS-CURRENT> (744,651)
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<NUMBER-OF-SHARES-SOLD> 122,271
<NUMBER-OF-SHARES-REDEEMED> 20,498
<SHARES-REINVESTED> 819
<NET-CHANGE-IN-ASSETS> 19,587,118
<ACCUMULATED-NII-PRIOR> 6,516
<ACCUMULATED-GAINS-PRIOR> 140,011
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 166,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 546,313
<AVERAGE-NET-ASSETS> 23,924,283
<PER-SHARE-NAV-BEGIN> 11.31
<PER-SHARE-NII> .20
<PER-SHARE-GAIN-APPREC> .48
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<PER-SHARE-NAV-END> 11.66
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 014
<NAME> BALANCED FUND CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 29,152,725
<INVESTMENTS-AT-VALUE> 31,801,973
<RECEIVABLES> 608,650
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<TOTAL-ASSETS> 33,188,877
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<TOTAL-LIABILITIES> 489,104
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,806,276
<SHARES-COMMON-STOCK> 352,157
<SHARES-COMMON-PRIOR> 1,116,698
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (755,751)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,649,248
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<DIVIDEND-INCOME> 194,224
<INTEREST-INCOME> 760,272
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<REALIZED-GAINS-CURRENT> (744,651)
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<DISTRIBUTIONS-OF-GAINS> 151,111
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 433,884
<NUMBER-OF-SHARES-REDEEMED> 1,207,918
<SHARES-REINVESTED> 9,493
<NET-CHANGE-IN-ASSETS> 19,587,118
<ACCUMULATED-NII-PRIOR> 6,516
<ACCUMULATED-GAINS-PRIOR> 140,011
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 166,164
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 546,313
<AVERAGE-NET-ASSETS> 23,924,283
<PER-SHARE-NAV-BEGIN> 10.78
<PER-SHARE-NII> .32
<PER-SHARE-GAIN-APPREC> 1.06
<PER-SHARE-DIVIDEND> .28
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.75
<EXPENSE-RATIO> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> EQUITY FUND CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 72,736,293
<INVESTMENTS-AT-VALUE> 88,468,672
<RECEIVABLES> 2,663,782
<ASSETS-OTHER> 524,613
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91,657,067
<PAYABLE-FOR-SECURITIES> 1,707,824
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<TOTAL-LIABILITIES> 2,387,468
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,840,946
<SHARES-COMMON-STOCK> 2,087,655
<SHARES-COMMON-PRIOR> 440,528
<ACCUMULATED-NII-CURRENT> 3,044
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (306,770)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,732,379
<NET-ASSETS> 89,269,599
<DIVIDEND-INCOME> 706,110
<INTEREST-INCOME> 382,439
<OTHER-INCOME> 0
<EXPENSES-NET> 856,693
<NET-INVESTMENT-INCOME> 231,856
<REALIZED-GAINS-CURRENT> (204,222)
<APPREC-INCREASE-CURRENT> 10,904,206
<NET-CHANGE-FROM-OPS> 10,931,840
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 233,642
<DISTRIBUTIONS-OF-GAINS> 1,766,683
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,805,294
<NUMBER-OF-SHARES-REDEEMED> 167,079
<SHARES-REINVESTED> 8,911
<NET-CHANGE-IN-ASSETS> 24,058,970
<ACCUMULATED-NII-PRIOR> 4,831
<ACCUMULATED-GAINS-PRIOR> 1,664,135
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 534,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,232,602
<AVERAGE-NET-ASSETS> 76,398,621
<PER-SHARE-NAV-BEGIN> 11.07
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.79
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.55
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> EQUITY FUND CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 72,736,293
<INVESTMENTS-AT-VALUE> 88,468,672
<RECEIVABLES> 2,663,782
<ASSETS-OTHER> 524,613
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 91,657,067
<PAYABLE-FOR-SECURITIES> 1,707,824
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<TOTAL-LIABILITIES> 2,387,468
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,840,946
<SHARES-COMMON-STOCK> 131,030
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,044
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (306,770)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,732,379
<NET-ASSETS> 89,269,599
<DIVIDEND-INCOME> 706,110
<INTEREST-INCOME> 382,439
<OTHER-INCOME> 0
<EXPENSES-NET> 856,693
<NET-INVESTMENT-INCOME> 231,856
<REALIZED-GAINS-CURRENT> (204,222)
<APPREC-INCREASE-CURRENT> 10,904,206
<NET-CHANGE-FROM-OPS> 10,931,840
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 1,766,683
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<NUMBER-OF-SHARES-SOLD> 136,877
<NUMBER-OF-SHARES-REDEEMED> 6,078
<SHARES-REINVESTED> 231
<NET-CHANGE-IN-ASSETS> 24,058,970
<ACCUMULATED-NII-PRIOR> 4,831
<ACCUMULATED-GAINS-PRIOR> 1,664,135
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 534,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,232,602
<AVERAGE-NET-ASSETS> 76,398,621
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> 1.75
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.47
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 023
<NAME> EQUITY FUND CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 72,736,293
<INVESTMENTS-AT-VALUE> 88,468,672
<RECEIVABLES> 2,663,782
<ASSETS-OTHER> 524,613
<OTHER-ITEMS-ASSETS> 0
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<TOTAL-LIABILITIES> 2,387,468
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<SHARES-COMMON-STOCK> 49,140
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 3,044
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (306,770)
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<DIVIDEND-INCOME> 706,110
<INTEREST-INCOME> 382,439
<OTHER-INCOME> 0
<EXPENSES-NET> 856,693
<NET-INVESTMENT-INCOME> 231,856
<REALIZED-GAINS-CURRENT> (204,222)
<APPREC-INCREASE-CURRENT> 10,904,206
<NET-CHANGE-FROM-OPS> 10,931,840
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<DISTRIBUTIONS-OF-GAINS> 1,766,683
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<NUMBER-OF-SHARES-SOLD> 55,670
<NUMBER-OF-SHARES-REDEEMED> 6,534
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 24,058,970
<ACCUMULATED-NII-PRIOR> 4,831
<ACCUMULATED-GAINS-PRIOR> 1,664,135
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 534,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,232,602
<AVERAGE-NET-ASSETS> 76,398,621
<PER-SHARE-NAV-BEGIN> 11.98
<PER-SHARE-NII> (.06)
<PER-SHARE-GAIN-APPREC> .93
<PER-SHARE-DIVIDEND> .01
<PER-SHARE-DISTRIBUTIONS> .30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.54
<EXPENSE-RATIO> 2.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 024
<NAME> EQUITY FUND CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 72,736,293
<INVESTMENTS-AT-VALUE> 88,468,672
<RECEIVABLES> 2,663,782
<ASSETS-OTHER> 524,613
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<TOTAL-ASSETS> 91,657,067
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<OTHER-ITEMS-LIABILITIES> 679,644
<TOTAL-LIABILITIES> 2,387,468
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 73,840,946
<SHARES-COMMON-STOCK> 4,801,089
<SHARES-COMMON-PRIOR> 5,418,986
<ACCUMULATED-NII-CURRENT> 3,044
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (306,770)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,732,379
<NET-ASSETS> 89,269,599
<DIVIDEND-INCOME> 706,110
<INTEREST-INCOME> 382,439
<OTHER-INCOME> 0
<EXPENSES-NET> 856,693
<NET-INVESTMENT-INCOME> 231,856
<REALIZED-GAINS-CURRENT> (204,222)
<APPREC-INCREASE-CURRENT> 10,904,206
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<DISTRIBUTIONS-OF-GAINS> 1,766,683
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<NUMBER-OF-SHARES-SOLD> 1,233,846
<NUMBER-OF-SHARES-REDEEMED> 1,955,498
<SHARES-REINVESTED> 103,755
<NET-CHANGE-IN-ASSETS> 24,058,970
<ACCUMULATED-NII-PRIOR> 4,831
<ACCUMULATED-GAINS-PRIOR> 1,664,135
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 534,249
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,232,602
<AVERAGE-NET-ASSETS> 76,398,621
<PER-SHARE-NAV-BEGIN> 11.13
<PER-SHARE-NII> .05
<PER-SHARE-GAIN-APPREC> 1.83
<PER-SHARE-DIVIDEND> .04
<PER-SHARE-DISTRIBUTIONS> .30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.67
<EXPENSE-RATIO> 1.00
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> FIXED INCOME CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 47,906,395
<INVESTMENTS-AT-VALUE> 48,170,887
<RECEIVABLES> 1,241,939
<ASSETS-OTHER> 218,424
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 49,631,250
<PAYABLE-FOR-SECURITIES> 496,025
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 889,816
<TOTAL-LIABILITIES> 1,385,841
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,955,081
<SHARES-COMMON-STOCK> 3,005,603
<SHARES-COMMON-PRIOR> 15,148
<ACCUMULATED-NII-CURRENT> 39,008
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,172)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 264,492
<NET-ASSETS> 48,245,409
<DIVIDEND-INCOME> 8,978
<INTEREST-INCOME> 2,160,766
<OTHER-INCOME> 0
<EXPENSES-NET> 314,289
<NET-INVESTMENT-INCOME> 1,855,455
<REALIZED-GAINS-CURRENT> 457,334
<APPREC-INCREASE-CURRENT> (31,519)
<NET-CHANGE-FROM-OPS> 2,281,270
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,827,430
<DISTRIBUTIONS-OF-GAINS> 506,795
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<NUMBER-OF-SHARES-SOLD> 3,207,908
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<SHARES-REINVESTED> 2,354
<NET-CHANGE-IN-ASSETS> 26,216,183
<ACCUMULATED-NII-PRIOR> 9,027
<ACCUMULATED-GAINS-PRIOR> 38,225
<OVERDISTRIB-NII-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 572,324
<AVERAGE-NET-ASSETS> 32,720,580
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .20
<PER-SHARE-DIVIDEND> .55
<PER-SHARE-DISTRIBUTIONS> .12
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<PER-SHARE-NAV-END> 10.21
<EXPENSE-RATIO> 1.25
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> FIXED INCOME CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 47,906,395
<INVESTMENTS-AT-VALUE> 48,170,887
<RECEIVABLES> 1,241,939
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<TOTAL-ASSETS> 49,631,250
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<OTHER-ITEMS-LIABILITIES> 889,816
<TOTAL-LIABILITIES> 1,385,841
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<PAID-IN-CAPITAL-COMMON> 47,955,081
<SHARES-COMMON-STOCK> 256,890
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<ACCUMULATED-NII-CURRENT> 39,008
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,172)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 264,492
<NET-ASSETS> 48,245,409
<DIVIDEND-INCOME> 8,978
<INTEREST-INCOME> 2,160,766
<OTHER-INCOME> 0
<EXPENSES-NET> 314,289
<NET-INVESTMENT-INCOME> 1,855,455
<REALIZED-GAINS-CURRENT> 457,334
<APPREC-INCREASE-CURRENT> (31,519)
<NET-CHANGE-FROM-OPS> 2,281,270
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<NUMBER-OF-SHARES-SOLD> 258,916
<NUMBER-OF-SHARES-REDEEMED> 2,796
<SHARES-REINVESTED> 770
<NET-CHANGE-IN-ASSETS> 26,216,183
<ACCUMULATED-NII-PRIOR> 9,027
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 146,274
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 572,324
<AVERAGE-NET-ASSETS> 32,720,580
<PER-SHARE-NAV-BEGIN> 10.24
<PER-SHARE-NII> .36
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> .45
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.19
<EXPENSE-RATIO> 1.60
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 033
<NAME> FIXED INCOME CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 47,906,395
<INVESTMENTS-AT-VALUE> 48,170,887
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<TOTAL-ASSETS> 49,631,250
<PAYABLE-FOR-SECURITIES> 496,025
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<OTHER-ITEMS-LIABILITIES> 889,816
<TOTAL-LIABILITIES> 1,385,841
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 47,955,081
<SHARES-COMMON-STOCK> 52,700
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 39,008
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,172)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 264,492
<NET-ASSETS> 48,245,409
<DIVIDEND-INCOME> 8,978
<INTEREST-INCOME> 2,160,766
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<EXPENSES-NET> 314,289
<NET-INVESTMENT-INCOME> 1,855,455
<REALIZED-GAINS-CURRENT> 457,334
<APPREC-INCREASE-CURRENT> (31,519)
<NET-CHANGE-FROM-OPS> 2,281,270
<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 506,795
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<NUMBER-OF-SHARES-SOLD> 69,325
<NUMBER-OF-SHARES-REDEEMED> 16,827
<SHARES-REINVESTED> 202
<NET-CHANGE-IN-ASSETS> 26,216,183
<ACCUMULATED-NII-PRIOR> 9,027
<ACCUMULATED-GAINS-PRIOR> 38,225
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 146,274
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<GROSS-EXPENSE> 572,324
<AVERAGE-NET-ASSETS> 32,720,580
<PER-SHARE-NAV-BEGIN> 10.13
<PER-SHARE-NII> .38
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> .44
<PER-SHARE-DISTRIBUTIONS> .10
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<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 034
<NAME> FIXED INCOME CLASS Y
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> CONSECO HIGH YIELD CLASS A
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> CONSECO HIGH YIELD CLASS B
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 043
<NAME> CONSECO HIGH YIELD CLASS C
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 044
<NAME> CONSECO HIGH YIELD CLASS Y
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> CONSECO 20 CLASS A
<S> <C>
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> CONSECO 20 CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 053
<NAME> CONSECO 20 CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 054
<NAME> CONSECO 20 CLASS Y
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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