March 12, 1999
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Prospectus
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CLASS A, B AND C SHARES
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.
Conseco Fund Group
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Table of Contents
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The Funds
General Information About the Funds ............................... 3
Conseco Fixed Income Fund ......................................... 4
Conseco High Yield Fund ........................................... 6
Conseco Convertible Securities Fund ............................... 8
Conseco Balanced Fund ............................................. 10
Conseco Equity Fund ............................................... 12
Conseco 20 Fund ................................................... 14
Primary Risk Considerations ............................................ 16
Fees and Expenses ...................................................... 18
Management ............................................................. 23
Your Account
Choosing a Share Class ............................................ 26
Determining Share Price ........................................... 30
Buying Shares ..................................................... 31
Selling Shares .................................................... 34
Additional Shareholder Services ................................... 36
Dividends and Distributions ....................................... 37
Tax Considerations ................................................ 38
Distribution and Service Plans .................................... 39
Administrative Fees ............................................... 40
Financial Highlights ................................................... 41
2
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The Adviser's Integrated Approach
To Money Management
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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.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PLEASE NOTE: DEFINITIONS FOR BOLD-FACED WORDS WITHIN THE TEXT CAN BE FOUND
DIRECTLY FOLLOWING EACH FUND'S PRIMARY RISK CONSIDERATIONS.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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> 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).
3
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Conseco Fixed Income Fund
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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 as is 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 the Fund's investment objective, the Adviser 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 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.
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.
4
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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.
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.
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> 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 18 for a
detailed discussion
of the Fund's risks.
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.
Year-By-Year Total Return
(as of 12/31/98) - Class A
1997 1998
8.66% 7.57%
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.
Average Annual Total
Return (as of 12/31/98)*
Since
1 year Inception
Class A **
(Inception 1/2/97) 2.19% 11.00%
. . . . . . . . . . . . . . . . . . . . . . . . .
Lehman Bros.
Aggregate
Bond Index 8.69% 19.19%
. . . . . . . . . . . . . . . . . . . . . . . . .
* 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.
5
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Conseco High Yield Fund
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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 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 markets
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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.
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6
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Below Investment Grade Securities
See page 5.
Fundamental Analysis
See page 5.
Preferred Stock
See page 5.
Zero Coupon Bonds
Bonds that 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 5.
Municipal Securities
See page 5.
> Primary Risks
. . . . . . .
Credit risk
Interest rate risk
Market risk
Restricted
Securities risk
Prepayment risk
Foreign risk
. . . . . . .
See Primary Risk
Considerations
at page 18 for a
detailed discussion
of the Fund's risks.
> 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.
Year-By-Year Total Return
(as of 12/31/98) - Class A
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.
Average Annual
Total Return (as of 12/31/98)*
Since
Inception
Class A**
(Inception 1/1/98) 0.43%
. . . . . . . . . . . . . . . . . . .
Merrill Lynch High
Yield Index 3.66%
* 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.
7
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Conseco Convertible Securities Fund
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Our convertible securities fund offers investors a way to pursue the benefits of
income and capital appreciation through a portfolio of fixed income 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 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.
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8
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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.
Below Investment Grade Securities
See page 5.
Fundamental Analysis
See page 5.
> Primary Risks
. . . . . . . . . .
Credit risk
Interest rate risk
Market risk
Restricted
Securities risk
Foreign risk
Leverage risk
See Primary Risk Considerations at page 18 for a detailed discussion of the
Fund's risks.
> How Has The Fund Performed?
Because the Fund is new it does not have performance to report.
9
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Conseco Balanced Fund
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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.
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.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
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Preferred Stock
See page 5.
Convertible Security
See page 9.
Warrants
Contracts that allow the bearer to purchase shares for a specified price at a
future date.
Yankee Bonds
See page 5.
Below Investment Grade Securities
See page 5.
Primary Risks
. . . . . . .
Market risk
Credit risk
Interest rate risk
Foreign risk
Leverage risk
. . . . . . .
See Primary Risk Consideration at page 18 for a detailed discussion of the
Fund's risks.
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.
> 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.
Year-By-Year Total Return
(as of 12/31/98) - Class A
1997 1998
17.19% 12.45%
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.
Average Annual
Total Return (as of 12/31/98)*
Since
1 year Inception
Class A**
(Inception 1/2/97) 5.98% 24.20%
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Lehman Bros.
Aggregate
Bond Index 8.69% 19.19%
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Standard & Poor's
Midcap 400 Index 19.11% 57.54%
. . . . . . . . . . . . . . . . . . . . . . . . . . .
* 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.
11
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Conseco Equity Fund
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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 similaaar 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 earnings
growth potential
o The stock's 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.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12
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Convertible Securities
See page 9.
Warrants
See page 11.
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.
> Primary Risks
. . . . . . . . . .
Credit risk
Interest rate risk
Liquidity and
Valuation risk
Small Company risk
See Primary Risk Considerations at page 18 for a detailed discussion of the
Fund's risks.
> 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.
Year-By-Year Total Return
(as of 12/31/98) - Class A
1997 1998
22.90% 16.11%
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.
Average Annual Total Return
(as of 12/31/98)*
Since
1 year Inception
------ ---------
Class A**
(Inception 1/2/97) 9.43% 34.50%
. . . . . . . . . . . . . . . . . . . . . . . . . .
Standard & Poor's
500 Index 28.57% 71.46%
. . . . . . . . . . . . . . . . . . . . . . . . . .
Standard & Poor's
Midcap 400 Index 19.11% 57.54%
. . . . . . . . . . . . . . . . . . . . . . . . . .
* 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.
13
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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 Adviser 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.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
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Non-Diversified
A Fund is considered non-diversified if it is not limited by the percentage of
assets it may invest in any one issuer. The success or failure of one issuer
will cause the Fund to fluctuate more than it would in a diversified fund.
Small- and Mid-Cap Companies
See page 13.
Preferred Stock
See page 5.
Convertible Securities
See page 9.
Warrants
See page 11.
> Primary Risks
. . . . . . . . . .
Concentration risk
Market risk
Small Company risk
Liquidity and
Valuation risk
Foreign risk
See Primary Risk Considerations at page 18 for a detailed discussion of the
Fund's risks.
> 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.
Year-By-Year Total Return
(as of 12/31/98) - Class A
1998
28.00%
Best Quarter 4Q98 26.69%
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.
Average Annual Total Return
(as of 12/31/98)*
Since
Inception
Class A**
(Inception 1/1/98) 20.64%
. . . . . . . . . . . . . . . . . . . . . . . . . .
Standard & Poor's
500 Index 28.57%
. . . . . . . . . . . . . . . . . . . . . . . . . .
Standard & Poor's
Midcap 400 Index 19.11%
. . . . . . . . . . . . . . . . . . . . . . . . . .
* 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.
15
<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
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 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.
> 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.
> 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.
16
<PAGE>
> 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.
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.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17
<PAGE>
FEE AND EXPENSES
- -----------------------------------------
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)
- --------------------------------------------------------------------------------
Conseco Fixed Conseco High
Income Fund Yield Fund
- --------------------------------------------------------------------------------
Maximum Front-End
Sales Charge (Load)
Imposed on Purchases: Class A 5.75% 5.75%
- --------------------------------------------------------------------------
Maximum Front-End Sales
Charge (Load) Imposed on
Purchases: Class B and C None None
- --------------------------------------------------------------------------
Maximum Deferred Sales
Charge load: Class A None None
- --------------------------------------------------------------------------
Maximum Deferred Sales
Charge load: Class B* 5.00% 5.00%
- --------------------------------------------------------------------------
Maximum Deferred Sales
Charge load: Class C** 1.00% 1.00%
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Conseco Convertible Conseco Conseco Conseco
Securities Fund Balanced Fund Equity Fund 20 Fund
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Front-End
Sales Charge (Load)
Imposed on Purchases: Class A 5.75% 5.75% 5.75% 5.75%
- -----------------------------------------------------------------------------------------------------------------
Maximum Front-End Sales
Charge (Load) Imposed on
Purchases: Class B and C None None None None
- -----------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales
Charge load: Class A None None None None
- -----------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales
Charge load: Class B* 5.00% 5.00% 5.00% 5.00%
- -----------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales
Charge load: Class C** 1.00% 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 CHARGE APPLIES TO SALE OF CLASS B
SHARES DURING THE FIRST YEAR AFTER PURCHASE. THE CHARGE GENERALLY DECLINES
ANNUALLY, REACHING ZERO AFTER SIX YEARS.
** THE 1% CONTINGENT DEFERRED SALES CHARGE APPLIES ONLY IF AN INVESTOR SELLS
CLASS C SHARES WITHIN THE FIRST YEAR AFTER PURCHASE.
18
<PAGE>
Annual Fund Operating Expenses
(expenses that are deducted from each Fund's assets) as a % of average daily
net assets
CLASS A SHARES
- --------------------------------------------------------------------------------
Conseco Fixed Conseco High
Income Fund Yield Fund
-------------------------------------------------------------------------------
Management and
Administrative Fees 0.65% 0.90%
- --------------------------------------------------------------------------------
Distribution
(12b-1) Fees 0.65% 0.50%
- --------------------------------------------------------------------------------
Other Expenses 0.64% 0.72%
----- -----
- --------------------------------------------------------------------------------
Equals: Total Annual
Fund Operating Expenses 1.94% 2.12%
- --------------------------------------------------------------------------------
Less: Fee Waiver and/or
Expense Reimbursement* 0.69% 0.72%
----- -----
- --------------------------------------------------------------------------------
Equals: Net Expenses 1.25% 1.40%
===== =====
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Conseco Convertible Conseco Conseco Conseco
Securities Fund Balanced Fund Equity Fund 20 Fund
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and
Administrative Fees 1.05% 0.90% 0.90% 0.90%
- ----------------------------------------------------------------------------------------------------------
Distribution
(12b-1) Fees 0.50% 0.50% 0.50% 0.50%
- ----------------------------------------------------------------------------------------------------------
Other Expenses 0.57% 0.86% 0.70% 0.75%
----- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
Equals: Total Annual
Fund Operating Expenses 2.12% 2.26% 2.10% 2.15%
- ----------------------------------------------------------------------------------------------------------
Less: Fee Waiver and/or
Expense Reimbursement* 0.57% 0.76% 0.60% 0.40%
----- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
Equals: Net Expenses 1.55% 1.50% 1.50% 1.75%
===== ===== ===== =====
- ----------------------------------------------------------------------------------------------------------
</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.
19
<PAGE>
FEES AND EXPENSES
- -----------------------------------------
Fees and Expenses
- -----------------------------------------
CLASS B SHARES
- --------------------------------------------------------------------------------
Conseco Fixed Conseco High
Income Fund Yield Fund
- --------------------------------------------------------------------------------
Management and
Administrative Fees 0.65% 0.90%
- --------------------------------------------------------------------------------
Distribution
(12b-1) Fees 1.00% 1.00%
- --------------------------------------------------------------------------------
Other Expenses 1.12% 0.85%
----- -----
- --------------------------------------------------------------------------------
Equals: Total Annual
Fund Operating Expenses 2.77% 2.75%
- --------------------------------------------------------------------------------
Less: Fee Waiver and/or
Expense Reimbursement* 1.17% 0.85%
----- -----
- --------------------------------------------------------------------------------
Equals: Net Expenses 1.60% 1.90%
===== =====
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Conseco Convertible Conseco Conseco Conseco
Securities Fund Balanced Fund Equity Fund 20 Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and
Administrative Fees 1.05% 0.90% 0.90% 0.90%
- ----------------------------------------------------------------------------------------------------------
Distribution
(12b-1) Fees 1.00% 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------
Other Expenses 1.75%+ 2.03% 2.95% 0.83%
----- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
Equals: Total Annual
Fund Operating Expenses
- -------------------------- 3.80% 3.93% 4.85% 2.73%
Less: Fee Waiver and/or--------------------------------------------------------------------------------
Expense Reimbursement* 1.75% 1.93% 2.85% 0.48%
----- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
Equals: Net Expenses 2.05% 2.00% 2.00% 2.25%
===== ===== ===== =====
- ----------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
CLASS C SHARES
- --------------------------------------------------------------------------------
Conseco Fixed Conseco High
Income Fund Yield Fund
- --------------------------------------------------------------------------------
Management and
Administrative Fees 0.65% 0.90%
- --------------------------------------------------------------------------------
Distribution
(12b-1) Fees 1.00% 1.00%
- --------------------------------------------------------------------------------
Other Expenses 4.26% 1.13%
----- -----
- --------------------------------------------------------------------------------
Equals: Total Annual
Fund Operating Expenses 5.91% 3.03%
- --------------------------------------------------------------------------------
Less: Fee Waiver and/or
Expense Reimbursement* 4.31% 1.13%
----- -----
- --------------------------------------------------------------------------------
Equals: Net Expenses 1.60% 1.90%
===== =====
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Conseco Convertible Conseco Conseco Conseco
Securities Fund Balanced Fund Equity Fund 20 Fund
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management and
Administrative Fees 1.05% 0.90% 0.90% 0.90%
- ----------------------------------------------------------------------------------------------------------
Distribution
(12b-1) Fees 1.00% 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------------
Other Expenses 1.75%+ 1.50% 6.61% 0.82%
----- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
Equals: Total Annual
Fund Operating Expenses 3.80% 3.40% 8.51% 2.72%
- ----------------------------------------------------------------------------------------------------------
Less: Fee Waiver and/or
Expense Reimbursement* 1.75% 1.40% 6.51% 0.47%
----- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------
Equals: Net Expenses 2.05% 2.00% 2.00% 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.
+ BECAUSE THE FUND HAS NOT COMPLETED A FULL FISCAL YEAR, OTHER EXPENSES ARE
ESTIMATED
21
<PAGE>
FEES AND EXPENSES
> 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:
CLASS A SHARES
- --------------------------------------------------------------------------------
1 Year 3 Years* 5 Years* 10 Years*
- --------------------------------------------------------------------------------
Conseco
Fixed Income Fund $62 $101 $143 $262
- --------------------------------------------------------------------------------
Conseco High Yield Fund $71 $113 $158 $286
- --------------------------------------------------------------------------------
Conseco Convertible
Securities Fund $72 $114 $159 $286
- --------------------------------------------------------------------------------
Conseco Balanced Fund $72 $117 $165 $300
- --------------------------------------------------------------------------------
Conseco Equity Fund $72 $113 $158 $284
- --------------------------------------------------------------------------------
Conseco 20 Fund $74 $117 $162 $289
- --------------------------------------------------------------------------------
* 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.
CLASS B SHARES
- --------------------------------------------------------------------------------
1 Year 3 Years* 5 Years* 10 Years*
- --------------------------------------------------------------------------------
Conseco
Fixed Income Fund $66 $104 $157 $279
- --------------------------------------------------------------------------------
Conseco High Yield Fund $69 $107 $158 $284
- --------------------------------------------------------------------------------
Conseco Convertible
Securities Fund $71 $130 $204 $353
- --------------------------------------------------------------------------------
Conseco Balanced Fund $70 $132 $209 $368
- --------------------------------------------------------------------------------
Conseco Equity Fund $70 $151 $249 $423
- --------------------------------------------------------------------------------
Conseco 20 Fund $73 $109 $159 $283
- --------------------------------------------------------------------------------
* 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.
CLASS C SHARES
- --------------------------------------------------------------------------------
1 Year 3 Years* 5 Years* 10 Years*
- --------------------------------------------------------------------------------
Conseco
Fixed Income Fund $26 $140 $273 $647
- --------------------------------------------------------------------------------
Conseco High Yield Fund $29 $82 $150 $338
- --------------------------------------------------------------------------------
Conseco Convertible
Securities Fund $31 $100 $184 $417
- --------------------------------------------------------------------------------
Conseco Balanced Fund $30 $91 $167 $376
- --------------------------------------------------------------------------------
Conseco Equity Fund $30 $198 $387 $910
- --------------------------------------------------------------------------------
Conseco 20 Fund $33 $79 $139 $304
- --------------------------------------------------------------------------------
* 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.
22
<PAGE>
MANAGEMENT
- -----------------------------------------
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.
> Advisory Fees
For the fiscal year ended 12/31/98, the advisory fee paid to the Adviser by
each Fund was as follows:
- --------------------------------------------------------------------------------
Fund Name Advisory Fees Paid
- --------------------------------------------------------------------------------
(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 20 Fund 0.15%
- --------------------------------------------------------------------------------
> Conseco Capital
Management, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032
23
<PAGE>
MANAGEMENT
- -------------------------------------------------------
Portfolio Managers of the Conseco Fund Group
- -------------------------------------------------------
> Conseco Fixed Income Fund
GREGORY J. HAHN, CFA, SENIOR VICE PRESIDENT, PORTFOLIO ANALYTICS, CONSECO
CAPITAL MANAGEMENT, INC.
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, CONSECO CAPITAL
MANAGEMENT, INC.
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, CONSECO CAPITAL
MANAGEMENT, INC.
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, CONSECO CAPITAL
MANAGEMENT, INC.
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.
> Conseco Convertible Securities Fund
ANDREW S. CHOW, CFA, FLMI, VICE PRESIDENT, CONSECO CAPITAL MANAGEMENT, INC.
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.
24
<PAGE>
> Conseco Balanced Fund
Gregory J. Hahn, CFA, Senior Vice President, Portfolio Analytics,
Conseco Capital Management, Inc.
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,
CONSECO CAPITAL MANAGEMENT, INC.
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,
CONSECO CAPITAL MANAGEMENT, INC.
See Conseco Balanced Fund for Mr. Pence's complete biography.
> Conseco 20 Fund
THOMAS J. PENCE, CFA, SENIOR VICE PRESIDENT,
CONSECO CAPITAL MANAGEMENT, INC.
See Conseco Balanced Fund for Mr. Pence's complete biography.
ERIK J. VOSS, ASSISTANT VICE PRESIDENT, SENIOR SECURITIES ANALYST,
CONSECO CAPITAL MANAGEMENT, INC.
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.
25
<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 one 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Class A Class B Class C
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Initial sales charge of 5.75% No initial sales charge No initial sales charge
or less for all Funds - except
Conseco Fixed Income Fund
(5.00% or less)
SEE SCHEDULES ON PAGE 31
- ---------------------------------------------------------------------------------------------------------
Lower sales charges for Contingent deferred sales Deferred sales charge of 1%,
larger investments available charge of 5% or less on paid if you sell shares within
SEE SCHEDULES ON PAGE 31 shares sold within six years one year of purchase
SEE SCHEDULE ON PAGE 33
- ---------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------
</TABLE>
FOR ACTUAL PAST EXPENSES OF CLASS A, B AND C SHARES, SEE THE ANNUAL FUND
OPERATING EXPENSE TABLE INFORMATION EARLIER IN THIS PROSPECTUS.
In addition to Class A, B and C shares, Conseco Fund Group also offers 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
26
<PAGE>
> Purchase 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.
The sales charge for Class A shares:
<TABLE>
<CAPTION>
CLASS A SALES CHARGE -- ALL FUNDS EXCEPT CONSECO FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------------------
As a % of Public As a % of Net Dealer Reallowance
On Purchases of: Offering Price Amount Invested As a % of Offering Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
CLASS A SALES CHARGE -- CONSECO FIXED INCOME FUND
- ---------------------------------------------------------------------------------------------------------
As a % of Public As a % of Net Dealer Reallowance
On Purchases of: Offering Price Amount Invested As a % of Offering Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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>
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.
> 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.
27
<PAGE>
YOUR ACCOUNT
- -------------------------------------------------------
Choosing A Share Class (cont.)
- -------------------------------------------------------
> 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.
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.
> Federated Money Market Fund
You may also purchase shares of this money market fund, currently managed by
Federated Management through a separate prospectus. That prospectus is
available upon request by calling 800-986-3384.
28
<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.
<TABLE>
<CAPTION>
DETERMINING THE CDSC
- -----------------------------------------------------------------------------------------------------------
Redemption During Contingent Deferred Sales charge
- -----------------------------------------------------------------------------------------------------------
<S> <C>
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
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").
29
<PAGE>
YOUR ACCOUNT
- -------------------------------------------------------
Determining Shared Price
- -------------------------------------------------------
A Fund's share price is the total 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, 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 the securities held in a Fund.
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
30
<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 Wire your investment to: Simply complete and sign an
be purchased through ABA#011000028 application to begin the process.
authorized broker-dealers, State Street Bank
financial institutions and Boston, MA Make your check payable
service organizations with Account #9905-244-1 to the Fund of your choice.*
whom the distributor has Reference your customer
a selling agreement. name, fund name and If you are adding to your
fund account number existing account, indicate
Important note: Each institution your Fund account number
may have its own procedures For NEW accounts, please directly on the check.
and requirements for buying promptly complete and mail
and selling shares and may the account application form Mail your application
charge fees. Contact your to the Funds at the address and check to:
financial professional for given under "By Mail." Conseco Fund Group
more information P.O. Box 8017
The Funds currently do not Boston, Massachusetts
charge for wire transfers, 02266-8017
although your bank may.
</TABLE>
*No third-party checks are accepted.
Payment for the shares purchased through a financial institution is due on
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.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PLEASE INDICATE WHETHER YOU WOULD LIKE THE ABILITY TO REDEEM OR EXCHANGE
SHARES BY TELEPHONE OR WIRE WHEN YOU COMPLETE YOUR APPLICATION.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31
<PAGE>
YOUR ACCOUNT
- ------------------------------------
Buying Shares
- ------------------------------------
> Choose Your Investment Amount
Conseco Fund Group offers a flexible range of minimum investment amounts to
initiate -- or add to -- your investment program.
- --------------------------------------------------------------------------------
Minimum Investments Per Fund
- --------------------------------------------------------------------------------
To open an account $250
- --------------------------------------------------------------------------------
To make a subsequent investment $50
- --------------------------------------------------------------------------------
To open a pre-authorized investment plan to
transfer assets from bank account to Fund $50
- --------------------------------------------------------------------------------
To open a retirement account through salary reduction $10
- --------------------------------------------------------------------------------
Initiate a Dollar Cost Averaging (DCA) Plan
through Federated Money Market Fund account $5,000
- --------------------------------------------------------------------------------
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.
> 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.
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.
32
<PAGE>
> 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 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.
33
<PAGE>
YOUR ACCOUNT
- ------------------------------------
Selling Shares
- ------------------------------------
Redemption requests should be accompanied by 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 Individual investors may Financial intermediaries, as well
through a broker/dealer or communicate redemption as institutional and individual
other financial intermediary, orders by telephone. investors, may sell shares by
you may redeem your shares writing the Funds at the
by calling them directly. following address:
Financial intermediaries Conseco Fund Group
may communicate P.O. Box 8017
redemption orders Boston, Massachusetts
by wire and telephone. 02266-8017
Important note: Each Redemption certifications
institution may have and signature guarantees may
its own procedures and be required.
requirements for buying
and selling shares and may
charge fees. Contact your
financial professional for
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.
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.
34
<PAGE>
> 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.
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.
35
<PAGE>
YOUR ACCOUNT
- --------------------------------------------
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 Federated Money Market Fund
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.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares from the Federated Money Market Fund may be exchanged back to the
originating Class f 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.
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.
> 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.
36
<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 consists of all dividends and
interest received, less expenses (including fees payable to the Adviser and
its affiliates).
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.
SCHEDULE OF DIVIDEND PAYMENTS
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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.
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.
> Here Are Your Options
o REINVEST ALL DISTRIBUTIONS in additional Fund shares.
o REINVEST ONLY INCOME DIVIDENDS in additional Fund shares. Receive other
distributions in cash.
o REINVEST ONLY OTHER DISTRIBUTIONS in additional Fund shares. Receive
income dividends in cash.
o RECEIVE ALL DISTRIBUTIONS IN CASH. Distributions can be sent via check
to you, or by wire to your bank account.
37
<PAGE>
YOUR ACCOUNT
- --------------------------------------------
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.
38
<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 Fees paid to the Distributor may not be more
Fixed Income Fund, fees paid to the than 1.00% annually of each Fund's average
Distributor may be no more than 0.50% daily net assets attributable to these classes.
annually of the average daily net assets
attributable to Class A 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.
<TABLE>
<CAPTION>
PAYMENTS TO FINANCIAL INTERMEDIARIES
- ---------------------------------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares
- ---------------------------------------------------------------------------------------------------------
<S> ` <C> <C>
The sales charge you pay on Since these shares are Since these shares are
the purchase of Class A shares sold without sales charges, sold without sales charges,
may be retained by the selling the Distributor provides the Distributor provides
broker, dealer or financial compensation to brokers, compensation to brokers,
intermediary. dealers and financial dealers and financial
intermediaries from intermediaries from
its own assets. its own assets.
This compensation is equal This compensation is equal
to 4% of the purchase to 1% of the purchase
amount. amount.
The proceeds from the
contingent deferred sales
charge and the 12b-1 fee,
in part, are used to
defray these expenses.
</TABLE>
39
<PAGE>
YOUR ACCOUNT
- --------------------------------------------
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.
-----------------------------------------------------------------------------
All Funds
-----------------------------------------------------------------------------
Services provided include:
o Supervising the preparation and filing of all documents required for
Fund compliance
o Supervising the maintenance of books and records
o Other general and administrative responsibilities
For such services, the Administrator receives a fee of .20% annually of each
Fund's average daily net assets.
40
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------
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.
41
<PAGE>
FINANCIAL HIGHLIGHTS
Class A Shares
Financial Highlights December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Conseco Conseco Conseco
Fixed Income High Yield Convertible
Fund Fund Securities Fund
- --------------------------------------------------------------------------------------------------------------------------------
For the
period from
commencement
of operations
(September 28, 1998
Year Ended Year Ended through
CLASS A SHARES 1998 1997 1998 December 31, 1998)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C> <C>
Net asset value per share, beginning of period $ 10.13 $ 10.00 $ 10.00 $ 10.00
Income from investment operations (a):
Net investment income (loss) 0.55 0.66 0.76 0.10
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments 0.20 0.18 (0.10) 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.75 0.84 0.66 1.10
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.55) (0.58) (0.66) (0.10)
Distribution of net capital gains (0.12) (0.13) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.67) (0.71) (0.66) (0.10)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 10.21 $ 10.13 $ 10.00 $ 11.00
=================================================================================================================================
Total return (b) (c) 7.57% 8.66% 6.56% 11.04% (d)
=================================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period $ 30,684 $ 153 $ 28,199 $ 27,611
Ratio of expenses to average ner assets (b) 1.25% 1.25% 1.40% 1.55%
Ratio of net investment income (loss)
to average net assets (annualized) (b) 5.28% 5.51% 7.76% 3.80%
</TABLE>
(a) PER SHARE AMOUNTS PRESENTED ARE BASED ON AN AVERAGE OF MONTHLY SHARES
OUTSTANDING THROUGHOUT THE PERIODS INDICATED.
(a) 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
42
<PAGE>
Financial Highlights December 31, 1998 (Cont.)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Conseco Conseco Conseco
Balanced Equity 20
Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
CLASS A SHARES 1998 1997 1998 1997 1998
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C> <C> <C>
Net asset value per share, beginning of period $ 10.73 $ 10.00 $ 11.07 $ 10.00 $ 10.00
Income from investment operations (a):
Net investment income (loss) 0.30 0.28 -- (0.04) (0.02)
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments 1.03 1.43 1.79 2.33 2.82
- --------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 1.33 1.71 1.79 2.29 2.80
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.24)) (0.27) (0.01) -- --
Distribution of net capital gains (0.13) (0.71) (0.30) (1.22) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.37) (0.98) (0.31) (1.22) --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 11.69 $ 10.73 $ 12.55 $ 11.07 $ 12.80
================================================================================================================================
Total return (b) (c) 12.45% 17.19% 16.11% 22.90% 28.00%
================================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period $26,064 $1,076 $ 26,203 $ 4,877 $ 33,845
Ratio of expenses to average ner assets (b) 1.55% 1.50% 1.50% 1.50% 1.75%
Ratio of net investment income (loss)
to average net assets (annualized) (b) 2.66% 2.50% -- (0.35%) (0.22%)
</TABLE>
43
<PAGE>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------
Class B Shares
- ------------------------------------------------
Financial Highlights December 31, 1998 (cont.)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Conseco Conseco Conseco
Fixed Income High Yield Convertible
Fund Fund Securities Fund
- ----------------------------------------------------------------------------------------------------------------------------
For the period from For the period from For the period from
commencement commencement commencement
of operations of operations of operations
(March 20, 1998) (February 19, 1998) (September 28, 1998)
through through through
CLASS B SHARES December 31, 1998 December 31, 1998 December 31, 1998
<S> <C> <C> <C>
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .
Net asset value per share, beginning of period $ 10.24 $ 10.44 $ 10.00
Income from investment operations (a):
Net investment income (loss) 0.36 0.60 0.08
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments 0.14 (0.48) 1.00
- ----------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.50 0.12 1.08
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.45) (0.59) (0.08)
Distribution of net capital gains (0.10) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.55) (0.59) (0.08)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 10.19 $ 9.97 $ 11.00
============================================================================================================================
Total return (b) (c) (d) 4.97% 1.12% 10.89%
============================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period $ 2,619 $ 11,271 $ 1
Ratio of expenses to average net assets (b) 1.60% 1.90% 2.05%
Ratio of net investment income (loss)
to average net assets (annualized) (b) 4.83% 7.27% 3.02%
</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.
44
<PAGE>
Financial Highlights December 31, 1998 (cont.)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Conseco Conseco Conseco
Balanced Equity 20
Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
For the period from For the period from For the period from
commencement commencement commencement
of operations of operations of operations
(February 10, 1998) (January 28, 1998) (February 18, 1998)
through through through
CLASS B SHARES December 31, 1998 December 31, 1998 December 31, 1998
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . .. . .
<S> <C> <C> <C>
Net asset value per share, beginning of period $ 11.20 $ 11.09 $ 11.21
Income from investment operations (a):
Net investment income (loss) 0.19 (0.06) (0.07)
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments 0.57 1.75 1.57
- --------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.76 1.69 1.50
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.22) (0.01) --
Distribution of net capital gains (0.13) (0.30) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.35) (0.31) --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 11.61 $ 12.47 $ 12.71
================================================================================================================================
Total return (b) (c) (d) 6.83% 15.20% 13.38%
================================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period $ 1,301 $ 1,634 $ 7,270
Ratio of expenses to average net assets (b) 2.00% 2.00% 2.25%
Ratio of net investment income (loss)
to average net assets (annualized) (b) 2.09% (0.60%) (0.78%)
</TABLE>
45
<PAGE>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------
Class C Shares
- ---------------------------------------------------
Financial Highlights December 31, 1998 (cont.)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Conseco Conseco Conseco
Fixed Income High Yield Convertible
Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------
For the period from For the period from For the period from
commencement commencement commencement
of operations of operations of operations
(March 5, 1998) (February 19, 1998) (September 28, 1998)
through through through
CLASS C SHARES December 31, 1998 December 31, 1998 December 31, 1998
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .
<S> <C> <C> <C>
Net asset value per share, beginning of period $ 10.13 $ 10.44 $ 10.00
Income from investment operations (a):
Net investment income (loss) 0.38 0.59 0.08
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments 0.26 (0.50) 1.00
- ----------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.64 0.09 1.08
- ----------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.44) (0.58) (0.08)
Distribution of net capital gains (0.10) -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.54) (0.58) (0.08)
- ----------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 10.23 $ 9.95 $ 11.00
============================================================================================================================
Total return (b) (c) (d) 6.44% 0.88% 10.89%
============================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period $ 539 $ 3,685 $ 1
Ratio of expenses to average net assets (b) 1.60% 1.90% 2.05%
Ratio of net investment income (loss)
to average net assets (annualized) (b) 4.98% 7.22% 3.02%
</TABLE>
FOR INFORMATION ON THE CONSECO INTERNATIONAL FUND, PLEASE REFER TO PAGES 54, 55
(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.
46
<PAGE>
Financial Highlights December 31, 1998 (cont.)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Conseco Conseco Conseco
Balanced Equity 20
Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
For the period from For the period from For the period from
commencement commencement commencement
of operations of operations of operations
(February 13, 1998) (February 19, 1998) (March 10, 1998)
through through through
CLASS C SHARES December 31, 1998 December 31, 1998 December 31, 1998
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .
<S> <C> <C> <C>
Net asset value per share, beginning of period $ 11.31 $ 11.98 $ 11.82
Income from investment operations (a):
Net investment income (loss) 0.20 (0.06) (0.07)
Net realized gains (losses) and change in
unrealized appreciation (depreciation)
on investments 0.48 0.93 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.68 0.87 0.93
- --------------------------------------------------------------------------------------------------------------------------------
Distributions:
Dividends from net investment income (0.20) (0.01) --
Distribution of net capital gains (0.13) (0.30) --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.33) (0.31) --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value per share, end of period $ 11.66 $ 12.54 $ 12.75
================================================================================================================================
Total return (b) (c) (d) 6.10% 7.21% 7.87%
================================================================================================================================
Ratios/supplemental data:
Net assets (dollars in thousands),
end of period $ 1,197 $ 616 $ 2,982
Ratio of expenses to average net assets (b) 2.00% 2.00% 2.25%
Ratio of net investment income (loss)
to average net assets (annualized) (b) 2.08% (0.68%) (0.81%)
</TABLE>
47
<PAGE>
FINANCIAL HIGHLIGHTS
- ---------------------------------------------------
Class A, B and C Shares
- ---------------------------------------------------
Financial Highlights December 31, 1998 (cont.)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Conseco Conseco Conseco
Fixed Income High Yield Convertible
Fund Fund Securities Fund
- ---------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Period Ended
SUPPLEMENTAL DATA FOR ALL CLASSES 1998 1997 1998 1998(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .
<S> <C> <C> <C> <C>
Net asset value (dollars in thousands),
end of period $ 48,245 $ 22,029 $ 44,392 $ 27,614
Portfolio turnover rate 420.83% 367.82% 432.08% 12.95%
</TABLE>
(a) FOR THE PERIOD FROM COMMENCEMENT OF OPERATIONS (SEPTEMBER 28, 1998) THROUGH
DECEMBER 31, 1998.
48
<PAGE>
Financial Highlights December 31, 1998 (cont.)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Conseco Conseco Conseco
Balanced Equity 20
Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended Year Ended Year Ended
1998 1997 1998 1997 1998
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<S> <C> <C> <C> <C> <C>
Net asset value (dollars in thousands),
end of period $ 32,700 $ 13,113 $89,270 $65,211 $44,269
Portfolio turnover rate 341.20% 506.64% 350.13% 199.12% 411.71%
</TABLE>
49
<PAGE>
CONSECO FUND GROUP
This page intentionally left blank.
<PAGE>
New Account Application
Class A, B & C Shares
Conseco Fixed Income Fund [LOGO]
Conseco High Yield Fund CONSECO(R)
Conseco Convertible Securities Fund Step up.(TM)
Conseco Balanced Fund
Conseco Equity Fund
Conseco 20 Fund
- --------------------------------------------------------------------------------
1 REGISTRATION [ ] Individual Account
[ ] Joint Tenant With Rights of Survivorship - WILL BE
REGISTERED IN CASE OF TWO OR MORE SHAREHOLDERS UNLESS
OTHERWISE SPECIFIED.
[ ] Tenants in Common - WILL BE REGISTERED IN CASE OF TWO OR
MORE SHAREHOLDERS WHEN THE SHAREHOLDER RESIDES IN LA,
TX, OR TN UNLESS OTHERWISE SPECIFIED.
[ ] Uniform Transfers or Gifts to Minors Acts (UTMA or
UGMA)-USE THE NAME OF THE ADULT CUSTODIAN ON THE
SHAREHOLDER LINE AND THE NAME OF THE CHILD ON THE
CO-SHAREHOLDER LINE. USE THE CHILDS SOCIAL SECURITY
NUMBER IN SECTION 3.
[ ] Trust Accounts - PLEASE INDICATE THE NAME(S) OF THE
TRUSTEE(S) AUTHORIZED TO ACT ON BEHALF OF THE TRUST ON
THE SHAREHOLDER LINE AND THE NAME OF THE TRUST AND DATE
OF THE TRUST ON THE CO-SHAREHOLDER LINE. (IF MORE THAN
ONE TRUSTEE IS NAMED, ALL MUST ACT UNLESS OTHERWISE
INDICATED.)
[ ] Corporations, Businesses, or Other Entities - PLEASE
INDICATE THE NAME OF THE ORGANIZATION ON THE SHAREHOLDER
LINE.
[ ] Retirement Plans - PLEASE INDICATED THE NAME(S) OF THE
TRUSTEE(S) ON THE SHAREHOLDER LINE AND THE NAME OF THE
RETIREMENT PLAN ON THE CO-SHAREHOLDER LINE. (IF MORE
THAN ONE TRUSTEE IS NAMED, ALL MUST ACT UNLESS OTHERWISE
INDICATED.)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Shareholder Name (First, MI, Last) Date of Birth (Month/Day/Year)
<S> <C>
--------------------------------------------------------------------------------------------------------
Co-Shareholder Name (First, MI, Last) Date of Birth (Month/Day/Year)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 MAILING
ADDRESS --------------------------------------------------------------------------------------------------------
Street Address
--------------------------------------------------------------------------------------------------------
City State Zip Code
--------------------------------------------------------------------------------------------------------
Daytime Telephone Number Fax Number
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 TAXPAYER -- -- --
ID NUMBER --------------------------------------------------------------------------------------------------------
Social Security Number Tax Payer Identification Number
If the account has more than one name, provide the social security number of the actual owner of the
account, or, if a joint account, the first person listed. For custodial accounts, provide the social
security number of the minor.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Initial Initial
4 PURCHASE Minimum initial investment Shares Investment Shares Investment
OF SHARES per fund: $250 A B C Amount A B C Amount
Conseco Fixed Income Fund [ ] [ ] [ ] $______ Conseco Equity Fund [ ] [ ] [ ] $______
0513 0586 0589 0511 0079 0574
Conseco High Yield Fund [ ] [ ] [ ] $______ Conseco 20 Fund [ ] [ ] [ ] $______
0428 0429 0430 0592 0593 0595
Conseco Convertible [ ] [ ] [ ] $______ Federated Money [ ] $______
Securities Fund 0425 0426 0439 Market Fund 0514
Conseco Balanced Fund [ ] [ ] [ ] $______
0512 0579 0582
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I understand that through accumulated investments I can reduce my sales charges on Class A shares. I
plan to invest over a 13- month period in Class A shares of one or more of the portfolios of the
Conseco Fund Group in an aggregate amount of at least:
5 LETTER OF [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000
INTENT/ Part of my shares will be held in escrow. If I do not invest the amount indicated, you can redeem the
RIGHT OF escrowed shares to satisfy the sales charge.
ACCUMULATION I own class A shares of one or more portfolios in the Conseco Fund Group or a Conseco Variable Insurance
OPTION Company variable annuity contract, which may entitle me to a reduced sales charge.
----------------------------------------------------------------------------------------------------------
Account or Contract Number
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
6 EXCHANGE/ You can use the telephone to purchase, exchange, or redeem fund shares among identically registered
PURCHASE/ accounts unless you indicate otherwise below:
REDEMPTION [ ] I do not want telephone exchange, purchase or redemption privileges.
OF SHARES
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 DISTRIBUTION Your dividends and capital gains WILL BE REINVESTED in their respective funds. If you wish to receive
OPTIONS them in cash, please check the appropriate box(es):
Dividends Capital Gains Dividends Capital Gains
Conseco Fixed Income Fund [ ] [ ] Conseco Balanced Fund [ ] [ ]
Conseco High Yield Fund [ ] [ ] Conseco Equity Fund [ ] [ ]
Conseco Convertible [ ] [ ] Conseco 20 Fund [ ] [ ]
Securities Fund
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 WIRE/
ELECTRONIC You may purchase or redeem fund shares by simply calling a Conseco Fund Group service representative.
TRANSFER Your transaction will be processed by electronically moving money between your bank and mutual fund
OPTIONS accounts. Transfers can only be made when you initiate them and are made through the Automatic Clearing
House (ACH) network or by wire. To initiate transfers by phone, please be sure that you do not decline
the phone redemption service in Section 6.
[ ] I authorize this service, and have attached a voided check or deposit slip.
Any co-owner of your bank account who is NOT a co-owner of your fund account must sign below to authorize
this service.
---------------------------------------------------- --------------------------------------------------
Signature of Co-Owner Signature of Co-Owner
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9 AUTOMATIC You may begin your initial investment program into a portfolio with a minimum automatic investment of
INVESTMENT $50 per fund per month.
PROGRAM (ACH) Transfer $______________ from my bank account to _________________________________________(fund name)
[ ] monthly, [ ] quarterly, [ ] semi-annually, or [ ] annually, to my Conseco account as set forth
in the prospectus, starting in (month) on the day of each month (must be between 3rd and 28th).
[ ] I authorize this service, and have attached a voided check or deposit slip.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 SYSTEMATIC Please withdraw ($50 minimum per withdrawal) $______________ [ ] monthly, [ ] quarterly, [ ] semi-annually, or
WITHDRAWAL/ [ ] annually, from my Conseco account as set forth in the prospectus, starting in __________ (month). The
EXCHANGE PLAN value of the account must be at least $5,000 at the time the plan is established.
Send all proceeds to q another Conseco Fund, Account # ______________, [ ] address of record,
[ ] bank account as referenced in attached voided check or deposit slip, OR [ ] the following individual/
location:
----------------------------------------------------------------------------------------------------------
Name or Location Address
[ ] I authorize this service, and have attached a voided check or deposit slip if needed.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11 Broker/
Dealer ---------------------------------------------------- --------------------------------------------------
Information Dealer Rep Name/Number
----------------------------------------------------------------------------------------------------------
Office Authorized Signature
By signing this form, I certify that I have received, read and agree to the terms of the prospectus for the Fund(s) in
which I am investing. I have the authority and legal capacity to purchase mutual fund shares, am of legal age in my
state, and believe each investment is suitable for me.
I authorize Conseco Fund Group and their affiliates and agents to act on any instructions believed to be genuine for any
service authorized on this form, including telephone purchase, redemption and exchange. Conseco Fund Group uses
reasonable procedures (including shareholder identity verification) to confirm that instructions given by telephone are
genuine. If these procedures are not followed, it is the opinion of certain regulatory agencies that Conseco Fund Group
may not be liable for any loss that may result from acting on instructions given. I understand that anyone can make
phone purchase, redemptions, or exchanges on my behalf and that redemption checks will be sent to the owner(s) shown in
Section 1 at the address shown in Section 2.
Conseco Fund Group can redeem shares from my account(s) to reimburse a Fund for any loss due to nonpayment or other
indebtedness.
Under penalty of perjury, I am NOT currently subject to IRS backup withholding because (1) I have not been notified or
(2) notification has been revoked. (Cross out "NOT" if you are currently subject to IRS backup withholding.)
Under penalty of perjury, the Social Security or Tax Identification number(s) given are correct. If I fail to give the
correct number or sign this form, Conseco Fund Group may reject, restrict or redeem my investment. If I fail to give the
correct number or sign this form, I may be subject to an IRS backup withholding of 31% of all distributions and
redemptions, and I may be subject to a $50.00 IRS penalty.
By selecting the electronic transfer service in Section 8, I hereby authorize Conseco Fund Group to initiate credit and
debit entries to my (our) account at the Financial Institution indicated and for the Financial Institution to credit or
debit the same to such account through the Automated Clearing House (ACH) system, subject to the rules of the Financial
Institution, ACH and the Conseco Fund Group. Conseco Fund Group may correct any transaction error with a debit or credit
to my account and/or Conseco Fund Group account. This authorization, including any credit or debit entries initiated
thereunder, is in full force and effect until I notify Conseco Fund Group of its revocation by telephone or in writing
and has had sufficient time to act on it.
THE FEDERATED MONEY MARKET FUND IS MANAGED BY FEDERATED INVESTMENTS.
- ---------------------------------------------------------------------------------------------------------------------------
Signature of Owner Date Signature of Co-Owner Date
CONSECO FUND GROUP P.O. BOX 8017 BOSTON, MA 02266-8017 800-986-3384
</TABLE>
<PAGE>
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<PAGE>
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<PAGE>
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<PAGE>
FOR MORE INFORMATION
- --------------------------------------------
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 Funds' 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.
> 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, BIC
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 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 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.........................................................7
TEMPORARY DEFENSIVE POSTIONS.................................................11
PORTFOLIO TURNOVER...........................................................11
DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES..........................12
INVESTMENT PERFORMANCE.......................................................36
SECURITIES TRANSACTIONS......................................................40
MANAGEMENT...................................................................42
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES..........................48
FUND EXPENSES................................................................53
DISTRIBUTION ARRANGEMENTS....................................................53
PURCHASE, REDEMPTION AND PRICING OF SHARES...................................56
INFORMATION ON CAPITALIZATION AND OTHER MATTERS..............................62
TAXES........................................................................63
FINANCIAL STATEMENTS.........................................................69
APPENDIX A SECURITIES RATINGS................................................70
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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 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.
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 has adopted the following policies relating to the investment of
assets of the Funds, and their activities. These are fundamental policies and
may not be changed without the approval of the holders of a "majority" of the
outstanding shares of the affected Fund. 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 may be effected with the approval of the holders of a majority of the
outstanding shares of the Fund. 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.
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;
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2. Purchase or sell commodities or commodity contracts (which, for the
purpose of this restriction, shall not include foreign currency futures
or forward currency contracts), except: (a) any Fund may engage in
interest rate futures contracts, stock index futures, futures contracts
based on other financial instruments, and options on such futures
contracts; and (b) Conseco 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);
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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.
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.
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):
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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.
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.
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<PAGE>
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.
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.
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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
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
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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 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.
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In addition to the investment strategies described in the Prospectus and in
"Description of Securities and Investment Techniques," the CONSECO 20 FUND may:
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.
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
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
-----------------------------------------------------------------------
FUND NAME: 1997 1998
-----------------------------------------------------------------------
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%
-----------------------------------------------------------------------
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. All investment
policies and practices described in this SAI are not fundamental, meaning that
the Trust's Board of Trustees ("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.
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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 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.
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DEBT SECURITIES
The Funds 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.
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, 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 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
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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 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.
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.
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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 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
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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 may invest in mortgage-backed securities. Mortgage-backed securities
are interests in "pools" of mortgage loans made to residential home buyers,
including mortgage loans made by savings and loan institutions, mortgage
bankers, commercial banks and others. Pools of mortgage loans are assembled as
securities for sale to investors by various governmental, government-related and
private organizations (see "Mortgage Pass-Through Securities," below). These
Funds may also invest in debt securities which are secured with collateral
consisting of mortgage-backed securities (see "Collateralized Mortgage
Obligations," below), and in other types of mortgage-related securities. The
Conseco 20 Fund presently does not intend to invest more than 5% of its assets
in mortgage-backed securities.
MORTGAGE PASS-THROUGH SECURITIES. These are securities representing
interests in pools of mortgages in which periodic payments of both interest and
principal on the securities are made by "passing through" periodic payments made
by the individual borrowers on the residential mortgage loans underlying such
securities (net of fees paid to the issuer or guarantor of the securities and
possibly other costs). Early repayment of principal on mortgage pass-through
securities (arising from prepayments of principal due to sale of the underlying
property, refinancing, or foreclosure, net of fees and costs which may be
incurred) may expose a Fund to a lower rate of return upon reinvestment of
principal. Payment of principal and interest on some mortgage pass-through
securities may be guaranteed by the full faith and credit of the U.S. Government
(in the case of securities guaranteed by the Government National Mortgage
Association ("GNMA")), or guaranteed by agencies or instrumentalities of the
U.S. Government (in the case of securities guaranteed by Fannie Mae ("FNMA") or
Freddie Mac ("FHLMC")). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers, and other
secondary market issuers) may be uninsured or may be supported by various forms
of insurance or guarantees, including individual loan, title, pool and hazard
insurance, and letters of credit, which may be issued by governmental entities,
private insurers, or the mortgage poolers.
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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 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
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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
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interest rate or other similar factors. The original issue discount approximates
the total amount of interest the bonds will accrue and compound over the period
until maturity (or the first interest payment date) at a rate of interest
reflecting the market rate at the time of issuance. Because zero coupon bonds do
not make periodic interest payments, their prices can be very volatile when
market interest rates change.
The original issue discount on zero coupon bonds must be included in a Fund's
income ratably as it accrues. Accordingly, to qualify for tax treatment as a
regulated investment company and to avoid a certain excise tax, a Fund may be
required to distribute as a dividend an amount that is greater than the total
amount of cash it actually receives. These distributions must be made from the
Fund's cash assets or, if necessary, from the proceeds of sales of portfolio
securities. Such sales could occur at a time which would be disadvantageous to a
Fund and when the Fund would not otherwise choose to dispose of the assets.
PAY-IN-KIND BONDS
The Conseco High Yield, 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.
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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.
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
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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 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.
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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 may invest in restricted securities, such as private placements, and
in Rule 144A securities. Once acquired, restricted securities may be sold by a
Fund only in privately negotiated transactions or in a public offering with
respect to which a registration statement is in effect under the 1933 Act. If
sold in a privately negotiated transaction, a Fund may have difficulty finding a
buyer and may be required to sell at a price that is less than it had
anticipated. Where registration is required, a Fund may be obligated to pay all
or part of the registration expenses and a considerable period may elapse
between the time of the decision to sell and the time the Fund may be permitted
to sell a security under an effective registration statement. If, during such a
period, adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
are generally considered illiquid.
Rule 144A securities, although not registered, may be resold to qualified
institutional buyers in accordance with Rule 144A under the 1933 Act. The
Adviser, acting pursuant to guidelines established by the Board, may determine
that some Rule 144A securities are liquid.
A Fund may not invest in any security if, as a result, more than 15% of the
Fund's net assets would be invested in illiquid securities, which are securities
that cannot be expected to be sold within seven days at approximately the price
at which they are valued.
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
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value of such securities each day in determining the Fund's net asset value.
However, a Fund will not accrue any income on these securities prior to
delivery. There are no fees or other expenses associated with these types of
transactions other than normal transaction costs. To the extent a Fund engages
in when-issued and delayed delivery transactions, it will do so for the purpose
of acquiring instruments consistent with its investment objective and policies
and not for the purpose of investment leverage or to speculate on interest rate
changes. When effecting when-issued and delayed delivery transactions, cash or
liquid securities in an amount sufficient to make payment for the obligations to
be purchased will be segregated at the trade date and maintained until the
transaction has been settled. A Fund may dispose of these securities before the
issuance thereof. However, absent extraordinary circumstances not presently
foreseen, it is each Fund's policy not to divest itself of its right to acquire
these securities prior to the settlement date thereof.
VARIABLE AND FLOATING RATE SECURITIES
Variable rate securities provide for automatic establishment of a new interest
rate at fixed intervals (i.e., daily, monthly, semi-annually, etc.). Floating
rate securities provide for automatic adjustment of the interest rate whenever
some specified interest rate index changes. The interest rate on variable or
floating rate securities is ordinarily determined by reference to, or is a
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 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
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institution has no outstanding securities rated by Moody's or S&P, it has,
in the determination of the Adviser, similar creditworthiness to
institutions having outstanding securities so rated;
2. In the case of a U.S. bank or S&L, its deposits are federally insured; and
3. In the case of a foreign bank, the security is, in the determination of the
Adviser, of an investment quality comparable with other debt securities
which may be purchased by the Fund. These limitations do not prohibit
investments in securities issued by foreign branches of U.S. banks,
provided such U.S. banks meet the foregoing requirements.
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. 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.
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.
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In a mortgage dollar roll, a Fund sells a fixed income security for delivery in
the current month and simultaneously contracts to repurchase a substantially
similar security (same type, coupon and maturity) on a specified future date.
During the roll period, the Fund would forego principal and interest paid on
such securities. The Fund would be compensated by the difference between the
current sales price and the forward price for the future purchase, as well as by
any interest earned on the proceeds of the initial sale.
In accordance with regulatory requirements, a Fund will segregate cash or liquid
securities whenever it enters into reverse repurchase agreements or mortgage
dollar rolls. Such transactions may be considered to be borrowings for purposes
of the Funds' fundamental policies concerning borrowings.
WARRANTS
The holder of a warrant has the right to purchase a given number of shares of a
security of a particular issuer at a specified price until expiration of the
warrant. Such investments provide greater potential for profit than a direct
purchase of the same amount of the securities. Prices of warrants do not
necessarily move in tandem with the prices of the underlying securities, and
warrants are considered speculative investments. They pay no dividends and
confer no rights other than a purchase option. If a warrant is not exercised by
the date of its expiration, a Fund would lose its entire investment in such
warrant.
INTEREST RATE TRANSACTIONS
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
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interest rate swap, cap, floor, or collar will be accrued on a daily basis and
an amount of cash or liquid securities having an aggregate value at least equal
to the accrued excess will be maintained in a segregated account by the
custodian.
A Fund will not enter into any interest rate transaction unless the unsecured
senior debt or the claims-paying ability of the other party thereto is rated in
the highest rating category of at least one NRSRO at the time of entering into
such transaction. If there is a default by the other party to such transaction,
a Fund will have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
agents. As a result, the swap market has become well established and provides a
degree of liquidity.
Caps, floors and collars are more recent innovations which tend to be less
liquid than swaps.
STEP DOWN PREFERRED SECURITIES
Step down perpetual preferred securities are issued by a real estate investment
trust ("REIT") making a mortgage loan to a single borrower. The dividend rate
paid by these securities is initially relatively high, but declines yearly. The
securities are subject to call if the REIT suffers an unfavorable tax event, and
to tender by the issuer's equity holder in the 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
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
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seller to make delivery, of a specified quantity of the underlying financial
instrument, such as U.S. Treasury bills and bonds, in a stated delivery month at
a price fixed in the contract.
The Funds may purchase and sell interest rate futures as a hedge against changes
in interest rates that would adversely impact the value of debt instruments and
other interest rate sensitive securities being held or to be purchased by a
Fund. A Fund might employ a hedging strategy whereby it would purchase an
interest rate futures contract when it intends to invest in long-term debt
securities but wishes to defer their purchase until it can orderly invest in
such securities or because short-term yields are higher than long-term yields.
Such a purchase would enable the Fund to earn the income on a short-term
security while at the same time minimizing the effect of all or part of an
increase in the market price of the long-term debt security which the Fund
intends to purchase in the future. A rise in the price of the long-term debt
security prior to its purchase either would be offset by an increase in the
value of the futures contract purchased by the Fund or avoided by taking
delivery of the debt securities under the futures contract.
A Fund would sell an interest rate futures contract to continue to receive the
income from a long-term debt security, while endeavoring to avoid part or all of
the decline in market value of that security which would accompany an increase
in interest rates. If interest rates rise, a decline in the value of the debt
security held by the Fund would be substantially offset by the ability of the
Fund to repurchase at a lower price the interest rate futures contract
previously sold. While the Fund could sell the long-term debt security and
invest in a short-term security, this would ordinarily cause the Fund to give up
income on its investment since long-term rates normally exceed short-term rates.
STOCK INDEX FUTURES CONTRACTS (CONSECO 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
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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 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.
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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 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.
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OPTIONS ON SECURITIES AND SECURITIES INDICES
The Funds may purchase put and call options on securities, and (except for the
Conseco Fixed Income and Conseco High Yield Funds) put and call options on stock
indices, at such times as the Adviser deems appropriate and consistent with a
Fund's investment objective. The 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
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option, the Fund is obligated, as the writer of the option, to own the
underlying securities subject to the option or hold a call at an equal or lower
exercise price, for the same exercise period, and on the same securities as the
written call. Under a secured put option, a Fund must maintain, in a segregated
account with the Trust's custodian, cash or liquid securities with a value
sufficient to meet its obligation as writer of the option. A put may also be
secured if the Fund holds a put on the same underlying security at an equal or
greater exercise price. Prior to exercise or expiration, an option may be closed
out by an offsetting purchase or sale of an option by the same Fund. 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
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volume or other events, and a decision by one or more national securities
exchanges to discontinue the trading of options or to impose restrictions on
certain types of orders.
There also can be no assurance that a Fund would be able to liquidate an
over-the-counter ("OTC") option at any time prior to expiration. In contrast to
exchange-traded options where the clearing organization affiliated with the
particular exchange on which the option is listed in effect guarantees
completion of every exchange-traded option, OTC options are contracts between a
Fund and a counter-party, with no clearing organization guarantee. Thus, when a
Fund purchases an OTC option, it generally will be able to close out the option
prior to its expiration only by entering into a closing transaction with the
dealer from whom the Fund originally purchased the option.
Since option premiums paid or received by a Fund are small in relation to the
market value of underlying investments, buying and selling put and call options
offer large amounts of leverage. Thus, trading in options could result in a
Fund's net asset value being more sensitive to changes in the value of the
underlying securities.
FOREIGN CURRENCY TRANSACTIONS (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.
Except for 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.
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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 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"),
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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 and Conseco
20 Funds will not make such loans if, as a result, the aggregate amount of all
outstanding securities loans would exceed 33 1/3% of the Fund's total assets. As
a fundamental policy of 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 to be of good financial standing and that have been
approved by the Board.
BORROWING
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
35
<PAGE>
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 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
The Funds 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.
36
<PAGE>
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.
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
37
<PAGE>
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*
Class A N/A N/A
Class B
Class 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 20
Class A N/A 20.64%
Class B N/A 7.71%
Class C N/A 2.76%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
*Because the Fund is new it does not have performance to report.
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
38
<PAGE>
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.
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,
39
<PAGE>
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.
SECURITIES TRANSACTIONS
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
40
<PAGE>
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 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
41
<PAGE>
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
42
<PAGE>
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.
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.
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 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
43
<PAGE>
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 and 0.85% of the average
daily net asset value of the Conseco Convertible Securities Fund.
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:
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 20 1.75% 2.25%
This contractual arrangement does not cover interest, taxes, brokerage
commissions, and extraordinary expenses.
<TABLE>
<CAPTION>
ADVISORY FEES ACCRUED AMOUNT REIMBURSED/WAIVED
FUND FISCAL YEAR ENDED FISCAL YEAR ENDED
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 20 N/A $166,646 N/A $ 98,505
</TABLE>
+The Convertible Securities Fund commenced operations on September 28, 1998.
Each 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.
44
<PAGE>
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 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
For providing these services, the Administrator receives a fee from each of the
Funds of .20% 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,
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 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.
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.
45
<PAGE>
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 Consultant to insurance and healthcare
5723 Trail Meadow Board, Trustee industries. Director, President and Chief
Dallas, TX 75230 Executive Officer, FFG Insurance Co. Chairman of
the Board and Trustee of other mutual funds
managed by the Adviser.
Maxwell E. Bublitz* (43) President and Chartered Financial Analyst. President and
11825 N. Pennsylvania St. Trustee Director, Adviser. Previously,
Carmel, IN 46032 Senior Vice President, Adviser. President and
Trustee of 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 President, Adviser. Portfolio Manager of the
Carmel, IN 46032 Trustee 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. Previously,
317 Peppard Drive, S.W. Executive Vice President, Tenneco Financial
Ft. Myers Beach, Fl 33913 Services, Inc. Trustee of other mutual funds
managed by the Adviser. Director, Ennis Business
Forms, Inc.
Dr. R. Jan LeCroy (68) Trustee Retired. President, Dallas Citizens Council.
841 Liberty Trustee of other mutual funds managed by the
Dallas, TX 75204 Adviser. Director, Southwest Securities Group,
Inc.
</TABLE>
46
<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 Principal, Walthall Asset Management. Former President,
13355 Noel Road, Suite 1050 chief Executive Officer and Director of Lyrick
Dallas, TX 75240 Corporation. Formerly, President and CEO, Heritage Media
Corporation. Formerly, Director, Eagle National Bank.
Trustee of other mutual funds managed by the Adviser.
</TABLE>
47
<PAGE>
- ------------------
* The Trustee so indicated is an "interested person," as defined in the 1940
Act, of the Trust due to the positions indicated with the Adviser and its
affiliates.
The following table shows the compensation of each disinterested Trustee for the
fiscal year ending December 31, 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>
- ------------------
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 10.08%
Class A Company (formerly, American
Travellers Life Insurance Co.)
11815 North Pennsylvania St.
Carmel, Indiana 46032-4555
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
<S> <C> <C>
National Fidelity Life Insurance Company 5.05%
11815 North Pennsylvania St.
Carmel, Indiana 46032-4555
Philadelphia Life Insurance Co. 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
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 Insurance Company 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
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
<S> <C> <C>
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 Bankers Life and Casualty Company 99.93%
Fund 11815 North Pennsylvania St.
Class A Carmel, IN 46032-4555
Conseco Convertible Securities Conseco Capital Management, Inc. 17.04%
Fund 11825 North Pennsylvania St.
Class B Carmel, IN 46032-4555
Merrill Lynch, Pierce, Fenner & Smith 80.36%
4800 Deer Lake Dr. E
Jacksonville, FL 32246-6484
Conseco Convertible Securities Merrill Lynch, Pierce, Fenner & Smith 81.71%
Fund 4800 Deer Lake Dr. E
Class C Jacksonville, FL 32246-6484
Conseco Capital Management, Inc. 15.87%
11825 North Pennsylvania St.
Carmel, IN 46032-4555
50
<PAGE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
<S> <C> <C>
Conseco Balanced Fund Conseco Senior Health Insurance Co. (formerly, 13.37%
Class A American Travellers Life Insurance Co.)
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Bankers Life and Casualty Company 6.68%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Philadelphia Life Insurance Company 6.68%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Charles Schwab & Co. Inc. 47.70%
101 Montgomery St.
San Francisco, CA 94104-4122
51
<PAGE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
<S> <C> <C>
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 Conseco Senior Health Insurance Co. 14.41%
Class A (formerly, American Travellers Life
Insurance Co.)
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Bankers Life and Casualty Company 7.24%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
Philadelphia Life Insurance Company 7.24%
11815 North Pennsylvania St.
Carmel, IN 46032-4555
52
<PAGE>
<CAPTION>
FUND NAME NAME AND ADDRESS PERCENT OWNED
<S> <C> <C>
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 20 Fund Conseco Life Insurance Company 40.66%
Class A 11815 North Pennsylvania St.
Carmel, IN 46032-4555
Conseco Health Insurance Company (formerly, 42.57%
Capitol American Life Insurance Co.)
11815 North Pennsylvania St.
Carmel, IN 46032-4555
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.
53
<PAGE>
FUND EXPENSES
Each Fund pays its own expenses including, without limitation: (i)
organizational and offering expenses of the Fund and expenses incurred in
connection with the issuance of shares of the Fund; (ii) fees of its custodian
and transfer agent; (iii) expenditures in connection with meetings of
shareholders and Trustees; (iv) compensation and expenses of Trustees who are
not interested persons of the Trust; (v) the costs of any liability,
uncollectible items of deposit and other insurance or fidelity bond; (vi) the
cost of preparing, printing, and distributing prospectuses and statements of
additional information, any supplements thereto, proxy statements, and reports
for existing shareholders; (vii) legal, auditing, and accounting fees; (viii)
trade association dues; (ix) filing fees and expenses of registering and
maintaining registration of shares of the Fund under applicable federal and
state securities laws; (x) brokerage commissions; (xi) taxes and governmental
fees; and (xii) extraordinary and non-recurring expenses.
DISTRIBUTION ARRANGEMENTS
Conseco Equity Sales, Inc. (the "Distributor") serves as the principal
underwriter for each Fund pursuant to an Underwriting Agreement, dated January
2, 1997 as amended December 31, 1997. The 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 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:
54
<PAGE>
<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*
Class A 0 0 0
Class B 0 0 0
Class C 57 0 57
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
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
55
<PAGE>
"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 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:
- --------------------------------------------------------------------------------
FUND CLASS A CLASS B CLASS 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
- --------------------------------------------------------------------------------
Conseco Equity 85,658 6,090 1,706
- --------------------------------------------------------------------------------
Conseco 20 99,488 26,070 12,542
- --------------------------------------------------------------------------------
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
56
<PAGE>
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.
For each of the Funds 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
57
<PAGE>
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.
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 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
58
<PAGE>
subject to any contingent deferred sales charge so long as a shareholder does
not withdraw annually more than 12% of the SWP account.
Any income dividends or capital gain distributions on shares under the SWP will
be credited to the SWP account on the payment date in full and fractional shares
at the net asset value per share in effect on the record date.
SWP payments are made from the proceeds of the redemption of shares deposited in
a SWP account. Redemptions are taxable transactions to shareholders. To the
extent that such redemptions for periodic withdrawals exceed dividend income
reinvested in the SWP account, such redemptions will reduce and may ultimately
exhaust the number of shares deposited in the SWP account. In addition, the
amounts received by a shareholder cannot be considered as an actual yield or
income on his or her investment because part of such payments may be a return of
his or her capital.
The SWP may be terminated at any time (1) by written notice to the Fund or from
the Fund to the shareholder; (2) upon receipt by the Fund of appropriate
evidence of the shareholder's death; or (3) when all shares under the SWP have
been redeemed. The fees of the Fund for maintaining SWPs are paid by the Fund.
WAIVER OF CLASS A INITIAL SALES CHARGE
No sales charge is imposed on sales of Class A shares to certain
investors. However, in order for the following sales charge waivers to be
effective, the Transfer Agent must be notified of the waiver when the purchase
order is placed. The Transfer Agent may require evidence of your qualification
for the waiver. No sales charge is imposed on the following investments:
o by current or retired officers, directors and employees (and their parents,
grandparents, spouse, and minor children) of the Trust, Conseco and its
affiliates and the Transfer Agent;
o by any participant in (i) a tax qualified retirement plan provided that the
initial amount invested by the plan totals $500,000 or more, the plan has
50 or more employees eligible to participate at the time of purchase, or
the plan certifies that it will have projected annual contributions of
$200,000 or more; or (ii) by one of a group of tax qualified employee
benefit plans that purchase through an omnibus account relationship with
the Funds maintained by a single service provider, provided that such plans
make an aggregated initial investment of $500,000 or more;
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;
59
<PAGE>
o by employees and registered representatives (and their parents,
grandparents, spouses and minor children) of brokers, dealers, and other
financial intermediaries described above; the purchaser must certify to the
Distributor at the time of the purchase that the purchase is for the
purchaser's own account (or for the benefit of such employee's parents,
grandparents, spouse or minor children);
o by any charitable organization, state, county, city, or any
instrumentality, department, authority or agency thereof which has
determined that Class A is a legally permissible investment and which is
prohibited by applicable investment law from paying a sales charge or
commission in connection with the purchase of shares of any registered
management investment company;
o by one or more members of a group of at least 100 persons (and persons who
are retirees from such group) engaged in a common business, profession,
civic or charitable endeavor or other activity, and the spouses and minor
children of such persons, pursuant to a marketing program between the
Distributor and such group;
o (i) through an investment adviser who makes such purchases through a
broker, dealer, or other financial intermediary (each of which may impose
transaction fees on the purchase), or (ii) by an investment adviser for its
own account or for a bona fide advisory account over which the investment
adviser has investment discretion;
o through a broker, dealer or other financial intermediary which maintains a
net asset value purchase program that enables the Funds to realize certain
economies of scale;
o through bank trust departments or trust companies on behalf of bona fide
trust or fiduciary accounts by notifying the Distributor in advance of
purchase; a bona fide advisory, trust or fiduciary account is one which is
charged an asset-based fee and whose purpose is other than purchase of Fund
shares at net asset value;
o by purchasers in connection with investments related to a bona fide medical
savings account; or
o by an account established under a wrap fee or asset allocation program
where the accountholder pays the sponsor an asset-based fee.
Additionally, no sales charge is imposed on shares that are (a) issued
in plans of reorganization, such as mergers, asset acquisitions and exchange
offers, to which a Fund is a party, (b) purchased by the reinvestment of loan
repayments by participants in retirement plans, (c) purchased by the
reinvestment of dividends or other distributions from a Fund, or (d) purchased
and paid for with the proceeds of shares redeemed in the prior 60 days from a
mutual fund on which an initial sales charge or contingent deferred sales charge
was paid (other than a
60
<PAGE>
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);
61
<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.
62
<PAGE>
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 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
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obtained as to the holders of other affected series. Under Rule 18f-3 under the
1940 Act, each class of a Fund shall have a different arrangement for
shareholder services or the distribution of securities or both and shall pay all
of the expenses of that arrangement, shall have exclusive voting rights on any
matters submitted to shareholders that relate solely to a particular class'
arrangement, and shall have separate voting rights on any matters submitted to
shareholders in which the interests of one class differ from the interests of
any other class.
Under Massachusetts law, shareholders of the Trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
Trust. The Declaration of Trust, however, contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and requires that
notice of such disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or its Trustees. The Declaration of Trust
provides for indemnification and reimbursement of expenses out of Trust property
for any shareholder held personally liable for its obligations. The Declaration
of Trust also provides that the Trust shall, upon request, assume the defense of
any claim made against any shareholder for any act or obligation of the Trust
and satisfy any judgment thereon. Thus, while Massachusetts law permits a
shareholder of the Trust to be held personally liable as a partner under certain
circumstances, the risk of a shareholder's incurring financial loss on account
of shareholder liability is highly unlikely and is limited to the relatively
remote circumstances in which the Trust would be unable to meet its obligations.
The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office.
The Trust and the Adviser have Codes of Ethics governing the personal securities
transactions of officers and employees. These codes require prior approval for
certain transactions and prohibit transactions which may be deemed to conflict
with the securities trading of the Adviser's clients.
TAXES
GENERAL
To qualify or continue to qualify for treatment as a regulated investment
company ("RIC") under the Internal Revenue Code of 1986, as amended ("Code"),
each Fund -- which is treated as a separate corporation for these purposes --
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
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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.
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.
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INCOME FROM FOREIGN SECURITIES
Dividends and interest received by a Fund, 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. 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, and (2) 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 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 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 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 of any "excess distribution" received by
it on the stock of a PFIC or of any gain on the Fund'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.
If a Fund invests in a PFIC and elects to treat the PFIC as a "qualified
electing fund" ("QEF"), then in lieu of the foregoing tax and interest
obligation, the Fund, would be required to include in income each year its pro
rata share of the QEF's annual ordinary earnings and net capital gain -- which
likely would have to be distributed by the Fund to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax -- even if those earnings and
gain were not distributed thereto by the QEF. In most instances it will be very
difficult, if not impossible, to make this election because of certain
requirements thereof.
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Each Fund may elect to "mark to market" its stock in any PFIC.
"Marking-to-market," in this context, means including in ordinary income each
taxable year the excess, if any, of the fair market value of the PFIC's stock
over the adjusted basis therein as of the end of that year. Pursuant to the
election, a Fund also will be allowed to deduct (as an ordinary, not capital,
loss) the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the taxable year-end, but only to the extent of any
net mark-to-market gains with respect to that stock included in income for prior
taxable years. The adjusted basis in each PFIC's stock with respect to which
this election is made will be adjusted to reflect the amounts of income included
and deductions taken under the election.
Foreign exchange gains and losses realized by a Fund in connection with certain
transactions involving foreign currency-denominated debt securities, certain
foreign currency futures and options, foreign currency positions and payables or
receivables (e.g., dividends or interest receivable) denominated in a foreign
currency are subject to section 988 of the Code, which generally causes those
gains and losses to be treated as ordinary income and losses and may affect the
amount, timing and character of distributions to shareholders. Any gains from
the disposition of foreign currencies could, under future Treasury regulations,
produce income that is not "qualifying income" under the Income Requirement.
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INVESTMENTS IN DEBT SECURITIES
If a Fund invests in zero coupon securities, payment-in-kind securities and/or
certain deferred interest securities (and, in general, any other securities with
original issue discount or with market discount if an election is made to
include market discount in income currently), it must accrue income on those
investments prior to the receipt of cash payments or interest thereon. However,
each Fund must distribute to its shareholders, at least annually, all or
substantially all of its investment company taxable income, including such
accrued discount and other non-cash income, to satisfy the Distribution
Requirement and avoid imposition of the Excise Tax. Therefore, a Fund may have
to dispose of its portfolio securities under disadvantageous circumstances to
generate cash, or may have to leverage itself by borrowing the cash, to make the
necessary distributions.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Fund that holds such obligations. Tax rules are not
entirely clear about issues such as when a Fund may cease to accrue interest,
original issue discount or market discount, when and to what extent deductions
may be taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by any Fund that holds such obligations in
order to seek to reduce the risk of distributing insufficient income to qualify
for treatment as a RIC and of becoming subject to federal income tax or the
Excise Tax.
HEDGING STRATEGIES
The use of hedging strategies, such as writing (selling) and purchasing options
and futures contracts and entering into forward contracts, involves complex
rules that will determine for income tax purposes the amount, character and
timing of recognition of the gains and losses a Fund realizes in connection
therewith. Gains from options, futures and forward contracts derived by a Fund
with respect to its business of investing in securities or foreign currencies --
and 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 may invest
will be "section 1256 contracts." Section 1256 contracts held by a Fund at the
end of each taxable year, other than section 1256 contracts that are part of a
"mixed straddle" with respect to which a Fund has made an election not to have
the following rules 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
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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 may invest. Section 1092
defines a "straddle" as offsetting positions with respect to personal property;
for these purposes, options and futures contracts are personal property. Section
1092 generally provides that any loss from the disposition of a position in a
straddle may be deducted only to the extent the loss exceeds the unrealized gain
on the offsetting position(s) of the straddle. Section 1092 also provides
certain "wash sale" rules, which apply to transactions where a position is sold
at a loss and a new offsetting position is acquired within a prescribed period,
and "short sale" rules applicable to straddles. If a Fund makes certain
elections, the amount, character and timing of recognition of gains and losses
from the affected straddle positions would be determined under rules that vary
according to the elections made. Because only a few of the regulations
implementing the straddle rules have been promulgated, the tax consequences to
the Funds of straddle transactions are not entirely clear.
If a Fund has an "appreciated financial position" -- generally, an interest
(including an interest through an option, futures or forward contract, or short
sale) with respect to any stock, debt instrument (other than "straight debt") or
partnership interest the fair market value of which exceeds its adjusted basis
- -- and enters into a "constructive sale" of the same or substantially similar
property, the Fund will be treated as having made an actual sale thereof, with
the result that gain will be recognized at that time. A constructive sale
generally consists of a short sale, an offsetting notional principal contract or
futures or forward contract entered into by a Fund or a related person with
respect to the same or substantially similar property. In addition, if the
appreciated financial position is itself a short sale or such a contract,
acquisition of the underlying property or substantially similar property will be
deemed a constructive sale. The foregoing 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
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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.
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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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