<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1998
SECURITIES ACT FILE NO. 333-55809
INVESTMENT COMPANY ACT FILE NO. 811-08795
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM N-2
(CHECK APPROPRIATE BOX OR BOXES)
[_] REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[X] PRE-EFFECTIVE AMENDMENT NO. 2
[_] POST-EFFECTIVE AMENDMENT NO.
AND/OR
[_] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] AMENDMENT NO. 2
----------------
CONSECO STRATEGIC INCOME FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
----------------
11825 N. PENNSYLVANIA STREET,
CARMEL, INDIANA 46032
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(317) 817-6383
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
WILLIAM P. LATIMER, ESQ.
11825 N. PENNSYLVANIA STREET
CARMEL, IN 46032
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
DONALD W. SMITH, ESQ. DAVID L. SUGERMAN, ESQ.
R. DARRELL MOUNTS, ESQ. CLEARY, GOTTLIEB, STEEN & HAMILTON
KIRKPATRICK & LOCKHART LLP ONE LIBERTY PLAZA
1800 MASSACHUSETTS AVE. N.W. NEW YORK, NY 10006
2ND FLOOR
WASHINGTON, DC 20036-1800
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
If any securities being registered on this form will be offered on a delayed
or continuous basis in reliance on Rule 415 under the Securities Act of 1933,
as amended, other than securities offered in connection with a dividend
reinvestment plan, check the following box. [_]
It is proposed that this filing will become effective (check appropriate
box):
[X] When declared effective pursuant to section 8(c).
If appropriate, check the following box:
[_] this [post-effective] amendment designates a new effective date for a
previously filed [post-effective amendment] [registration statement].
[_] This form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act and the Securities Act
registration statement number of the earlier effective registration
statement for the same offering is.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
===========================================================================================
PROPOSED MAXIMUM PROPOSED MINIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BEING REGISTERED REGISTERED(1) PER SHARE PRICE(1) FEE(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
shares of beneficial
interest, $0.001 par
value ("Shares")...... 8,050,000 Shares $15.00 $120,750,000 $35,621.25
===========================================================================================
</TABLE>
(1) Assuming exercise in full of the option granted by the Fund to the
Underwriters to purchase up to an additional Shares of
Beneficial Interest to cover over-allotments. See "Underwriting."
(2) $20,355 has previously been paid, and $15,266.25 has been transmitted to
the designated lockbox at Mellon Bank.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
CROSS-REFERENCE SHEET
PURSUANT TO RULE 481(A)
<TABLE>
<CAPTION>
N-2 ITEM NUMBER LOCATION IN PROSPECTUS (CAPTION)
--------------- --------------------------------
<S> <C>
PART A--INFORMATION REQUIRED IN A PROSPECTUS
1. Outside Front Cover..... Outside Front Cover Page
2. Inside Front and Outside
Back Cover Page........ Outside Front Cover Page; Inside Front Cover
Page; Outside Back Cover Page
3. Fee Table and Synopsis.. Prospectus Summary; Fee Table
4. Financial Highlights.... Not Applicable
5. Plan of Distribution.... Outside Front Cover Page; Prospectus Summary;
Management of the Fund; Underwriting
6. Selling Shareholders.... Not Applicable
7. Use of Proceeds......... Use of Proceeds; Investment Objectives and
Policies
8. General Description of Outside Front Cover Page; Prospectus Summary;
the Registrant......... Risk Factors and Special Considerations; The
Fund; Investment Objectives and Policies; Other
Investment Practices; Description of Shares
9. Management.............. Outside Front Cover; Prospectus Summary;
Management of the Fund; Shareholder Servicing
Agent, Custodian, and Transfer and Dividend
Disbursing Agent
10. Capital Stock, Long-Term
Debt, and Other Securi- Outside Front Cover Page; Prospectus Summary;
ties................... Investment Objectives and Policies; Description
of Shares; Taxation
11. Defaults and Arrears on
Senior Securities...... Not Applicable
12. Legal Proceedings....... Not Applicable
13. Table of Contents of the
Statement of Additional
Information............ Not Applicable
PART B
14. Cover Page.............. Outside Front Cover Page
15. Table of Contents....... Outside Back Cover Page
16. General Information and
History................ The Fund
17. Investment Objectives Investment Objectives and Policies; Investment
and Policies........... Restrictions
18. Management.............. Management of the Fund
19. Control Persons and
Principal Holders of
Securities............. Not Applicable
20. Investment Advisory and
Other Services......... Management of the Fund
21. Brokerage Allocation and
Other Practices........ Portfolio Transactions
22. Tax Status.............. Taxation
23. Financial Statements.... Report of Independent Accountants; Statement of
Assets and Liabilities
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
PROSPECTUS
- -------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------------
[LOGO OF CONSECO CONSECO STRATEGIC INCOME FUND
STRATEGIC INCOME FUND
APPEARS HERE]
Conseco Strategic Income Fund (the "Fund") is a newly organized, non-
diversified, closed-end management investment company. The Fund's primary
investment objective is to seek high current income. The Fund will also seek
capital growth as a secondary objective, to the extent consistent with its
primary objective of seeking high current income. Under normal market
conditions, the Fund will invest at least 65% of its total assets in high
yield bonds, debentures, notes, corporate loans, convertible debentures, and
other debt instruments rated below investment grade or unrated but determined
by Conseco Capital Management, Inc. ("Conseco Capital"), the Fund's investment
manager, to be of comparable quality (collectively, "High Yield Obligations").
The Fund may invest up to 30% of its total assets in the securities, including
High Yield Obligations, of issuers/obligors domiciled outside the United
States (primarily in emerging markets) or that are denominated in foreign
currencies or multinational currency units. The Fund may also invest up to 10%
of its total assets in securities that are the subject of bankruptcy
proceedings or in default as to payment of principal and/or interest or in
significant risk of being in such default or that are rated in the lower
rating categories or which, if unrated, are in the judgment of Conseco Capital
of equivalent quality. There is no assurance that the Fund will achieve its
objectives.
Conseco Capital will serve as the Fund's investment manager and administrator.
Conseco Capital also provides investment management and advisory services to
ten mutual funds as well as to public and corporate pension plans,
corporations, individuals, foundations and endowments. As of March 31, 1998,
Conseco Capital managed in excess of $32 billion in assets, approximately $3.5
billion of which consisted of High Yield Obligations and approximately $2.3
billion of which were invested in foreign securities.
Investments in lower grade securities are subject to special risks, including
greater price volatility and a greater risk of loss of principal and interest.
The Fund is designed for investors willing to assume additional risk in return
for the potential for high current income, primarily, and the potential for
capital growth, secondarily. An investment in the Fund may be speculative in
that it involves a high degree of risk and should not constitute a complete
investment program. See "Risk Factors and Special Considerations." This
Prospectus sets forth in concise form information about the Fund that a
prospective investor should know before investing in the Fund. Investors are
advised to read this Prospectus carefully and to retain it for future
reference.
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Sales Load Proceeds to
Public Payable by Fund(1) Fund(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................... $15.00 None $15.00
- -------------------------------------------------------------------------------
Total(3)...................... $ None $
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) The Sales Load to the Underwriters will not be paid by the Fund but by
Conseco Capital or an affiliate, Conseco, Inc., from its own assets, in
the amount of $0.75 per Share or 5.0% of the Price to Public per Share in
connection with the sale of the Shares offered hereby. The Fund, Conseco
Capital and Conseco, Inc. have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting organizational and offering expenses payable by the Fund,
estimated respectively to be $60,000 and $691,500 (including approximately
$250,000 to be paid to the Underwriters as reimbursement of certain of
their expenses in connection with this offering). Offering expenses will
be deducted from net proceeds, and organizational expenses will be
included in expenses during the first fiscal period of the Fund.
(3) The Fund has granted the several Underwriters a 45-day over-allotment
option to purchase up to additional Shares on the same terms and
conditions as set forth on the front cover. If all such additional Shares
are purchased, the total Price to Public will be $ , and the total
Proceeds to Fund will be $ .
- -------------------------------------------------------------------------------
The Shares are offered by the several Underwriters subject to delivery by the
Fund and acceptance by the Underwriters, to prior sale and to withdrawal,
cancellation or modification of the offer without notice. Delivery of the
Shares to the Underwriters is expected to be made through the facilities of
The Depository Trust Company, New York, New York, on or about , 1998.
PRUDENTIAL SECURITIES INCORPORATED
CROWELL, WEEDON & CO.
LEGG MASON WOOD WALKER
INCORPORATED
MCDONALD & COMPANY
SECURITIES, INC.
MORGAN KEEGAN & COMPANY, INC.
July , 1998.
<PAGE>
As a non-diversified investment company, the Fund may invest a greater
portion of its assets in a small number of issuers. The Fund may engage in
various portfolio strategies to seek to enhance income and hedge its portfolio
against investment and interest rate risks, including the use of leverage and
the use of derivative financial instruments. At times, the Fund expects to
utilize financial leverage through borrowings, including the issuance of debt
securities, or the issuance of preferred shares or through other transactions,
such as reverse repurchase agreements, which have the effect of financial
leverage. The Fund currently intends to utilize financial leverage in an
amount equal to approximately 25% of its total assets (including the amount
obtained through leverage). The Fund is permitted to use leverage in a maximum
amount equal to 33 1/3% of its total assets. The Fund generally will not
utilize leverage if it anticipates that the Fund's leveraged capital structure
would result in a lower return to the holders of its shares of beneficial
interest (the "Shareholders") than that obtainable over time with an
unleveraged capital structure. Use of financial leverage creates an
opportunity for increased income and capital growth for the Shareholders but,
at the same time, creates special risks, and there can be no assurance that a
leveraging strategy will be successful during any period in which it is
employed. See "Risk Factors and Special Considerations -- Leverage."
The Fund is offering its shares of beneficial interest, par value $.001 per
share (the "Shares"). Prior to this offering, there has been no public market
for the Fund's Shares. The Fund's Shares have been approved for listing on the
New York Stock Exchange (the "NYSE") under the symbol "CFD," subject to
official notice of issuance. Shares of closed-end management investment
companies have in the past frequently traded at discounts from their net asset
values and the Fund's Shares may likewise trade at such a discount. The risks
associated with this characteristic of closed-end management investment
companies may be greater for investors expecting to sell shares of a closed-
end management investment company soon after completion of an initial public
offering of the company's shares. The minimum investment in this offering is
100 Shares ($1,500).
The Fund's shares do not represent a deposit or obligation of, and are not
guaranteed or endorsed by, any bank or other insured depository institution,
and are not federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other government agency.
Additional information about the Fund has been filed with the SEC and may be
obtained without charge by calling or writing the Fund at 11825 N.
Pennsylvania Street, Carmel, Indiana 46032, (888) 754-3409. The SEC maintains
an Internet World Wide Web site (http://www.sec.gov) that contains this
Prospectus and other information regarding the Fund.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SHARES, INCLUDING
PURCHASES OF THE SHARES TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE SHARES
TO COVER SOME OR ALL OF A SHORT POSITION IN THE SHARES MAINTAINED BY THE
UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus. Unless otherwise indicated,
the information in this Prospectus assumes that the Underwriters' over-
allotment option will not be exercised. Investors should carefully consider
information set forth under the heading "Risk Factors and Special
Considerations."
The Fund.................... Conseco Strategic Income Fund (the "Fund") is a
newly organized, non-diversified, closed-end
management investment company. The Fund is
managed by Conseco Capital Management, Inc.
("Conseco Capital" or the "Manager"). See "The
Fund."
The Offering................ The Fund is offering shares of beneficial
interest, par value $.001 per share ("Shares"),
through a group of underwriters ("Underwriters")
led by Prudential Securities Incorporated. The
Underwriters have been granted a 45-day option to
purchase up to additional Shares solely to
cover overallotments, if any. The initial public
offering price is $15.00 per Share. The minimum
investment in the offering is 100 Shares
($1,500). See "Underwriting."
No Sales Charge............. The Shares will be sold during the initial public
offering without any sales load or underwriting
discounts payable by investors or the Fund.
Conseco Capital or an affiliate (not the Fund)
from its own assets will pay a commission to the
Underwriters in connection with sales of the
Shares in this offering. See "Underwriting."
Investment Objectives and
Policies................... The Fund's primary investment objective is to
seek high current income. The Fund will also seek
capital growth as a secondary objective, to the
extent consistent with its primary objective of
seeking high current income. The Fund is designed
for investors willing to assume additional risk
in return for the potential for high current
income, primarily, and the potential for capital
growth, secondarily. The Fund is not intended to
be a complete investment program and there is no
assurance that the Fund will achieve its
objectives. An investment in the Fund may not be
appropriate for all investors.
Under normal market conditions, the Fund will
invest at least 65% of its total assets in high
yield bonds, debentures, notes, corporate loans,
convertible debentures, and other debt
instruments rated below investment grade (lower
than Baa by Moody's Investors Service, Inc.
("Moody's") or lower than BBB by Standard &
Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P"), or comparably rated by another
nationally recognized statistical rating
organization (each, a "Rating Agency")), or
unrated but determined by Conseco Capital to be
of comparable quality (collectively, "High Yield
Obligations"). Lower grade income securities are
commonly known as "junk bonds." The Fund may
invest up to 30% of its total assets in the
securities, including High Yield Obligations, of
issuers/obligors domiciled outside the United
3
<PAGE>
States or that are denominated in foreign
currencies or multinational currency units. The
Fund expects that such foreign securities will
consist primarily of High Yield Obligations of
issuers/obligors located in emerging markets. The
Fund will treat securities as foreign securities,
for the purpose of the 30% limitation, on the
basis of the domicile of the ultimate
unconditional guarantor of the security, if any,
in each instance. The Fund may also invest up to
10% of its total assets in securities that are
the subject of bankruptcy proceedings or in
default as to payment of principal and/or
interest or in significant risk of being in such
default, or that are rated in the lower rating
categories (Ca or lower by Moody's and CC or
lower by S&P) or which, if unrated, are in the
judgment of Conseco Capital of equivalent quality
(collectively, "Distressed Securities"). The Fund
may engage in various portfolio strategies to
seek to enhance income and hedge its portfolio
against investment and interest rate risks,
including the use of leverage and the use of
derivative financial instruments. There can be no
assurance that the Fund's strategies will be
successful.
At times, the Fund expects to utilize financial
leverage through borrowings, including the
issuance of debt securities, or the issuance of
preferred shares or through other transactions,
such as reverse repurchase agreements, which have
the effect of financial leverage. The Fund
currently intends to utilize financial leverage
in an amount equal to approximately 25% of its
total assets (including the amount obtained
through leverage). The Fund is permitted to use
leverage in a maximum amount equal to 33 1/3% of
its total assets. The Fund generally will not
utilize leverage if it anticipates that the
Fund's leveraged capital structure would result
in a lower return to holders of Shares
("Shareholders") than that obtainable over time
with an unleveraged capital structure. Use of
financial leverage creates an opportunity for
increased income and capital growth for
Shareholders but, at the same time, creates
special risks, and there can be no assurance that
a leveraging strategy will be successful during
any period in which it is employed. Fluctuations
in net asset value may be magnified as a result
of the Fund's use of leverage. In addition, the
Fund's use of leverage may affect the Fund's
ability to make distributions. See "Risk Factors
and Special Considerations--Leverage."
In selecting investments for the Fund's
portfolio, Conseco Capital will seek to identify
issuers and industries that Conseco Capital
believes are likely to experience stable or
improving financial conditions. Conseco Capital
believes that this strategy should enhance the
Fund's ability to earn high current income while
also providing opportunities for capital growth.
Although the Fund's net asset value will vary,
the Fund's policy of acquiring interests in
variable rate corporate loans is intended to
minimize fluctuations in the Fund's net asset
value as a result of changes in interest rates.
Conseco Capital's analysis may include
consideration of general
4
<PAGE>
industry trends, the issuer's managerial
strength, changing financial conditions,
borrowing requirements or debt maturity
schedules, and its responsiveness to changes in
business conditions and interest rates. Conseco
Capital may also consider relative values based
on anticipated cash flow, the security's ranking
in the issuer's capital structure, interest or
dividend coverage, asset coverage and earnings
prospects. Of course there can be no assurances
that this strategy will be successful.
The Fund will seek its secondary objective of
capital growth by investing in High Yield
Obligations that Conseco Capital expects may
appreciate in value as a result of favorable
developments affecting the business or prospects
of the issuer, which may improve the issuer's
financial condition and credit rating, or as a
result of declines in long-term interest rates.
In certain market conditions, Conseco Capital may
determine that securities rated investment grade
(i.e., at least Baa by Moody's or BBB by S&P or
comparably rated by another Rating Agency) offer
significant opportunities for high income and
capital growth. In such conditions, the Fund may
invest less than 65% of its total assets in High
Yield Obligations. In addition, the Fund may
implement various temporary "defensive"
strategies at times when Conseco Capital
determines that conditions in the markets make
pursuing the Fund's basic investment strategy
inconsistent with the best interests of its
Shareholders. These strategies may include
investing all or a portion of the Fund's assets
in higher-quality debt securities. During the
first six months of operation of the Fund, and
during all periods when less than 65% of the
Fund's total assets are invested in High Yield
Obligations, the Fund's yield may be expected to
be lower than if at least 65% of the Fund's total
assets were invested in High Yield Obligations.
See "Investment Objectives and Policies."
An investment in the Fund may not be appropriate
for all investors, and there is no assurance that
the Fund will achieve its investment objectives.
See "Investment Objectives and Policies" and
"Risk Factors and Special Considerations."
Investment Manager and
Administrator.............. Conseco Capital is the Fund's investment manager
and administrator. Conseco Capital is a wholly
owned subsidiary of Conseco, Inc., a publicly
owned financial services company, the principal
operations of which are in development,
marketing, and administration of specialized
annuity, life and health insurance products.
Conseco Capital will provide investment
management services to the Fund that include
determining the composition of the Fund's
portfolio, placing all orders for the purchase
and sale of securities and for other
transactions, and overseeing the settlement of
the Fund's securities and other portfolio
transactions. Conseco Capital
5
<PAGE>
will also provide administration services to the
Fund that include, among other services,
furnishing office space, arranging for persons to
serve as Fund officers, preparing or assisting in
preparing materials for Shareholders of the Fund
and regulatory bodies, and overseeing the
provision to the Fund of custodial and accounting
services. Conseco Capital may engage its
affiliate Conseco Services LLC ("Conseco
Services") to provide some or all of these
administration services to the Fund, and will
compensate Conseco Services for doing so out of
its own assets, and not those of the Fund.
For these investment management and
administration services, the Fund will pay
Conseco Capital a monthly fee (the "Management
and Administration Fee") at the annual rate of
0.90% of the Fund's average weekly value of the
total assets of the Fund minus the sum of accrued
liabilities (other than the aggregate
indebtedness constituting financial leverage)
(the "Managed Assets"). During periods in which
the Fund is utilizing financial leverage, the
Management and Administration Fee payable to
Conseco Capital will be higher than if the Fund
did not utilize a leveraged capital structure
because this fee is calculated as a percentage of
the Fund's Managed Assets including those
purchased with leverage. See "Management of the
Fund."
Conseco Capital also provides investment
management and advisory services to ten mutual
funds, as well as to public and corporate pension
plans, corporations, individuals, foundations and
endowments. As of March 31, 1998, Conseco Capital
managed in excess of $32 billion in assets,
approximately $3.5 billion of which consisted of
High Yield Obligations and approximately $2.3
billion of which were invested in foreign
securities. The Fund's address is 11825 N.
Pennsylvania Street, Carmel, Indiana 46032, and
its telephone number is (888) 754-3409.
Listing..................... Prior to this offering, there has been no public
market for the Shares. The Fund's Shares have
been approved for listing on the New York Stock
Exchange (the "NYSE") under the symbol "CFD,"
subject to official notice of issuance.
Dividends .................. The Fund intends to pay monthly distributions to
Shareholders from net investment income. The
initial distribution to Shareholders is expected
to be paid approximately 60 days after the
completion of the offering of the Shares. See
"Dividends and Other Distributions."
Automatic Dividend
Reinvestment Plan.......... The Fund has established an Automatic Dividend
Reinvestment Plan (the "DRIP"). Under the DRIP,
all dividends and capital gain distributions will
be automatically reinvested in additional Shares
either purchased in the open market or issued by
the Fund if the Shares are trading at or above
their net asset value. A Shareholder
6
<PAGE>
may elect to receive cash dividends and other
distributions instead of participating in the
DRIP. See "Automatic Dividend Reinvestment Plan."
Taxation.................... The Fund intends to elect and qualify to be
treated as a regulated investment company for
U.S. federal income tax purposes. As such, the
Fund will generally not be subject to U.S.
federal income tax on income and gains that are
distributed to Shareholders. See "Taxes."
Stock Repurchases and
Tender Offers; Conversion
To Open-End Investment
Company.................... In recognition of the possibility that the Shares
might trade at a discount to net asset value and
that any such discount may not be in the interest
of Shareholders, the Fund's Board of Trustees, in
consultation with Conseco Capital, from time to
time may review the possibility of open market
repurchases or tender offers for Shares at net
asset value. There can be no assurance that the
Board of Trustees will decide to undertake either
of these actions or that, if undertaken, such
actions would result in the Shares trading at a
price equal to or close to net asset value per
Share. The Board of Trustees from time to time
also may consider the conversion of the Fund to
an open-end investment company; however, there
can be no assurance it will decide to do so. If
the Fund were converted, Shareholders could
require the company to redeem their Shares at any
time (except in certain circumstances as
authorized by or under the Investment Company Act
of 1940, as amended (the "Investment Company
Act")) at their net asset value, less any
applicable redemption charge. Conversion to an
open-end investment company could force
alteration of the leveraged capital structure of
the Fund, modification of certain of the Fund's
investment policies and strategies (to assure
sufficient portfolio liquidity), and/or
disposition of portfolio securities or other
assets at a time when it would not be
advantageous to do so. These changes could
adversely affect the ability of the Fund to meet
its investment objectives. See "Certain
Provisions of the Declaration of Trust."
Shareholder Servicing
Agent, Custodian and
Transfer and Dividend
Disbursing Agent........... Conseco Services LLC will act as Shareholder
Servicing Agent for the Fund. The Fund will pay a
monthly fee at the annual rate of 0.10% of the
Fund's average weekly Managed Assets (as defined
above) for such services. PNC Bank, National
Association ("PNC") will serve as custodian of
the assets of the Fund (the "Custodian") and may
utilize sub-custodians outside the U.S. PNC will
serve as the Fund's Transfer and Dividend
Disbursing Agent, and will also serve as agent
for the DRIP. PFPC Inc., an affiliate of PNC,
will provide certain bookkeeping and accounting
services for the Fund and perform certain other
services. See "Shareholder Servicing Agent,
Custodian and Transfer and Dividend Disbursing
Agent."
7
<PAGE>
Risk Factors and Special
Considerations............. Investment in the Fund involves special
considerations. Investors should carefully
consider their ability to assume the following
risks before making an investment in the Fund. An
investment in Shares of the Fund may not be
appropriate for all investors and should not be
considered as a complete investment program. See
"Risk Factors and Special Considerations."
General.................... The Fund is a newly organized, non-diversified,
closed-end management investment company and has
no operating history. Shares of closed-end
management investment companies frequently trade
at a discount from their net asset value. This
risk of loss associated with this characteristic
may be greater for investors expecting to sell
their Shares relatively soon after completion of
the public offering. Accordingly, the Shares are
designed primarily for long-term investors and
should not be considered a vehicle for trading
purposes. The net asset value of the Fund's
Shares will fluctuate with interest rate changes
as well as with price changes of the Fund's
portfolio securities. These fluctuations are
likely to be greater during periods in which the
Fund utilizes a leveraged capital structure. See
"Other Investment Practices--Leverage."
Lower Grade Securities..... Lower grade securities are regarded as being
predominantly speculative as to the issuer's
ability to make payments of principal and
interest. Investment in such securities involves
substantial risk. Lower grade securities are
commonly referred to as "junk bonds." Issuers of
lower grade securities may be highly leveraged
and may not have available to them more
traditional methods of financing. Therefore, the
risks associated with acquiring the securities of
such issuers generally are greater than is the
case with higher-rated securities. For example,
during an economic downturn or a sustained period
of rising interest rates, issuers of lower grade
securities may be more likely to experience
financial stress, especially if such issuers are
highly leveraged. During periods of economic
downturn, such issuers may not have sufficient
revenues to meet their interest payment
obligations. The issuer's ability to service its
debt obligations also may be adversely affected
by specific issuer developments, the issuer's
inability to meet specific projected business
forecasts or the unavailability of additional
financing. Therefore, there can be no assurance
that in the future there will not exist a higher
default rate relative to the rates currently
existing in the market for lower grade
securities. The risk of loss due to default by
the issuer is significantly greater for the
holders of lower grade securities because such
securities may be unsecured and may be
subordinate to other creditors of the issuer.
Other than with respect to Distressed Securities,
discussed below, the lower grade securities in
which the Fund may invest do not include
instruments which, at the time of investment, are
in default as to payment of principal and/or
interest or the issuers of which are in
bankruptcy. However, there can be no assurance
that such events will not occur after the Fund
purchases a particular security, in which case
the Fund may experience losses and incur costs.
8
<PAGE>
Lower grade securities frequently have call or
redemption features that would permit an issuer
to repurchase the security from the Fund. If a
call were exercised by the issuer during a period
of declining interest rates, the Fund is likely
to have to replace such called security with a
lower yielding security, thus decreasing the net
investment income to the Fund and dividends to
Shareholders.
Lower grade securities tend to be more volatile
than higher-rated fixed-income securities, and
adverse economic events may have a greater impact
on the prices of lower grade securities than on
higher-rated fixed-income securities. Factors
adversely affecting the market value of such
securities are likely to affect adversely the
Fund's net asset value. Recently, demand for
lower grade securities has increased
significantly, and the difference between the
yields paid by lower grade securities and
investment grade bonds (i.e., the "spread") has
narrowed. To the extent this differential
increases, the value of lower grade securities in
the Fund's portfolio could be adversely affected.
Like higher-rated fixed-income securities, lower
grade securities generally are purchased and sold
through dealers who make a market in such
securities for their own accounts. However, there
are fewer dealers in the lower grade securities
market, and this market may be less liquid than
the market for higher-rated fixed-income
securities, even under normal economic
conditions. Also, there may be significant
disparities in the prices quoted for lower grade
securities by various dealers. As a result,
during periods of high demand in the lower grade
securities market, it may be difficult to acquire
lower grade securities appropriate for investment
by the Fund. Adverse economic conditions and
investor perceptions thereof (whether or not
based on economic reality) may impair liquidity
in the lower grade securities market and may
cause the prices the Fund receives for its lower
grade securities to be reduced. In addition, the
Fund may experience difficulty in liquidating a
portion of its portfolio when necessary to meet
the Fund's liquidity needs or in response to a
specific economic event such as deterioration in
the creditworthiness of the issuers. Under such
conditions, judgment may play a greater role in
valuing certain of the Fund's portfolio
instruments than in the case of instruments
trading in a more liquid market. In addition, the
Fund may incur additional expense to the extent
that it is required to seek recovery upon a
default on a portfolio holding or to participate
in the restructuring of the obligation. See
"Investment Objectives and Policies."
Corporate Loans............. In furtherance of its primary investment
objective and subject to its investment policies
and limitations, the Fund may also invest in
primary or secondary market purchases of loans or
participation interests in loans extended to
corporate borrowers or sovereign governmental
entities by commercial banks and other financial
institutions ("Corporate Loans"). As in the case
of lower grade
9
<PAGE>
securities, the Corporate Loans in which the Fund
may invest may be rated below investment grade
(lower than Baa by Moody's and lower than BBB by
S&P) or may be unrated but of comparable quality
in the judgment of Conseco Capital. As in the
case of lower grade securities, such Corporate
Loans can be expected to provide higher yields
than lower-yielding, higher-rated fixed income
securities but may be subject to greater risk of
loss of principal and income. The risks of
investment in such Corporate Loans are similar in
many respects to those of investment in lower
grade securities. There are, however, some
significant differences between Corporate Loans
and lower grade securities. Corporate Loans are
frequently secured by pledges of liens and
security interests in the assets of the borrower,
and the holders of Corporate Loans are frequently
the beneficiaries of debt service subordination
provisions imposed on the borrower's bondholders.
These arrangements are designed to give Corporate
Loan investors preferential treatment over
investors in lower grade securities in the event
of a deterioration in the credit quality of the
issuer. Even when these arrangements exist,
however, there can be no assurance that the
principal and interest owed on the Corporate
Loans will be repaid in full. Corporate Loans
generally bear interest at rates set at a margin
above a generally recognized base lending rate
that may fluctuate on a day to day basis, in the
case of the prime rate of a U.S. bank, or which
may be adjusted on set dates, typically every 30
days but generally not more than one year, in the
case of the London Interbank Offered Rate
("LIBOR"). Consequently, the value of Corporate
Loans held by the Fund may be expected to
fluctuate significantly less than the value of
fixed rate lower grade securities as a result of
changes in the interest rate environment. On the
other hand, the secondary dealer market for
Corporate Loans is not as well developed as the
secondary dealer market for lower grade
securities, and therefore presents increased
market risk relating to liquidity and pricing
concerns. See "Investment Objectives and
Policies--Portfolio Securities."
Distressed Securities....... The Fund may also invest up to 10% of its total
assets in Distressed Securities. Investment in
Distressed Securities is speculative and involves
significant risk, including possible loss of the
principal invested. Distressed Securities
frequently do not produce income while they are
outstanding and may require the Fund to bear
certain extraordinary expenses in order to
protect and recover its investment. Therefore, to
the extent the Fund pursues its secondary
objective of capital growth through investment in
Distressed Securities, the Fund's ability to
achieve current income for its Shareholders may
be diminished.
Leverage.................... The use of leverage creates special risks. There
can be no assurance that a leveraging strategy
will be successful during any period in which it
is employed. The Fund intends to utilize leverage
to provide the Shareholders with a potentially
higher return.
10
<PAGE>
Leverage creates risks for the Shareholders
including the likelihood of greater volatility of
net asset value and market price of the Shares
and the risk that fluctuations in interest rates
on borrowings and debt or in the dividend rates
on any preferred shares may affect the return to
the holders of Shares. To the extent the income
or capital growth derived from securities
purchased with funds received from leverage
exceeds the cost of leverage, the Fund's return
will be greater than if leverage had not been
used. Conversely, if the income or capital growth
from the securities purchased with such funds is
not sufficient to cover the cost of leverage, the
return to the Fund will be less than if leverage
had not been used, and therefore the amount
available for distribution to Shareholders as
dividends and other distributions will be
reduced. Moreover, any decline in the value of
the Fund's assets will be borne entirely by
Shareholders in the form of reductions in the
Fund's net asset value, and any requirement that
the Fund sell assets at a loss in order to redeem
or repay any leverage or for other reasons would
make it more difficult for the net asset value to
recover. Accordingly, the effect of leverage in a
declining market is likely to be a greater
decline in the net asset value of the Shares than
if the Fund were not leveraged, which may be
reflected in a greater decline in the market
price of the Shares. Conseco Capital in its best
judgment may nevertheless determine to maintain
the Fund's leveraged position if it deems such
action to be appropriate under the circumstances,
and it may seek to limit certain risks associated
with leverage by investing the Fund's assets in
certain floating rate obligations.
During periods in which the Fund is utilizing
financial leverage, the Management and
Administration Fee payable to Conseco Capital
will be higher than if the Fund did not utilize a
leveraged capital structure because such fee is
calculated on the basis of the Fund's assets
including proceeds from borrowings for leverage
and the issuance of preferred shares. Certain
types of borrowings by the Fund may result in the
Fund being subject to covenants in credit
agreements, including those relating to asset
coverage and portfolio composition requirements.
The Fund may be subject to certain restrictions
on investments imposed by guidelines of one or
more Rating Agencies, which may issue ratings for
the debt securities or preferred shares issued by
the Fund. These guidelines may impose asset
coverage or portfolio composition requirements
that are more stringent than those imposed by the
Investment Company Act. It is not anticipated
that these covenants or guidelines will impede
Conseco Capital in managing the Fund's portfolio
in accordance with the Fund's investment
objectives and policies. The Fund at times may
borrow from affiliates of Conseco Capital,
provided that the terms of such borrowings are no
less favorable than those available from
comparable sources of funds in the marketplace.
See "Other Investment Practices--Leverage."
11
<PAGE>
Foreign Securities.......... The Fund may invest up to 30% of its total assets
in the securities, including High Yield
Obligations, of issuers/obligors domiciled
outside the United States or that are denominated
in foreign currencies or multinational currency
units. The Fund expects that such foreign
securities will consist primarily of High Yield
Obligations of issuers/obligors located in
emerging markets. The Fund will treat securities
as foreign securities, for the purpose of the 30%
limitation, on the basis of the domicile of the
ultimate unconditional guarantor of the security,
if any, in each instance. Investing in securities
of foreign entities and securities denominated in
foreign currencies involves certain risks not
involved in domestic investments, including, but
not limited to, fluctuations in foreign exchange
rates, future foreign political and economic
developments, different legal systems and the
possible imposition of exchange controls or other
foreign governmental laws or restrictions.
Securities prices in different countries are
subject to different economic, financial,
political and social factors. Because the Fund
may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in
foreign currency exchange rates may affect the
value of securities in the Fund and the
unrealized appreciation or depreciation of
investments. Currencies of certain countries may
be volatile and therefore may affect the value of
securities denominated in such currencies. The
Fund may engage in certain transactions to hedge
the currency-related risks of investing in non-
U.S. dollar denominated securities. See "Other
Investment Practices." In addition, with respect
to certain foreign countries, there is the
possibility of expropriation of assets,
confiscatory taxation, difficulty in obtaining or
enforcing a court judgment, economic, political
or social instability or diplomatic developments
that could affect investments in those countries.
Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in
such respects as growth of gross domestic
product, rates of inflation, capital
reinvestment, resources, self-sufficiency and
balance of payments position. Certain foreign
investments also may be subject to foreign
withholding taxes. These risks often are
heightened for investments in smaller, emerging
capital markets.
As a result of these potential risks, Conseco
Capital may determine that, notwithstanding
otherwise favorable investment criteria, it may
not be practicable or appropriate to invest in a
particular country. The Fund may invest in
countries in which foreign investors, including
Conseco Capital, have had no or limited prior
experience.
Convertible Securities...... Convertible securities are bonds, preferred
stocks and other securities that provide for a
stable stream of income and give the owner the
option to convert the security into common stock.
Convertible securities have characteristics
similar to both fixed-income and equity
securities: in addition to providing fixed
income, convertible securities offer the
potential for capital growth through
12
<PAGE>
the conversion feature, which enables the holder
to benefit from increases in the market price of
the underlying common stock. Convertible
securities generally offer lower interest or
dividend yields, and typically have lower
ratings, than non-convertible securities of
similar quality, because of the potential for
capital growth and their subordination to other
fixed-income securities, respectively.
Convertible securities may be converted at either
a stated price or stated rate into underlying
shares of common stock. While no securities
investments are without risk, investments in
convertible securities generally entail less risk
than investments in common stock of the same
issuer, though there can be no assurance of
capital growth or current income, as securities
prices fluctuate and issuers of the convertible
securities may default on their obligations.
Other Investment Management
Techniques................. The Fund may use various other investment
management techniques that also involve special
considerations, including engaging in interest
rate transactions, utilization of options and
futures transactions, making forward commitments
and lending its portfolio securities. For further
discussion of these and other practices and the
associated risks and special considerations, see
"Other Investment Policies."
Illiquid Securities......... The Fund may invest without limit in obligations
for which no readily available market exists or
which are otherwise illiquid, subject to the
Fund's policy of not investing in excess of 30%
of the Fund's assets in foreign securities or in
excess of 10% of its assets in Distressed
Securities. The Fund may not be able readily to
dispose of illiquid securities at prices that
approximate those at which the Fund could sell
such securities if they were more widely traded
and, as a result of such illiquidity, the Fund
may have to sell other investments or engage in
borrowing transactions if necessary to raise cash
to meet its obligations.
Non-Diversified Status...... The Fund is classified as a "non-diversified"
management investment company under the
Investment Company Act, which means that the Fund
may invest a greater portion of its assets in a
limited number of issuers than would be the case
if the Fund were classified as a "diversified"
management investment company. Accordingly, the
Fund may be subject to greater risk with respect
to its portfolio securities than a management
investment company that is "diversified" because
changes in the financial condition or market
assessment of a single issuer may cause greater
fluctuations in the net asset value of the
Shares.
Market Price, Discount and
Net Asset Value of
Shares..................... Whether investors will realize gains or losses
upon the sale of Shares will not depend directly
upon the Fund's net asset value, but will depend
upon the market price of the Shares at the time
of sale. Since the market price of the Shares
will be determined by such factors as relative
demand for and supply of the Shares in the
13
<PAGE>
market, general market and economic conditions
and other factors beyond the control of the Fund,
the Fund cannot predict whether the Shares will
trade at, below or above net asset value or at,
below or above the initial offering price. Shares
of closed-end management investment companies in
the past frequently have traded at a discount to
their net asset values. The risk of loss
associated with this characteristic of closed-end
management investment companies may be greater
for investors purchasing Shares in the initial
public offering and expecting to sell the Shares
relatively soon after the completion thereof. The
Shares are designed primarily for long-term
investors, and investors in the Shares should not
view the Fund as a vehicle for trading purposes.
See "Risk Factors and Special Considerations" and
"Description of Shares."
Certain Provisions of the
Declaration of Trust....... The Fund's Declaration of Trust contains
provisions limiting (i) the ability of other
entities or persons to acquire control of the
Fund, (ii) the Fund's freedom to engage in
certain transactions, and (iii) the ability of
the Fund's Trustees or Shareholders to amend the
Declaration of Trust. These provisions of the
Declaration of Trust may be regarded as "anti-
takeover" provisions and could have the effect of
depriving the Shareholders of opportunities to
sell their Shares at a premium over prevailing
market prices by discouraging a third party from
seeking to obtain control of the Fund in a tender
offer or similar transaction. See "Investment
Objectives and Policies," "Risk Factors and
Special Considerations" and "Description of
Shares."
14
<PAGE>
FEE TABLE
The following tables are intended to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear, directly or
indirectly.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load (as a percentage of offering price).......................... None
Automatic Dividend Reinvestment Plan Fees............................... None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF NET ASSETS
ATTRIBUTABLE TO SHARES)(1)
Management and Administration Fees...................................... 1.20%
Interest Payments on Borrowed Funds..................................... 2.05%
Shareholder Servicing Fee............................................... .13%
Other Expenses.......................................................... .25%
Total Annual Fund Expenses.......................................... 3.63%
</TABLE>
- --------
(1) See "Management of the Fund" for additional information. The table above
assumes the Fund will utilize leverage by borrowing in an amount equal to
approximately 25% of the Fund's total assets (including the amount obtained
from leverage) at an annualized interest rate of 6.15%. The actual interest
rate imposed on Fund borrowings may be higher or lower than 6.15%,
depending on market conditions. If the Fund does not use any leverage, the
Fund estimates that its annual operating expenses as a percentage of net
assets attributable to the Shares would be approximately as follows:
Management and Administration Fees--.90%; Interest Payments on Borrowed
Funds--none; Shareholder Servicing Fee--.10%; Other Expenses--.25%; and
Total Annual Fund Expenses--1.25%. "Other Expenses" amounts are based on
estimates through the end of the Fund's first fiscal year and are
annualized. See "Risk Factors and Special Considerations--Leverage" and
"Other Investment Practices--Leverage."
(2) The Fee Table does not reflect the one time payment by the Fund of certain
offering expenses, which are estimated to be $691,500 and which include
approximately $250,000 to be paid as reimbursement of expenses to the
Underwriters.
EXAMPLE
The following Example demonstrates the projected dollar amount of total
cumulative expense that would be incurred over various periods with respect to
a hypothetical investment in the Fund. These amounts are based upon payment by
the Fund of operating expenses at the levels set forth in the above table.
An investor would directly or indirectly pay the following expenses on a
$1,000 investment in the Fund, assuming (i) total annual expenses of 1.25%
(assuming no leverage) and 3.63% (assuming leverage of 25% of the Fund's total
assets) and (ii) a 5% annual return throughout the periods and reinvestment of
all dividends and other distributions at net asset value:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Assuming No Leverage.......................... $13 $ 40 $ 69 $151
Assuming 25% Leverage......................... $36 $111 $187 $386
</TABLE>
This Example assumes that the percentage amounts listed under Total Annual
Fund Expenses remain the same in the years shown. The above tables and the
assumption in the Example of a 5% annual return and reinvestment at net asset
value are required by regulation of the Securities and Exchange Commission
("SEC") applicable to all investment companies; the assumed 5% annual return is
not a prediction of, and does not represent, the projected or actual
performance of the Shares. Actual expenses and annual rates of return may be
more or less than those assumed for purposes of the Example. In addition,
although the Example assumes reinvestment of all dividends and other
distributions at net asset value, participants in the Fund's Automatic Dividend
Reinvestment Plan may receive Shares obtained by the DRIP Agent at or based on
the market price in effect at that time, which may be at, above or below net
asset value.
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE EXPENSES,
AND THE FUND'S ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
15
<PAGE>
THE FUND
Conseco Strategic Income Fund (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), as
a non-diversified, closed-end management investment company. The Fund was
organized as a business trust under the laws of the Commonwealth of
Massachusetts on June 2, 1998 and has no operating history. The Fund's
principal office is located at 11825 N. Pennsylvania Street, Carmel, Indiana
46032, and its telephone number is (888) 754-3409. Conseco Capital Management,
Inc. ("Conseco Capital" or the "Manager"), a Delaware corporation, is the
Fund's investment manager and administrator.
The Fund has been organized as a closed-end management investment company.
Closed-end management investment companies differ from open-end management
investment companies (commonly referred to as mutual funds) in that closed-end
management investment companies do not redeem their securities at the option
of the shareholder, whereas mutual funds issue securities redeemable at net
asset value at any time at the option of the shareholder and typically engage
in a continuous offering of their shares. Mutual funds are subject to
continuous asset in-flows and out-flows that can complicate portfolio
management, whereas closed-end funds generally can stay more fully invested.
To facilitate redemption obligations, mutual funds are subject to more
stringent regulatory limitations on certain investments, such as investments
in illiquid securities, than are closed-end funds. However, shares of closed-
end companies frequently trade at a discount from net asset value. This risk
may be greater for investors expecting to sell their shares relatively soon
after the completion of the public offering.
USE OF PROCEEDS
The net proceeds to the Fund from this initial public offering are estimated
to be $ ($ if the Underwriters' over-allotment option is exercised in
full) after deducting organizational and estimated offering expenses. The net
proceeds will be invested in accordance with the Fund's investment objectives
and policies during a period not to exceed six months from the closing of the
initial public offering. Pending such investment, the net proceeds may be
invested in short-term interest-bearing, investment grade securities, and/or
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. A portion of the Fund's organizational and offering
expenses has been advanced by Conseco Capital and will be repaid by the Fund
upon completion of the initial public offering. There is no sales load or
underwriting discount imposed on sales of Shares in the initial public
offering. Conseco Capital or Conseco, Inc. (not the Fund) will pay a
commission from its own assets to the Underwriters in connection with sales of
Shares in this offering. See "Underwriting."
16
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT OBJECTIVES. The Fund's primary investment objective is to seek
high current income. The Fund will also seek capital growth as a secondary
objective to the extent consistent with its objective of seeking high current
income. The Fund is designed for investors willing to assume additional risk
in return for the potential for high current income, primarily, and the
potential for capital growth, secondarily. The Fund is not intended to be a
complete investment program and there is no assurance that the Fund will
achieve its objectives. The Fund's investment objectives cannot be changed
without approval by the holders of a majority (as defined in the Investment
Company Act) of the Fund's outstanding voting securities.
INVESTMENT POLICIES. Under normal market conditions, the Fund will invest at
least 65% of its total assets in high yield bonds, debentures, notes,
corporate loans, convertible debentures, and other debt instruments rated
below investment grade (lower than Baa by Moody's Investors Service, Inc.
("Moody's") or lower than BBB by Standard & Poor's a division of The McGraw-
Hill Companies, Inc. ("S&P"), or comparably rated by another nationally
recognized statistical rating organization (each, a "Rating Agency")), or
unrated but determined by Conseco Capital to be of comparable quality
(collectively, "High Yield Obligations"). Lower grade income securities are
commonly known as "junk bonds." The Fund may invest up to 30% of its total
assets in the securities, including High Yield Obligations, of
issuers/obligors domiciled outside the United States or that are denominated
in foreign currencies or multinational currency units. The Fund expects that
such foreign securities will consist primarily of High Yield Obligations of
issuers/obligors located in emerging markets. The Fund will treat securities
as foreign securities, for the purpose of the 30% limitation, on the basis of
the domicile of the ultimate unconditional guarantor of the security, if any,
in each instance. The Fund may also invest up to 10% of its total assets in
securities that are the subject of bankruptcy proceedings or in default as to
payment of principal and/or interest or in significant risk of being in such
default, or that are rated in the lower rating categories (Ca or lower by
Moody's and CC or lower by S&P) or which, if unrated, are in the judgment of
Conseco Capital of equivalent quality (collectively, "Distressed Securities").
At times, the Fund expects to utilize financial leverage through borrowings,
including the issuance of debt securities, or the issuance of preferred shares
or through other transactions, such as reverse repurchase agreements, which
have the effect of financial leverage. The Fund currently intends to utilize
financial leverage in an amount equal to approximately 25% of its total assets
(including the amount obtained through leverage). The Fund is permitted to use
leverage in a maximum amount equal to 33 1/3% of its total assets. The Fund
generally will not utilize leverage if it anticipates that the Fund's
leveraged capital structure would result in a lower return to Shareholders
than that obtainable over time with an unleveraged capital structure. Use of
financial leverage creates an opportunity for increased income and capital
growth for the Shareholders but, at the same time, creates special risks, and
there can be no assurance that a leveraging strategy will be successful during
any period in which it is employed. See "Other Investment Practices--Leverage"
and "Risk Factors and Special Considerations--Leverage."
In certain market conditions, Conseco Capital may determine that securities
rated investment grade (i.e., at least Baa by Moody's or BBB by S&P or
comparably rated by another Rating Agency) offer significant opportunities for
high income and capital growth. In such conditions, the Fund may invest less
than 65% of its total assets in High Yield Obligations. In addition, the Fund
may implement various temporary "defensive" strategies at times when Conseco
Capital determines that conditions in the markets make pursuing the Fund's
basic investment strategy inconsistent with the best interests of its
Shareholders. During the first six months of operation of the Fund, and during
all periods when less than 65% of the Fund's assets are invested in High Yield
Obligations, the Fund's yield may be expected to be lower than if at least 65%
of the Fund's assets were invested in High Yield Obligations. These strategies
may include an increase in the portion of the Fund's assets invested in
higher-quality debt securities. The Fund may invest in money market
instruments consisting of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, certificates of deposit, time
deposits, bankers' acceptances, short-term investment grade corporate bonds
and other short-term debt instruments, and repurchase agreements. Under normal
market conditions, the Fund does not expect to have a substantial portion of
its assets invested in money market instruments. However, when Conseco Capital
17
<PAGE>
determines that adverse market conditions exist, the Fund may adopt a
temporary defensive posture and invest all or a portion of its assets in money
market instruments.
In selecting investments for the Fund's portfolio, Conseco Capital will seek
to identify issuers and industries that Conseco Capital believes are likely to
experience stable or improving financial conditions. Conseco Capital believes
that this strategy should enhance the Fund's ability to earn high current
income while also providing opportunities for capital growth. Conseco
Capital's analysis may include consideration of general industry trends, the
issuer's managerial strength, changing financial condition, borrowing
requirements or debt maturity schedules, and its responsiveness to changes in
business conditions and interest rates. Conseco Capital may also consider
relative values based on anticipated cash flow, interest or dividend coverage,
asset coverage and earnings prospects. The Fund will seek its secondary
objective of capital growth by investing in securities that Conseco Capital
expects may appreciate in value as a result of favorable developments
affecting the business or prospects of the issuer which may improve the
issuer's financial condition and credit rating or as a result of declines in
long-term interest rates. Of course there is no assurance the Fund's
strategies will be successful.
Following are annual return data for the market for lower grade debt
securities (as measured by the Merrill Lynch High-Yield Master Index), the
market for corporate loans (as measured by the Goldman Sachs/Loan Pricing
Corporation Liquid Leveraged Loan Index), the market for investment grade debt
securities (as measured by the Merrill Lynch Long-Term Corporate Index), and
the U.S. Treasury bill market (as measured by the Merrill Lynch U.S. Treasury
91-Day Index), for selected years.
<TABLE>
<CAPTION>
GOLDMAN SACHS/
MERRILL LYNCH LOAN PRICING CORPORATION MERRILL LYNCH MERRILL LYNCH DEFAULT RATES ON
HIGH-YIELD LIQUID LEVERAGED LONG-TERM U.S. TREASURY LOWER GRADE
MASTER INDEX LOAN INDEX CORPORATE INDEX 91-DAY INDEX INCOME SECURITIES
------------- ------------------------ --------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
1991.................... 39.17% N/A 17.60% 6.38% 10.63%
1992.................... 17.44% N/A 8.59% 3.93% 4.84%
1993.................... 16.69% 11.10% 11.57% 3.19% 3.51%
1994.................... (1.03)% 9.69% (3.91)% 4.19% 1.93%
1995.................... 20.46% 9.05% 21.66% 6.03% 3.20%
1996.................... 11.27% 8.19% 2.76% 5.31% 1.64%
1997.................... 13.27% 8.59% 10.43% 5.33% 1.82%
</TABLE>
The Merrill Lynch High-Yield Master Index is an unmanaged composite index of
securities rated below BBB by S&P that are not in default. The Goldman
Sachs/Loan Pricing Corporation Liquid Leveraged Loan Index is a total return
index of actively traded highly leveraged loans selected, from time to time,
by Goldman Sachs and Loan Pricing Corporation. This index is currently based
on seventeen loans. The Merrill Lynch Long-Term Corporate Index is an
unmanaged index which includes fixed coupon domestic corporate bonds with at
least $100 million par amount outstanding that are rated between BBB and AAA
by S&P. The Merrill Lynch U.S. Treasury 91-Day Index is an average price based
on all three-month Treasury bill auctions over the course of the previous
month. U.S. Treasury bills are direct obligations of the U.S. Government. The
Fund will have no direct investment in, nor will its performance be indicative
of, these unmanaged indices.
The "Default Rates on Lower Grade Income Securities" shown above are
calculated as fractions in which the numerator represents the number of
issuers that defaulted on Moody's rated lower grade debt securities in a
particular year and the denominator represents the number of issuers that
could have defaulted on such securities in that time period. For the period
January 1, 1991 through December 31, 1997, the cumulative default rate for
lower grade income securities was 25.2%. This figure represents the
possibility that a lower grade income security issued on January 1, 1991 would
default by December 31, 1997. The rate is based on the ratio of the number of
issuers that defaulted on lower grade bonds outstanding on January 1, 1991 to
the number of issuers at risk of defaulting on such bonds as of such date, and
is based only on bonds which have been rated by Moody's. The foregoing is
derived from information obtained by the Fund from the February 1998 issue of
a Moody's publication entitled "Historical Default Rates of Corporate Bond
Issuers, 1920-1997."
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The market for outstanding lower grade income securities has increased over
the years. The outstanding principal amounts of lower grade income securities
of U.S. issuers in 1984 was $59 billion, in 1989 was $244 billion, in 1994 was
$270 billion and in 1997 was over $450 billion. In addition, the market for
leveraged loans has become larger and more liquid in recent years. The volume
of leveraged loans originated in 1997 (priced at LIBOR plus 125 basis points
or higher) reached $194 billion compared to $134 billion in 1996, $101 billion
in 1995 and $81 billion in 1994. Additionally, the leveraged loan secondary
trading market increased to a record volume of $61.9 billion during 1997
compared to $41.0 billion in 1996, $33.8 billion in 1995 and $20.8 billion in
1994. The statistical information with respect to the principal amounts of
outstanding lower grade debt securities is based on information the Fund
obtained from Chase Securities, Inc. The statistical information with respect
to the volume of leveraged loans originated and the secondary trading market
was provided by Loan Pricing Corporation.
The Fund's investments in High Yield Obligations may include securities with
fixed or variable rates of interest, zero coupon securities, payment in kind
securities or other deferred payment securities, convertible debt obligations
and convertible preferred stock, corporate loans, participation interests in
commercial loans, mortgage-related securities, asset-backed securities,
municipal obligations, government securities, stripped securities, commercial
paper and other short-term debt obligations. The issuers of the Fund's
portfolio securities may include domestic and foreign corporations,
partnerships, trusts and similar entities, and governmental entities and their
political subdivisions, agencies and instrumentalities. The Fund's portfolio
will be invested without regard to maturity. In connection with its
investments in corporate debt securities, or restructuring of investments
owned by the Fund, the Fund may receive warrants or other non-income producing
equity securities. The Fund will retain such securities, including equity
shares received upon conversion of convertible securities.
PORTFOLIO SECURITIES
LOWER GRADE SECURITIES. Under normal market conditions, the Fund will invest
at least 65% of its total assets in High Yield Obligations, which include high
yield bonds rated below investment grade (lower than Baa by Moody's or lower
than BBB by S&P or comparably rated by another Rating Agency) or unrated but
determined by the Manager to be of comparable quality. Securities rated Ba by
Moody's are judged to have speculative elements; their future cannot be
considered as well assured and often the protection of interest and principal
payments may be very moderate. Securities rated BB by S&P are regarded as
having predominantly speculative characteristics and, while such obligations
have less near-term vulnerability to default than other speculative grade
debt, in the opinion of S&P they face major ongoing uncertainties or exposure
to adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. Securities
rated C by Moody's are regarded by Moody's as having extremely poor prospects
of ever attaining any real investment standing. Securities rated D by S&P are
in default and the payment of interest and/or repayment of principal is in
arrears. See "Appendix A--Ratings of Corporate Bonds" for additional
information concerning rating categories of Moody's and S&P.
Lower grade securities, though high yielding, are characterized by high
risk. They may be subject to certain risks with respect to the issuing entity
and to greater market fluctuations than certain lower yielding, higher rated
securities. The retail secondary market for lower grade securities may be less
liquid than that of higher rated securities; adverse conditions could make it
difficult at times for the Fund to sell certain securities or could result in
lower prices than those used in calculating the Fund's net asset value. Lower
grade securities may be particularly susceptible to economic downturns. It is
likely that an economic recession could disrupt severely the market for such
securities and may have an adverse impact on the value of such securities. In
addition, it is likely that any such economic downturn could adversely affect
the ability of the issuers of such securities to repay principal and pay
interest thereon and increase the incidence of default for such securities.
The higher credit risk associated with lower grade securities potentially can
have a greater effect on the value of such securities than may be the case
with higher quality issues of comparable maturity and will be a substantial
factor in the Fund's relative Share price volatility. See "Risk Factors and
Special Considerations."
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<PAGE>
The prices of debt securities generally are inversely related to interest
rate changes; however, the price volatility also is inversely related to
coupon. Accordingly, lower grade securities may be relatively less sensitive
to interest rate changes than higher quality securities of comparable
maturity, because of their higher coupon. This higher coupon is what the
investor receives in return for bearing greater credit risk.
The ratings of Moody's, S&P and the other Rating Agencies represent their
opinions as to the quality of the obligations which they undertake to rate.
Ratings are relative and subjective and, although ratings may be useful in
evaluating the safety of interest and principal payments, they do not evaluate
the market value risk of such obligations. Although these ratings may be an
initial criterion for selection of portfolio investments, Conseco Capital also
will evaluate these securities and the ability of the issuers of such
securities to pay interest and principal. To the extent that the Fund invests
in lower grade securities that have not been rated by a Rating Agency, the
Fund's ability to achieve its investment objectives will be more dependent on
Conseco Capital's credit analysis than would be the case when the Fund invests
in rated securities.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. The Fund may
invest in zero coupon, pay-in-kind and deferred payment securities, including
those that are lower grade securities. Zero coupon securities are securities
that are sold at a discount to par value and on which interest payments are
not made during the life of the security or before another specified date.
Upon maturity, the holder is entitled to receive the par value of the
security. While interest payments are not made on such securities, holders
thereof are required each year, for federal income tax purposes, to accrue
income with respect to these securities as if it were actually received.
Because the Fund must distribute this income to Shareholders, to the extent
that Shareholders elect to receive dividends in cash rather than reinvesting
such dividends in additional Shares, the Fund will have fewer assets with
which to purchase income-producing securities. Such distributions may require
the Fund to sell other securities and incur a gain or loss at a time it may
otherwise not want to in order to obtain the cash needed for these
distributions. Pay-in-kind securities are securities that have interest
payable by delivery of additional securities. Upon maturity, the holder is
entitled to receive the aggregate par value of the securities. Deferred
payment securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. Zero coupon, pay-in-kind and
deferred payment securities are subject to greater fluctuation in value and
may have less liquidity in the event of adverse market conditions than
comparably rated securities paying cash interest at regular interest payment
periods.
CORPORATE LOANS. The corporate loans in which the Fund may invest
("Corporate Loans") generally consist of direct obligations of a borrower
("Borrower") undertaken to finance the growth of the Borrower's business
internally or externally, or to finance a capital restructuring. Corporate
Loans may also include obligations of a Borrower issued in connection with a
restructuring or a bankruptcy. A significant portion of the Corporate Loans in
which the Fund will invest are highly leveraged loans, such as leveraged buy-
out loans, leveraged recapitalization loans and other types of acquisition
loans. Such Corporate Loans may be structured to include both term loans,
which are generally fully funded at the time of the Fund's investment, and
revolving credit facilities, which would require the Fund to make additional
investments in Corporate Loans as required under the terms of the credit
facility. Such Corporate Loans may also include receivables purchase
facilities, which are similar to revolving credit facilities secured by a
Borrower's receivables. Subject to the 30% limitation on the Fund's investment
in foreign securities, the Corporate Loans in which the Fund may invest may
include those of foreign Borrowers or obligors, determined for the purpose of
this limitation on the basis of the domicile of the ultimate unconditional
guarantor, if any, in each instance. See "Risk Factors and Special
Considerations--Corporate Loans."
The Corporate Loans in which the Fund may invest are typically originated,
negotiated and structured by a syndicate of lenders ("Co-Lenders") consisting
of commercial banks, thrift institutions, insurance companies, finance
companies or other financial institutions, one or more of which administers
the Corporate Loan on behalf of the syndicate (an "Agent Bank"). Co-Lenders
may sell Corporate Loans to third parties called "Participants." The Fund may
invest in a Corporate Loan either by participating as a Co-Lender at the time
the loan is originated or by buying an interest in the Corporate Loan from a
Co-Lender or a Participant. Co-Lenders and Participants interposed between the
Fund and a Borrower, together with Agent Banks, are referred to herein as
"Intermediate Participants."
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<PAGE>
The Fund may purchase a Corporate Loan from an Intermediate Participant by
means of a novation, an assignment or a participation. In a novation, the Fund
would assume all the rights of the Intermediate Participant in a Corporate
Loan, including the right to receive payments of principal and interest and
other amounts directly from the Borrower and to enforce its rights as lender
directly against the Borrower and would assume all of the obligations of the
Intermediate Participant, including any obligation to make future advances to
the Borrower. As a result, therefore, the Fund would have the status of a Co-
Lender. As an alternative, the Fund may purchase an assignment of all or a
portion of an Intermediate Participant's interest in a Corporate Loan, in
which case the Fund may be required generally to rely on the assigning lender
to demand payment and enforce its rights against the Borrower, but would
otherwise be entitled to all of such lender's rights in the Corporate Loan.
The Fund also may purchase a participation in a portion of the rights of an
Intermediate Participant in a Corporate Loan by means of a participation
agreement with such Intermediate Participant. A participation in the rights of
an Intermediate Participant is similar to an assignment in that the
Intermediate Participant transfers to the Fund all or a portion of an interest
in a Corporate Loan. Unlike an assignment, however, a participation does not
establish any direct relationship between the Fund and the Borrower. In such a
case, the Fund would be required to rely on the Intermediate Participant that
sold the participation not only for the enforcement of the Fund's rights
against the Borrower but also for the receipt and processing of payments due
to the Fund under the Corporate Loan. The Fund will not act as an Agent Bank,
guarantor, sole negotiator or sole structurer with respect to a Corporate
Loan.
In a typical Corporate Loan, the Agent Bank administers the terms of the
Corporate Loan Agreement and is responsible for the collection of principal
and interest and fee payments from the Borrower and the apportionment of these
payments to the credit of all investors which are parties to the Corporate
Loan Agreement. The Fund generally will rely on the Agent Bank or an
Intermediate Participant to collect its portion of the payments on the
Corporate Loan. Furthermore, the Fund will rely on the Agent Bank to enforce
appropriate creditor remedies against the Borrower. Typically, under Corporate
Loan Agreements, the Agent Bank is given broad discretion in enforcing the
Corporate Loan Agreement, and it is obliged to use only the same care it would
use in the management of its own property. For these services the Borrower
compensates the Agent Bank. Such compensation may include special fees paid on
structuring and funding the Corporate Loan and other fees paid on a continuing
basis.
In the event that an Agent Bank becomes insolvent, or has a receiver,
conservator, or similar official appointed for it by the appropriate bank
regulatory authority or becomes a debtor in a bankruptcy proceeding, assets
held by the Agent Bank under the Corporate Loan Agreement should remain
available to holders of a Corporate Loan. If, however, assets held by the
Agent Bank for the benefit of the Fund are determined by an appropriate
regulatory authority or court to be subject to the claims of the Agent Bank's
general or secured creditors, the Fund might incur certain costs and delays in
realizing payment on a Corporate Loan, or suffer a loss of principal and/or
interest. In situations involving Intermediate Participants similar risks may
arise, as described below.
Intermediate Participants may have certain obligations pursuant to a
Corporate Loan Agreement, which may include the obligation to make future
advances to the Borrower in connection with revolving credit facilities in
certain circumstances. The Fund will not invest in Corporate Loans that would
require the Fund to make any additional investments in connection with such
future advances if such commitments would exceed 20% of the Fund's total
assets. To the extent the Fund's investments in participation interests
require the segregation of greater portions of its investments in more liquid
instruments to meet future advances obligations on a timely basis, the Fund
may be required to liquidate certain of its investments at a loss or forego
certain investment opportunities, possibly resulting in a lower yield than
that which it might otherwise achieve.
The Fund may invest in senior and subordinated Corporate Loans, both secured
and unsecured. The Corporate Loans in which the Fund invests may be senior
debt obligations of the Borrower and may, in some instances, hold the most
senior position in the capitalization structure of the Borrower (i.e., not
subordinated to other debt obligations in right of payment). Corporate Loans
which are senior debt obligations of the Borrower may be wholly or partially
secured by collateral, or may be unsecured. However, even in the case of a
secured Corporate Loan, upon an event of default the ability of a lender to
have access to the collateral, if any, or
21
<PAGE>
otherwise recover its investment may be limited by bankruptcy and other
insolvency laws. The value of the collateral may decline subsequent to the
Fund's investment in the Corporate Loan. Under certain circumstances, the
collateral may be released with the consent of the syndicate of lenders and
the Agent Bank or pursuant to the terms of the underlying credit agreement
with the Borrower. There is no assurance that the liquidation of the
collateral would satisfy the Borrower's obligations in the event of the
nonpayment of scheduled interest or principal, or that the collateral could be
readily liquidated. As a result, the Fund might not receive payments to which
it is entitled and thereby may experience a decline in the value of the
investment and possibly, its net asset value. Additionally, no interest is
payable on unsecured or undersecured Corporate Loans following the filing of a
bankruptcy petition in respect of the obligor.
In addition to senior and secured Corporate Loans, the Fund may invest in
Corporate Loans which are unsecured and subordinated. A Corporate Loan which
is unsecured is not supported by any specific pledge of collateral and
therefore constitutes only a general obligation of the Borrower. In addition
to being unsecured a Corporate Loan in which the Fund may invest may be
subordinate in right of payment to the senior debt obligations of the
Borrower. Upon a liquidation or bankruptcy of the Borrower the senior debt
obligations of the Borrower are often required to be paid in full before the
subordinated debtholders are permitted to receive any distribution on behalf
of their claim. Distributions, if any, to subordinated debtholders in such
situations may consist in whole or in part in non-income producing securities,
including common stock. Accordingly, following an event of default or
liquidation or bankruptcy of a Borrower, there can be no assurance that the
assets of the Borrower will be sufficient to satisfy the claims of unsecured
and subordinated debtholders or that such debtholders will receive income
producing debt securities in satisfaction of their claims. As a result, the
Fund might not receive payments to which it is entitled and thereby may
experience a decline in the value of its investment and its net asset value.
The rate of interest payable on floating or variable rate Corporate Loans is
established as the sum of a base lending rate used by commercial lenders plus
a specified margin. These base lending rates generally are the Prime Rate of a
designated U.S. bank, LIBOR, the CD rate or another base lending rate used by
commercial lenders. The interest rate on Prime Rate-based Corporate Loans
floats daily as the Prime Rate changes, while the interest rate on LIBOR-based
and CD-based Corporate Loans is reset periodically, typically every 30 days to
one year. Certain of the floating or variable rate Corporate Loans in which
the Fund will invest may permit the Borrower to select an interest rate reset
period of up to one year. Although the Fund's net asset value will vary, the
Fund's policy of acquiring interests in variable rate Corporate Loans is
intended to minimize fluctuations in the Fund's net asset value as a result of
changes in interest rates.
The Fund may receive and/or pay certain fees in connection with its
investments in Corporate Loans. These fees are in addition to interest
payments received and may include facility fees, commissions and prepayment
penalty fees. When the Fund buys a Corporate Loan it may receive a facility
fee and when it sells a Corporate Loan it may pay a facility fee. In certain
circumstances, the Fund may receive a prepayment penalty fee on the prepayment
of a Corporate Loan by a Borrower. These fees are intended to adjust the yield
on such Corporate Loans. In connection with the acquisition of Corporate
Loans, the Fund may also acquire warrants and other debt or equity securities
of the Borrower or its affiliates. The acquisition of such securities will
only be incidental to the Fund's purchase of an interest in a Corporate Loan.
In making an investment in a Corporate Loan, Conseco Capital will consider
factors deemed by it to be appropriate to the analysis of the Borrower and the
Corporate Loan. Such factors include financial ratios of the Borrower such as
pre-tax interest coverage, leverage ratios, and the ratios of cash flows to
total debts and the ratio of tangible assets to debt. In its analysis of these
factors, Conseco Capital also will be influenced by the nature of the industry
in which the Borrower is engaged, the nature of the Borrower's assets, any
guarantees by third parties and Conseco Capital's assessments of the general
quality of the Borrower.
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<PAGE>
A Borrower also may be required to comply with various restrictive covenants
contained in any loan agreement between the Borrower and the lending syndicate
("Corporate Loan Agreement"). Such covenants, in addition to requiring the
scheduled payment of interest and principal, may include restrictions on
dividend payments and other distributions to stockholders, provisions
requiring the Borrower to maintain specific financial ratios or relationships
and limits on total debt. In addition, a Corporate Loan Agreement may contain
a covenant requiring the Borrower to prepay the Corporate Loan with any excess
cash flow. Excess cash flow generally includes net cash flow after scheduled
debt service payments and permitted capital expenditures, among other things,
as well as the proceeds from asset dispositions or sales of securities. A
breach of covenant (after giving effect to any cure period) which is not
waived by the Agent Bank and the lending syndicate normally is an event of
acceleration, i.e., the Agent Bank has the right to call the outstanding
Corporate Loan, generally at the request of the lending syndicate.
The Fund has no restrictions on portfolio maturity, but it is anticipated
that a majority of the Corporate Loans will have stated maturities ranging
from five to ten years. However, such Corporate Loans usually will require, in
addition to scheduled payments of interest and principal, the prepayment of
the Corporate Loans from excess cash flow, as discussed above, and may permit
the Borrower to prepay at its election. The degree to which Borrowers prepay
Corporate Loans, whether as a contractual requirement or at their election,
may be affected by general business conditions, the financial condition of the
Borrower and competitive conditions among lenders, among other factors.
Accordingly, prepayments cannot be predicted with accuracy.
Loans to non-U.S. Borrowers or to U.S. Borrowers with significant non-
dollar-denominated revenues may provide for conversion of all or part of the
loan from dollar-denominated obligation into a foreign currency obligation at
the option of the Borrower.
CONVERTIBLE SECURITIES AND CERTAIN EQUITY SECURITIES. The Fund may invest in
convertible securities. Convertible securities may be converted at either a
stated price or stated rate into underlying shares of common stock.
Convertible securities have characteristics similar to both fixed-income and
equity securities. Convertible securities generally are subordinated to other
similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior to
shares of common stock of the same issuer. Because of the subordination
feature, however, convertible securities typically have lower ratings than
similar non-convertible securities.
The Fund also may invest in warrants, preferred stock or other equity
securities of U.S. and foreign issuers when consistent with the Fund's
objectives. The Fund may hold such investments as a result of purchases of
unit offerings of debt securities which include such securities or in
connection with an actual or proposed conversion or exchange of debt
securities. The Fund will treat investments acquired in this manner, together
with any holdings of convertible securities, as debt securities for purposes
of its policy to invest at least 65% of its total assets, under normal
circumstances, in High Yield Obligations. The Fund may also purchase equity
securities not associated with debt securities when, in the opinion of the
Manager, such purchase is appropriate.
Although to a lesser extent than with fixed-income securities, the market
value of convertible securities tends to decline as interest rates increase
and, conversely, tends to increase as interest rates decline. In addition,
because of the conversion feature, the market value of convertible securities
tends to vary with fluctuations in the market value of the underlying common
stock. A unique feature of convertible securities is that as the market price
of the underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis, and so may not experience market value declines
to the same extent as the underlying common stock. When the market price of
the underlying common stock increases, the prices of the convertible
securities tend to rise as a reflection of the value of the underlying common
stock. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer.
23
<PAGE>
Convertible securities are investments that provide for a stable stream of
income with generally higher yields than common stock. There can be no
assurance of current income because the issuers of the convertible securities
may default on their obligations. A convertible security, in addition to
providing fixed income, offers the potential for capital growth through the
conversion feature, which enables the holder to benefit from increases in the
market price of the underlying common stock. There can be no assurance of
capital growth, however, because securities prices fluctuate. Convertible
securities, however, generally offer lower interest or dividend yields than
non-convertible securities of similar quality because of the potential for
capital growth.
DISTRESSED SECURITIES. The Fund may invest up to 10% of its total assets in
Distressed Securities. Investment in Distressed Securities is speculative and
involves significant risk, including possible loss of the principal invested.
Distressed Securities frequently do not produce income while they are
outstanding and may require the Fund to bear certain extraordinary expenses
(including legal, accounting, valuation and transaction expenses) in order to
protect and recover its investment. Therefore, to the extent the Fund pursues
its secondary objective of capital growth through investment in Distressed
Securities, the Fund's ability to achieve current income for its Shareholders
may be diminished. The Fund also will be subject to significant uncertainty as
to when and in what manner and for what value the obligations evidenced by the
Distressed Securities will eventually be satisfied (e.g., through a
liquidation of the obligor's assets, an exchange offer or plan of
reorganization involving the Distressed Securities or a payment of some amount
in satisfaction of the obligation). In addition, even if an exchange offer is
made or plan of reorganization is adopted with respect to Distressed
Securities held by the Fund, there can be no assurance that the securities or
other assets received by the Fund in connection with such exchange offer or
plan of reorganization will not have a lower value or income potential than
may have been anticipated when the investment was made. Moreover, any
securities received by the Fund upon completion of an exchange offer or plan
of reorganization may be restricted as to resale. As a result of the Fund's
participation in negotiations with respect to any exchange offer or plan of
reorganization with respect to an issuer of Distressed Securities, the Fund
may be restricted from disposing of such securities. See "Risk Factors and
Special Considerations."
ILLIQUID SECURITIES. The Fund may invest without limit in obligations for
which no readily available market exists or which are otherwise illiquid,
subject to the Fund's policy of not investing in excess of 30% of the Fund's
assets in foreign securities or in excess of 10% of its assets in Distressed
Securities. When purchasing securities that have not been registered under the
Securities Act of 1933, as amended ("Securities Act"), and that are not
readily marketable, the Fund will endeavor, to the extent practicable, to
obtain the right to registration at the expense of the issuer. There may be a
lapse of time between the Fund's decision to sell any such security and the
registration of the security permitting sale. During any such period, the
price of the securities will be subject to market fluctuations. The Fund may
purchase certain securities eligible for sale to qualified institutional
buyers as contemplated by Rule 144A under the Securities Act ("Rule 144A
securities"). Rule 144A provides an exemption from the registration
requirements of the Securities Act for the resale of certain restricted
securities to certain qualified institutional buyers. One effect of Rule 144A
is that certain restricted securities may be considered liquid, though no
assurance can be given that a liquid market for Rule 144A securities will
develop or be maintained.
COLLATERALIZED BOND OBLIGATIONS. A collateralized bond obligation ("CBO") is
a type of asset-backed security. Specifically, a CBO is an investment grade
bond which is backed by a diversified pool of high risk, high yield fixed
income securities. The pool of high yield securities is separated into "tiers"
representing different degrees of credit quality. The top tier of CBOs is
backed by the pooled securities with the highest degree of credit quality and
pays the lowest interest rate. Lower-tier CBOs represent lower degrees of
credit quality and pay higher interest rates to compensate for the attendant
risk. The bottom tier typically receives the residual interest payments (i.e.,
money that is left over after the higher tiers have been paid) rather than a
fixed interest rate. The return on the bottom tier of CBOs is especially
sensitive to the rate of defaults in the collateral pool. To the extent the
Fund invests in CBOs, under normal market conditions, it would expect to
invest in the lower-tier CBOs.
FOREIGN SECURITIES. The Fund may invest up to 30% of its total assets in the
securities, including High Yield Obligations, of issuers/obligors domiciled
outside the United States or that are denominated in foreign
24
<PAGE>
currencies or multinational currency units. The Fund expects that such foreign
securities will consist primarily of High Yield Obligations of
issuers/obligors located in emerging markets. The Fund will treat securities
as foreign securities, for the purpose of the 30% limitation, on the basis of
the domicile of the ultimate unconditional guarantor of the security, if any,
in each instance. Investing in foreign securities involves certain risks. See
"Risk Factors and Special Considerations--Foreign Securities."
Foreign securities in which the Fund may invest include obligations issued
or guaranteed by one or more foreign governments or any of their political
subdivisions, agencies or instrumentalities, or supranational entities, that
are determined by Conseco Capital to be of comparable quality to the other
obligations in which the Fund may invest. Supranational entities include
international organizations designated or supported by governmental entities
to promote economic reconstruction or development and international banking
institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the World Bank), the
European Coal and Steel Community, the Asian Development Bank and the
InterAmerican Development Bank.
Foreign securities markets generally are not as developed or efficient as
those in the United States. Securities of some foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Similarly,
volume and liquidity in most foreign securities markets are less than in the
United States and, at times, volatility of price can be greater than in the
United States.
Because evidences of ownership of such securities usually are held outside
the United States, the Fund will be subject to additional risks which include
possible adverse political and economic developments, seizure or
nationalization of foreign deposits and adoption of governmental restrictions
which might adversely affect or restrict the payment of principal and interest
on the foreign securities to investors located outside the country of the
issuer, whether from currency blockage or otherwise.
Developing countries have economic structures that are generally less
diverse and mature, and political systems that are less stable, than those of
developed countries. The markets of developing countries may be more volatile
than the markets of more mature economies; however, such markets may provide
higher rates of return to investors. Many developing countries providing
investment opportunities for the Fund have experienced substantial, and in
some periods extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue to have
adverse effects on the economies and securities markets of certain of these
countries.
Since foreign securities often are purchased with and payable in currencies
of foreign countries, the value of these assets as measured in U.S. dollars
may be affected favorably or unfavorably by changes in currency rates and
exchange control regulations. The Fund may engage in certain transactions to
hedge the currency-related risks of investing in non-U.S. dollar denominated
securities. See "Other Investment Practices."
VARIABLE AND FLOATING RATE SECURITIES. Variable and floating rate securities
provide for a periodic adjustment in the interest rate paid on the
obligations. The terms of such obligations must provide that interest rates
are adjusted periodically based upon an interest rate adjustment index as
provided in the respective obligations. The adjustment intervals may be
regular, and range from daily up to annually, or may be event based, such as
based on a change in the prime rate.
The Fund may invest in floating rate debt instruments ("floaters"). The
interest rate on a floater is a variable rate which is tied to another
interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
Because of the interest rate reset feature, floaters provide the Fund with a
certain degree of protection against rises in interest rates, although the
Fund will participate in any declines in interest rates as well. The Fund also
may invest in inverse floating rate debt instruments ("inverse floaters"). The
interest rate on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed or inversely
to a multiple of the applicable index. An inverse floating rate security may
exhibit greater price volatility than a fixed rate obligation of similar
credit quality.
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MORTGAGE-RELATED SECURITIES. Mortgage-related securities are a form of
derivative backed by pools of commercial or residential mortgages. Pools of
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations. These securities
may include complex instruments such as collateralized mortgage obligations,
stripped mortgage-backed securities, mortgage pass-through securities,
interests in real estate mortgage investment conduits ("REMICs"), adjustable
rate mortgages, as well as other real estate-related securities. The mortgage-
related securities in which the Fund may invest include those with fixed,
floating or variable interest rates, those with interest rates that change
based on multiples of changes in a specified index of interest rates and those
with interest rates that change inversely to changes in interest rates, as
well as those that do not bear interest. See Appendix B hereto for a
discussion of specific types of mortgage-related securities.
ASSET-BACKED SECURITIES. Asset-backed securities are a form of derivative
securities. The securitization techniques used for asset-backed securities are
similar to those used for mortgage-related securities. The collateral for
these securities has included home equity loans, automobile and credit card
receivables, boat loans, computer leases, airplane leases, mobile home loans,
recreational vehicle loans and hospital account receivables. The Fund may
invest in these and other types of asset-backed securities that may be
developed in the future. Asset-backed securities present certain risks that
are not presented by mortgage-backed securities. Primarily, these securities
may provide the Fund with a less effective security interest in the related
collateral than do mortgage-backed securities. Therefore, there is the
possibility that recoveries on the underlying collateral may not, in some
cases, be available to support payments on these securities.
MUNICIPAL OBLIGATIONS. Municipal obligations generally include debt
obligations issued to obtain funds for various public purposes as well as
certain industrial development bonds issued by or on behalf of public
authorities. Municipal obligations are classified as general obligation bonds,
revenue bonds and notes. General obligation bonds are secured by the issuer's
pledge of its faith, credit and taxing power for the payment of principal and
interest. Revenue bonds are payable from the revenue derived from a particular
facility or class of facilities or, in some cases, from the proceeds of a
special excise or other specific revenue source, but not from the general
taxing power. Industrial development bonds, in most cases, are revenue bonds
that generally do not carry the pledge of the credit of the issuing
municipality, but generally are guaranteed by the corporate entity on whose
behalf they are issued. Notes are short-term instruments which are obligations
of the issuing municipalities or agencies and are sold in anticipation of a
bond sale, collection of taxes or receipt of other revenues. Municipal
obligations include municipal lease/purchase agreements which are similar to
installment purchase contracts for property or equipment issued by
municipalities.
Municipal obligations bear fixed, floating or variable rates of interest.
Certain municipal obligations are subject to redemption at a date earlier than
their stated maturity pursuant to call options, which may be separated from
the related municipal obligations and purchased and sold separately. The Fund
also may acquire call options on specific municipal obligations. The Fund
generally would purchase these call options to protect the Fund from the
issuer of the related municipal obligation redeeming, or other holder of the
call option from calling away, the municipal obligation before maturity.
While, in general, municipal obligations are tax-exempt securities having
relatively low yields as compared to taxable, non-municipal obligations of
similar quality, certain municipal obligations are taxable obligations,
offering yields comparable to, and in some cases greater than, the yields
available on other permissible Fund investments. Dividends received by
Shareholders from the Fund that are attributable to interest income received
by the Fund from municipal obligations will be subject to federal income tax.
The Fund may invest in municipal obligations, the ratings of which correspond
with the ratings of other permissible Fund investments. The Fund currently
intends to invest no more than 25% of its total assets in municipal
obligations.
U.S. GOVERNMENT SECURITIES. The Fund may invest in securities and
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (collectively, "U.S. Government Securities"). Some U.S.
Government Securities are supported by the full faith and credit of the U.S.
Treasury; others by the right of the issuer to borrow from the Treasury;
others by discretionary authority of the U.S. Government to purchase
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<PAGE>
certain obligations of the agency or instrumentality; and others only by the
credit of the agency or instrumentality. These securities bear fixed, floating
or variable rates of interest. While the U.S. Government provides financial
support to certain U.S. Government-sponsored agencies and instrumentalities,
no assurance can be given that it will always do so since it is not so
obligated by law.
STRIPPED SECURITIES. The Fund may invest in zero coupon U.S. Treasury
securities, which are Treasury Notes and Treasury Bonds that have been
stripped of their unmatured interest coupons, the coupons themselves and
receipts or certificates representing interests in such stripped debt
obligations and coupons. Such stripped securities also are issued by
corporations and financial institutions which constitute a proportionate
ownership of the issuer's pool of underlying securities. A stripped security
pays no interest to its holder during its life and is sold at a discount to
its face value at maturity. The market prices of such securities generally are
more volatile than the market prices of securities that pay interest
periodically and are likely to respond to a greater degree to changes in
interest rates than coupon securities having similar maturities and credit
qualities.
MONEY MARKET INSTRUMENTS. The Fund may invest in the following types of
money market instruments.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys, and the
seller agrees to repurchase, a security at a mutually agreed upon time and
price (usually within seven days). The repurchase agreement thereby determines
the yield during the purchaser's holding period, while the seller's obligation
to repurchase is secured by the value of the underlying security. Repurchase
agreements could involve risks in the event of a default or insolvency of the
other party to the agreement, including possible delays or restrictions upon
the Fund's ability to dispose of the underlying securities. The Fund may enter
into repurchase agreements with certain banks or non-bank dealers.
BANK OBLIGATIONS. The Fund may purchase certificates of deposit, time
deposits, bankers' acceptances and other short-term obligations issued by
domestic banks, foreign subsidiaries or foreign branches of domestic banks,
domestic and foreign branches of foreign banks, domestic savings and loan
associations and other banking institutions. Certificates of deposit are
negotiable certificates evidencing the obligation of a bank to repay funds
deposited with it for a specified period of time. Time deposits are non-
negotiable deposits maintained in a banking institution for a specified period
of time (in no event longer than seven days) at a stated interest rate.
Bankers' acceptances are credit instruments evidencing the obligation of a
bank to pay a draft drawn on it by a customer. These instruments reflect the
obligation both of the bank and the drawer to pay the face amount of the
instrument upon maturity. The other short-term obligations may include
uninsured, direct obligations bearing fixed, floating or variable interest
rates.
COMMERCIAL PAPER. Commercial paper consists of short-term, unsecured
promissory notes issued to finance short-term credit needs. The commercial
paper purchased by the Fund will consist only of direct obligations which, at
the time of their purchase, are (a) rated not lower than Prime-1 by Moody's or
A-1 by S&P, (b) issued by companies having an outstanding unsecured debt issue
currently rated at least A3 by Moody's or A- by S&P, or (c) if unrated,
determined by Conseco Capital to be of comparable quality to those rated
obligations which may be purchased by the Fund.
OTHER SHORT-TERM CORPORATE OBLIGATIONS. These instruments include variable
amount master demand notes, which are obligations that permit the Fund to
invest fluctuating amounts at varying rates of interest pursuant to direct
arrangements between the Fund, as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. Because these obligations are direct
lending arrangements between the lender and borrower, it is not contemplated
that such instruments generally will be traded, and there generally is no
established secondary market for these obligations, although they are
redeemable at face value, plus accrued interest, at any time. Accordingly,
where these obligations are not secured by letters of credit or other credit
support arrangements, the Fund's right to redeem is dependent on the ability
of the borrower to pay principal and interest on demand. Such obligations
frequently are not rated by credit rating agencies, and the Fund may invest in
them only if at the time of an investment the borrower meets the criteria set
forth in the Fund's Prospectus for other commercial paper issuers.
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<PAGE>
OTHER INVESTMENT PRACTICES
The Fund may utilize other investment practices and portfolio management
techniques as set forth below.
LEVERAGE. The Fund currently intends to utilize financial leverage in an
amount equal to approximately 25% of its total assets (including the amount
obtained through leverage). The Fund is permitted to use leverage in a maximum
amount equal to 33 1/3% of its total assets. The Fund generally will not
utilize leverage if it anticipates that the Fund's leveraged capital structure
would result in a lower return to Shareholders than that obtainable if the
Shares were unleveraged for any significant amount of time. The Fund also may
borrow money as a temporary measure for extraordinary or emergency purposes,
including the payment of dividends and the settlement of securities
transactions which otherwise may require untimely dispositions of Fund
securities. To the extent permitted by SEC rules, regulations and
interpretations, the Fund at times may borrow from affiliates of Conseco
Capital, provided that the terms of such borrowings are no less favorable than
those available from comparable sources of funds in the marketplace. The use
of leverage creates risks and involves special considerations. See "Risk
Factors and Special Considerations--Leverage."
The concept of leveraging is based on the premise that the cost of the
assets to be obtained from leverage will be based on short-term rates which
normally will be lower than the return earned by the Fund on its longer term
portfolio investments. Since it is anticipated that the total assets of the
Fund (including the assets obtained from leverage) will be invested in the
higher yielding portfolio investments or portfolio investments with the
potential for capital growth, the Shareholders should be the beneficiaries of
any incremental return. Should the differential between the underlying assets
and cost of leverage narrow, the incremental return "pick up" will be reduced.
Furthermore, if long-term rates rise, the net asset value of the Shares will
reflect the decline in the value of portfolio holdings resulting therefrom.
Capital raised through leverage will be subject to interest costs or
dividend payments. The Fund, among other things, also may be required to
maintain minimum average balances in connection with borrowings or to pay a
commitment or other fee to maintain a line of credit; either of these
requirements will increase the cost of borrowing over the stated interest
rate. The issuance of additional classes of preferred shares involves offering
expenses and other costs and may limit the Fund's freedom to pay dividends on
Shares or to engage in other activities. Borrowings and the issuance of a
class of preferred shares having priority over the Fund's Shares create an
opportunity for greater return per Share, but at the same time such borrowing
is a speculative technique in that it will increase the Fund's exposure to
capital risk. Unless the income and appreciation, if any, on assets acquired
with borrowed funds or offering proceeds exceed the cost of borrowing or
issuing additional classes of securities, the use of leverage will diminish
the investment performance of the Fund compared with what it would have been
without leverage.
Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless immediately after such incurrence the Fund has an asset
coverage of at least 300% of the aggregate outstanding principal balance of
indebtedness (i.e., such indebtedness may not exceed 33 1/3% of the Fund's
total assets). Additionally, under the Investment Company Act, the Fund may
not declare any dividend or other distribution upon any class of its capital
shares, or purchase any such capital shares, unless the aggregate indebtedness
of the Fund has, at the time of the declaration of any such dividend or
distribution or at the time of any such purchase, an asset coverage of at
least 300% after deducting the amount of such dividend, distribution, or
purchase price, as the case may be. Under the Investment Company Act, the Fund
is not permitted to issue preferred shares unless immediately after such
issuance the net asset value of the Fund's portfolio is at least 200% of the
liquidation value of the outstanding preferred shares (i.e., such liquidation
value may not exceed 50% of the Fund's total assets). In addition, the Fund is
not permitted to declare any cash dividend or other distribution on its Shares
unless, at the time of such declaration, the net asset value of the Fund's
portfolio (determined after deducting the amount of such dividend or other
distribution) is at least 200% of such liquidation value. If preferred shares
are issued, the Fund intends, to the extent possible, to purchase or redeem
preferred shares from time to time to maintain coverage of any preferred
shares of at least 200%.
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<PAGE>
The Fund's willingness to borrow money and issue new securities for
investment purposes, and the amount the Fund will borrow or issue, will depend
on many factors, the most important of which are investment outlook, market
conditions and interest rates. Successful use of a leveraging strategy depends
on Conseco Capital's ability to successfully manage interest rate risks, and
there is no assurance that a leveraging strategy will be successful during any
period in which it is employed.
Assuming the utilization of leverage by borrowings in the amount of
approximately 33 1/3% of the Fund's total assets, and an annual interest rate
of 6.15% payable on such leverage based on market rates as of the date of this
Prospectus, the annual return that the Fund's portfolio must experience (net
of expenses) in order to cover such interest payments would be 3.08%. The
Fund's actual cost of leverage will be based on market rates at the time the
Fund undertakes a leveraging strategy and such actual cost of leverage may be
higher or lower than that assumed in the previous example.
The following table is designed to illustrate the effect on the return to a
Shareholder of the leverage obtained by borrowings in the amount of
approximately 33 1/3% of the Fund's total assets, assuming hypothetical annual
returns of the Fund's portfolio of minus 10% to plus 10%. As the table shows,
the leverage generally increases the return to Shareholders when portfolio
return is positive and greater than the cost of leverage and decreases the
return when the portfolio return is negative or less than the cost of
leverage. The figures appearing in the table are hypothetical and actual
returns may be greater or less than those appearing in the table.
<TABLE>
<S> <C> <C> <C> <C> <C>
Assumed Portfolio Return (net of
expenses)......................... (10)% (5)% 0 % 5% 10%
Corresponding Share Return......... (18.08)% (10.58)% (3.08)% 4.42% 11.93%
</TABLE>
Until the Fund borrows or issues preferred shares, the Fund's Shares will
not be leveraged, and the risks and special considerations related to leverage
described in this Prospectus will not apply. Such leveraging of the Shares
cannot be fully achieved until the proceeds resulting from the use of leverage
have been invested in longer-term debt instruments in accordance with the
Fund's investment objectives and policies.
SHORT-SELLING. The Fund may engage in short-selling, in which it sells a
security it does not own in anticipation of a decline in the market value of
the security. To complete the transaction, the Fund must borrow the security
to make delivery to the buyer. The Fund is obligated to replace the security
borrowed by purchasing it subsequently at the market price at the time of
replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund, which would result in a loss or gain,
respectively.
Securities will not be sold short if, after effect is given to any such
short sale, the total market value of all securities sold short would exceed
25% of the value of the Fund's net assets. The Fund may not make a short sale
which results in the Fund having sold short in the aggregate more than 5% of
the outstanding securities of any class of an issuer.
The Fund also may make short sales "against the box," in which the Fund
enters into a short sale of a security it owns.
Until the Fund closes its short position or replaces the borrowed security,
it will: (a) maintain a segregated account, containing permissible liquid
assets, at such a level that the amount deposited in the account plus the
amount deposited with the broker as collateral always equals the current value
of the security sold short; or (b) otherwise cover its short position.
LENDING PORTFOLIO SECURITIES. The Fund may lend securities from its
portfolio to brokers, dealers and other financial institutions needing to
borrow securities to complete certain transactions. The Fund continues to be
entitled to payments in amounts equal to the interest, dividends or other
distributions payable on the loaned securities, which affords the Fund an
opportunity to earn interest on the amount of the loan and on the loaned
securities' collateral. Loans of portfolio securities may not exceed 33 1/3%
of the value of the Fund's total assets, and the SEC currently requires the
Fund to receive collateral consisting of cash, U.S. Government securities or
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<PAGE>
irrevocable letters of credit which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. According to the SEC, such loans currently must be terminable by
the Fund at any time upon specified notice. The Fund might experience risk of
loss if the institution with which it has engaged in a portfolio loan
transaction breaches its agreement with the Fund. In connection with its
securities lending transactions, the Fund may return to the borrower or a
third party which is acting as a "placing broker," a part of the interest
earned from the investment of collateral received for securities loaned.
Generally, the SEC currently requires that the following conditions must be
met whenever portfolio securities are loaned: (1) the Fund must receive at
least 100% cash collateral from the borrower; (2) the borrower must increase
such collateral whenever the market value of the securities rises above the
level of such collateral; (3) the Fund must be able to terminate the loan at
any time; (4) the Fund must receive reasonable interest on the loan, as well
as any dividends, interest or other distributions payable on the loaned
securities, and any increase in market value; (5) the Fund may pay only
reasonable custodian fees in connection with the loan; and (6) while voting
rights on the loaned securities may pass to the borrower, the Fund's Board
must terminate the loan and regain the right to vote the securities if a
material event adversely affecting the investment occurs. If the regulatory
requirements pertaining to portfolio securities lending were to change, the
Fund would employ with such changes as required.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements with respect to its portfolio investments subject to the investment
restrictions set forth herein. Reverse repurchase agreements involve the sale
of securities held by the Fund with an agreement by the Fund to repurchase the
securities at an agreed upon price, date and interest payment. The use by the
Fund of reverse repurchase agreements involves many of the same risks of
leverage described under "Risk Factors and Special Considerations" and "--
Leverage" since the proceeds derived from such reverse repurchase agreements
may be invested in additional securities. At the time the Fund enters into a
reverse repurchase agreement, it may establish and maintain a segregated
account with the custodian containing liquid instruments having a value not
less than the repurchase price (including accrued interest). If the Fund
establishes and maintains such a segregated account, a reverse repurchase
agreement will not be considered a borrowing by the Fund; however, under
circumstances in which the Fund does not establish and maintain such a
segregated account, such reverse repurchase agreement will be considered a
borrowing for the purpose of the Fund's limitation on borrowings. Reverse
repurchase agreements involve the risk that the market value of the securities
acquired in connection with the reverse repurchase agreement may decline below
the price of the securities the Fund has sold but is obligated to repurchase.
Also, reverse repurchase agreements involve the risk that the market value of
the securities retained in lieu of sale by the Fund in connection with the
reverse repurchase agreement may decline in price.
If the buyer of securities under a reverse repurchase agreement files for
bankruptcy or becomes insolvent, such buyer or its trustee or receiver may
receive an extension of time to determine whether to enforce the Fund's
obligation to repurchase the securities, and the Fund's use of the proceeds of
the reverse repurchase agreement may effectively be restricted pending such
decision. Also, the Fund would bear the risk of loss to the extent that the
proceeds of the reverse repurchase agreement are less than the value of the
securities subject to such agreement.
DERIVATIVES. The Fund may invest in, or use, derivatives ("Derivatives").
These are financial instruments that derive their performance, at least in
part, from the performance of an underlying asset, index or interest rate. The
Derivatives the Fund may use include options, futures contracts, forward
contracts, mortgage-related securities, asset-backed securities, and interest
rate caps, floors and swaps. The Fund may invest in, or enter into,
Derivatives for a variety of reasons, including to hedge certain market risks,
to provide a substitute for purchasing or selling particular securities or to
increase potential income gain. Derivatives may provide a cheaper, quicker or
more specifically focused way for the Fund to invest than "traditional"
securities would.
Derivatives can be volatile and involve various types and degrees of risk,
depending upon the characteristics of the particular Derivative and the
portfolio as a whole. Derivatives permit the Fund to increase or decrease the
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<PAGE>
level of risk, or change the character of the risk, to which its portfolio is
exposed in much the same way as the Fund can increase or decrease the level of
risk, or change the character of the risk, of its portfolio by purchasing or
selling specific securities.
Derivatives may entail investment exposures that are greater than their cost
would suggest, meaning that a small investment in Derivatives could have a
large potential impact on the Fund's performance.
If the Fund invests in Derivatives at inopportune times or judges market
conditions incorrectly, such investments may lower the Fund's return or result
in a loss. The Fund also could experience losses if its Derivatives were
poorly correlated with its other investments, or if the Fund were unable to
liquidate its position because of an illiquid secondary market. The market for
many Derivatives is, or suddenly can become, illiquid. Changes in liquidity
may result in significant, rapid and unpredictable changes in the prices for
Derivatives.
Derivatives may be purchased on established exchanges or through privately
negotiated transactions referred to as over-the-counter Derivatives. Exchange-
traded Derivatives generally are guaranteed by the clearing agency that is the
issuer or counterparty to such Derivatives. This guarantee usually is
supported by a daily payment system (i.e., variation margin requirements)
operated by the clearing agency in order to reduce overall credit risk. As a
result, unless the clearing agency defaults, there is relatively little
counterparty credit risk associated with Derivatives purchased on an exchange.
By contrast, no clearing agency guarantees over-the-counter Derivatives.
Therefore, each party to an over-the-counter Derivative bears the risk that
the counterparty will default. Accordingly, Conseco Capital will consider the
creditworthiness of counterparties to over-the-counter Derivatives in the same
manner as it would review the credit quality of a security to be purchased by
the Fund. Over-the-counter Derivatives are less liquid than exchange-traded
Derivatives since the other party to the transaction may be the only investor
with sufficient understanding of the Derivative to be interested in bidding
for it.
Derivatives in which the Fund may invest include options, futures and
forward currency transactions. See Appendix C hereto for a general discussion
of these investments.
FUTURE DEVELOPMENTS. The Fund may take advantage of opportunities in the
area of options, futures contracts, forward currency contracts, and any other
Derivatives that are not presently contemplated for use by the Fund or that
are not currently available but that may be developed, to the extent such
opportunities are both consistent with the Fund's investment objectives and
legally permissible for the Fund.
FORWARD COMMITMENTS; WHEN-ISSUED SECURITIES. The Fund may purchase
securities on a forward commitment or when-issued basis, which means that
delivery and payment take place a number of days after the date of the
commitment to purchase. The payment obligation and the interest rate
receivable on a forward commitment or when-issued security are fixed when the
Fund enters into the commitment, but the Fund does not make payment until it
receives delivery from the counterparty. The Fund will commit to purchase such
securities only with the intention of actually acquiring the securities, but
the Fund may sell these securities before the settlement date if it is deemed
advisable. The Fund will set aside in a segregated account of the Fund
permissible liquid assets at least equal at all times to the amount of the
commitments.
Securities purchased on a forward commitment or when-issued basis are
subject to changes in value (generally changing in the same way, i.e.,
appreciating when interest rates decline and depreciating when interest rates
rise) based upon the public's perception of the creditworthiness of the issuer
and changes, real or anticipated, in the level of interest rates. Securities
purchased on a forward commitment or when-issued basis may expose the Fund to
risks because they may experience such fluctuations prior to their actual
delivery. Purchasing securities on a when-issued basis can involve the
additional risk that the yield available in the market when the delivery takes
place actually may be higher than that obtained in the transaction itself.
Purchasing securities on a forward commitment or when-issued basis when the
Fund is fully or almost fully invested may result in greater potential
fluctuation in the value of the Fund's net assets and its net asset value per
share.
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<PAGE>
RISK FACTORS AND SPECIAL CONSIDERATIONS
Prospective investors should carefully consider the following risk factors
and special considerations, in addition to the other information set forth in
the Prospectus, in connection with an investment in the Shares offered hereby.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements regarding
events, conditions and financial trends that may affect the Fund's future
operations, investment strategy, results of operations and financial position.
Prospective investors are cautioned that any forward-looking statements are
not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those
included within the forward looking statements as a result of various factors.
GENERAL. The Fund is a newly organized, non-diversified, closed-end
management investment company and has no operating history. Shares of closed-
end management investment companies frequently trade at a discount from their
net asset value. This risk may be greater for investors expecting to sell
their shares relatively soon after completion of the public offering.
Accordingly, the Shares are designed primarily for long-term investors and
should not be considered a vehicle for trading purposes. The net asset value
of the Fund's Shares will fluctuate with interest rate changes as well as with
price changes of the Fund's portfolio securities and these fluctuations are
likely to be greater in the case of a fund having a leveraged capital
structure, as contemplated for the Fund.
LOWER GRADE SECURITIES. Lower grade securities are regarded as being
predominantly speculative as to the issuer's ability to make payments of
principal and interest. Investment in such securities involves substantial
risk. Lower grade securities are commonly referred to as "junk bonds." Issuers
of lower grade securities may be highly leveraged and may not have available
to them more traditional methods of financing. Therefore, the risks associated
with acquiring the securities of such issuers generally are greater than is
the case with higher-rated securities. For example, during an economic
downturn or a sustained period of rising interest rates, issuers of lower
grade securities may be more likely to experience financial stress, especially
if such issuers are highly leveraged. During periods of economic downturn,
such issuers may not have sufficient revenues to meet their interest payment
obligations. The issuer's ability to service its debt obligations also may be
adversely affected by specific issuer developments, the issuer's inability to
meet specific projected business forecasts or the unavailability of additional
financing. Therefore, there can be no assurance that in the future there will
not exist a higher default rate relative to the rates currently existing in
the market for lower grade securities. The risk of loss due to default by the
issuer is significantly greater for the holders of lower grade securities
because such securities may be unsecured and may be subordinate to other
creditors of the issuer. Other than with respect to Distressed Securities,
discussed below, the lower grade securities in which the Fund may invest do
not include instruments which, at the time of investment, are in default as to
payment of principal and/or interest or the issuers of which are in
bankruptcy. However, there can be no assurance that such events will not occur
after the Fund purchases a particular security, in which case the Fund may
experience losses and incur costs.
Lower grade securities frequently have call or redemption features that
would permit an issuer to repurchase the security from the Fund. If a call
were exercised by the issuer during a period of declining interest rates, the
Fund is likely to have to replace such called security with a lower yielding
security, thus decreasing the net investment income to the Fund and dividends
to Shareholders.
Lower grade securities tend to be more volatile than higher-rated fixed-
income securities, so that adverse economic events may have a greater impact
on the prices of lower grade securities than on higher-rated fixed-income
securities. Factors adversely affecting the market value of such securities
are likely to affect adversely the Fund's net asset value. Recently, demand
for lower grade securities has increased significantly and the difference
between the yields paid by lower grade securities and investment grade bonds
(i.e., the "spread") has
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<PAGE>
narrowed. To the extent this differential increases, the value of lower grade
securities in the Fund's portfolio could be adversely affected.
Like higher-rated fixed-income securities, lower grade securities generally
are purchased and sold through dealers who make a market in such securities
for their own accounts. However, there are fewer dealers in the lower grade
securities market, and this market may be less liquid than the market for
higher-rated fixed-income securities, even under normal economic conditions.
Also, there may be significant disparities in the prices quoted for lower
grade securities by various dealers. As a result, during periods of high
demand in the lower grade securities market, it may be difficult to acquire
lower grade securities appropriate for investment by the Fund. Adverse
economic conditions and investor perceptions thereof (whether or not based on
economic reality) may impair liquidity in the lower grade securities market
and may cause the prices the Fund receives for its lower grade securities to
be reduced. In addition, the Fund may experience difficulty in liquidating a
portion of its portfolio when necessary to meet the Fund's liquidity needs or
in response to a specific economic event such as deterioration in the
creditworthiness of the issuers. Under such conditions, judgment may play a
greater role in valuing certain of the Fund's portfolio instruments than in
the case of instruments trading in a more liquid market. In addition, the Fund
may incur additional expense to the extent that it is required to seek
recovery upon a default on a portfolio holding or to participate in the
restructuring of the obligation.
CORPORATE LOANS. The Fund may invest in senior and subordinated Corporate
Loans, both secured and unsecured. A Corporate Loan that is unsecured is not
supported by any specific pledge of collateral and therefore constitutes only
a general obligation of the borrower. In addition to being unsecured, a
Corporate Loan in which the Fund may invest may be subordinate in right of
payment to the senior debt obligations of the borrower. Upon a liquidation or
bankruptcy of the borrower, the senior debt obligations of the borrower are
often required to be paid in full before the subordinated debtholders are
permitted to receive any distribution on behalf of their claim. Distributions,
if any, to subordinated debtholders in such situations may consist in whole or
in part in non-income producing securities, including common stock.
Accordingly, following an event of default or liquidation or bankruptcy of a
borrower, there can be no assurance that the assets of the borrower will be
sufficient to satisfy the claims of unsecured and subordinated debtholders or
that such debtholders will receive income producing debt securities in
satisfaction of their claims. As a result, the Fund might not receive payments
to which it is entitled and thereby may experience a decline in the value of
its investment and possibly its net asset value.
The success of the Fund's investment in Corporate Loans depends, to a great
degree, on the skill with which the agent banks administer the terms of the
Corporate Loan agreements, monitor borrower compliance with covenants, collect
principal, interest and fee payments from borrowers and, where necessary,
enforce creditor remedies against borrowers. Typically, the agent bank will
have broad discretion in enforcing a Corporate Loan agreement. The financial
status of the agent bank and co-lenders and participants interposed between
the Fund and a borrower may affect the ability of the Fund to receive payments
of interest and principal. See "Investment Objectives and Policies--Corporate
Loans."
A participation interest in a Corporate Loan typically results in a
contractual relationship only with the Intermediate Participant and not with
the Borrower. In purchasing a loan participation, the Fund generally will have
no right to enforce compliance by the Borrower with the terms of the loan
agreement, nor any rights of set-off against the Borrower, and the Fund may
not directly benefit from the collateral supporting the Corporate Loan in
which it has purchased the participation. As a result, the Fund will assume
the credit risk of both the Borrower and the Intermediate Participant.
Because it may be necessary to assert through an Intermediate Participant
such rights as may exist against the Borrower, in the event that the Borrower
fails to pay principal and interest when due, the Fund may be subject to
delay, expense and risks that are greater than those that would be involved if
the Fund could enforce its rights directly against the Borrower. Moreover,
under the terms of the participation, the Fund may be regarded as a creditor
of the Intermediate Participant (rather than of the Borrower), so that the
Fund may also be subject to the risk that the Intermediate Participant may
become insolvent. Further, in the event of the bankruptcy or insolvency
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of the Borrower, the obligation of the Borrower to repay the Corporate Loan
may be subject to certain defenses that can be asserted by such Borrower as
result of improper conduct by the Agent Bank or Intermediate Participant.
Because the Fund will regard the issuer of a Corporate Loan as including the
Borrower under a Corporate Loan Agreement, the Agent Bank and any Intermediate
Participant, the Fund may be deemed to be concentrated in securities of
issuers in the industry group consisting of financial institutions and their
holding companies, including commercial banks, thrift institutions, insurance
companies and finance companies. As a result, the Fund is subject to certain
risks associated with such institutions. Banking and thrift institutions are
subject to extensive governmental regulations which may limit both the amounts
and types of loans and other financial commitments which such institutions may
make and the profitability of these institutions is largely dependent on the
availability and cost of capital funds. In addition, general economic
conditions are important to the operation of these institutions, with exposure
to credit losses resulting from possible financial difficulties of borrowers
potentially having an adverse effect. Insurance companies are also affected by
economic and financial conditions and are subject to extensive government
regulation, including rate regulations. Individual companies may be exposed to
material risks, including reserve inadequacy. There are no restrictions on the
extent to which the Fund may be exposed to the credit risk of a particular
institution with regard to theses transactions, and no specific rating
standards to which the Fund must adhere in this regard.
Interests in Corporate Loans generally are not listed on any national
securities exchange or automated quotation system and no active trading market
may exist for many of the Corporate Loans in which the Fund will invest. To
the extent that a secondary market may exist for certain of the Corporate
Loans in which the Fund invests, including participation interests, the Fund
may trade in it. However, such market may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement periods.
Corporate Loans are thus relatively illiquid, which illiquidity may impair the
Fund's ability to realize the full value of its assets in the event of a
voluntary or involuntary liquidation of such assets. Liquidity relates to the
ability of the Fund to sell an investment in a timely manner. The market for
relatively illiquid securities tends to be more volatile than the market for
more liquid securities. The Fund has no limitation on the amount of its assets
which may be invested in securities which are not readily marketable or are
subject to restrictions on resale. The substantial portion of the Fund's
assets invested in Corporate Loan interests may restrict the ability of the
Fund to dispose of its investments in a timely fashion and at a fair price,
and could result in capital losses to the Fund and holders of its shares.
However, many of the Corporate Loans in which the Fund expects to purchase
interests are of a relatively large principal amount and are held by a
relatively large number of owners which should, in Conseco Capital's opinion,
enchance the relative liquidity of such interests. The risks associated with
illiquidity are particularly acute in situations where the Fund's operations
require cash and may result in the Fund borrowing to meet short-term cash
requirements.
To the extent that legislation or state or federal regulators that regulate
certain financial institutions impose additional requirements or restrictions
with respect to the ability of such institutions to make loans in connection
with highly leveraged transactions, the availability of Corporate Loan
interests for investment by the Fund may be adversely affected. In addition,
such requirements or restrictions may reduce or eliminate sources of financing
for certain Borrowers. Further, to the extent that legislation or federal or
state regulators that regulate certain financial institutions require such
institutions to dispose of Corporate Loan interests relating to highly
leveraged transactions or subject such Corporate Loan interests to increased
regulatory scrutiny, such financial institutions may determine to sell such
Corporate Loan interests in a manner that results in a price which, in the
opinion of Conseco Capital, is not indicative of fair value. Were the Fund to
attempt to sell a Corporate Loan interest at a time when a financial
institution was engaging in such a sale with respect to such Corporate Loan
interest, the price at which the Fund could consummate such a sale might be
adversely affected.
DISTRESSED SECURITIES. The Fund may invest up to 10% of its total assets in
Distressed Securities. Investment in Distressed Securities is speculative and
involves significant risk, including possible loss of the principal invested.
Distressed Securities frequently do not produce income while they are
outstanding and may require the Fund to bear certain extraordinary expenses in
order to protect and recover its investment. Therefore, to the extent the Fund
pursues its secondary objective of capital growth through investment in
Distressed Securities, the Fund's ability to achieve current income for its
Shareholders may be diminished.
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LEVERAGE. The use of leverage by the Fund creates an opportunity for
increased net income and capital growth for the Shares, but, at the same time,
creates special risks, and there can be no assurance that a leveraging
strategy will be successful during any period in which it is employed. The
Fund intends to utilize leverage to provide the Shareholders with a
potentially higher return. Leverage creates risks for Shareholders including
the likelihood of greater volatility of net asset value and market price of
the Shares and the risk that fluctuations in interest rates on borrowings and
short-term debt or in the dividend rates on any preferred shares may affect
the return to the Shareholders. To the extent the income or capital growth
derived from securities purchased with funds received from leverage exceeds
the cost of leverage, the Fund's return will be greater than if leverage had
not been used. Conversely, if the income or capital growth from the securities
purchased with such funds is not sufficient to cover the cost of leverage, the
return to the Fund will be less than if leverage had not been used, and
therefore the amount available for distribution to Shareholders as dividends
and other distributions will be reduced. In the latter case, Conseco Capital
in its best judgment nevertheless may determine to maintain the Fund's
leveraged position if it deems such action to be appropriate under the
circumstances. During periods in which the Fund is utilizing financial
leverage, the Management and Administration Fee payable to Conseco Capital
will be higher than if the Fund did not utilize a leveraged capital structure
because these fees are calculated as a percentage of the Fund's Managed Assets
including those purchased with leverage. Certain types of borrowings by the
Fund may result in the Fund's being subject to covenants in credit agreements,
including those relating to asset coverage and portfolio composition
requirements. The Fund may be subject to certain restrictions on investments
imposed by guidelines of one or more Rating Agencies, which may issue ratings
for the corporate debt securities or preferred shares issued by the Fund.
These guidelines may impose asset coverage or portfolio composition
requirements that are more stringent than those imposed by the Investment
Company Act. It is not anticipated that these covenants or guidelines will
impede Conseco Capital in managing the Fund's portfolio in accordance with the
Fund's investment objectives and policies.
FOREIGN SECURITIES. Investing in securities of foreign entities and
securities denominated in foreign currencies involves certain risks not
involved in domestic investments, including, but not limited to, fluctuations
in foreign exchange and interest rates, future foreign political and economic
developments, different legal systems and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. Securities prices
in different countries are subject to different economic, financial, political
and social factors. Since the Fund may invest in securities denominated or
quoted in currencies other than the U.S. dollar, changes in foreign currency
exchange rates may affect the value of securities in the Fund and the
unrealized appreciation or depreciation of investments. Currencies of certain
countries may be volatile and therefore may affect the value of securities
denominated in such currencies. In addition, with respect to certain foreign
countries, there is the possibility of expropriation of assets, confiscatory
taxation, difficulty in obtaining or enforcing a court judgment, economic,
political or social instability or diplomatic developments that could affect
investments in those countries. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross domestic product, rates of inflation, capital reinvestment,
resources, self-sufficiency and balance of payments position. Certain foreign
investments also may be subject to foreign withholding taxes. These risks
often are heightened for investments in smaller, emerging capital markets.
Investments in securities of foreign issuers may involve additional risks
arising from differences between U.S. and foreign securities markets
(including, among other things, less volume, much greater price volatility in
and illiquidity of certain foreign securities markets, different trading and
settlement practices and less governmental supervision and regulation), from
changes in currency exchange rates, from high and volatile rates of inflation
and, as with domestic multinational corporations, from fluctuating interest
rates.
Investment in certain foreign securities, especially those of issuers in
certain emerging market countries, is restricted or controlled to varying
degrees by government regulation which may at times limit or preclude
investment in certain foreign securities and increase the costs and expenses
of the Fund. Certain foreign countries require governmental approval prior to
investments by foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit investment by foreign persons to a
specific class of securities of an issuer that may have less advantageous
rights than other classes, restrict investment opportunities in issuers in
industries deemed important to national interests and/or impose additional
taxes on foreign investors. Certain foreign countries, especially certain
emerging market countries, may require governmental approval for the
repatriation
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of investment income, capital or the proceeds of sales of securities by
foreign investors which could adversely affect the Fund. In addition, if a
deterioration occurs in the country's balance of payments, it could impose
temporary restrictions on foreign capital remittances. Investing in local
markets in foreign countries may require the Fund to adopt special procedures,
seek local governmental approvals or take other actions, each of which may
involve additional costs to the Fund.
In addition, there may be less publicly available information about a
foreign issuer, especially one located in an emerging market country, than
about comparable U.S. issuers, and foreign issuers may not be subject to the
same accounting, auditing and financial record-keeping standards and
requirements as U.S. issuers. In particular, the assets and profits appearing
on the financial statements of a foreign issuer may not reflect its financial
position or results of operations in the way they would be reflected if the
financial statements had been prepared in accordance with U.S. generally
accepted accounting principles. In addition, for an issuer that keeps
accounting records in local currency, inflation accounting rules may require,
for both tax and accounting purposes, that certain assets and liabilities be
restated on the issuer's balance sheet in order to express items in terms of
currency of constant purchasing power. Inflation accounting may indirectly
generate losses or profits. Consequently, financial data may be materially
affected by restatements for inflation and may not accurately reflect the real
condition of those issuers and securities markets. Finally, in the event of a
default in any such foreign obligations, it may be more difficult for the Fund
to obtain or enforce a judgment against the issuers of such obligations.
The Fund's investments in foreign securities may include investments in
Russia, Eastern European countries and other countries that formerly had a
communist form of government. Such investments are subject to the risk that
such countries may return to the centrally planned economy that existed when
such countries had a communist form of government.
Because the Fund may invest in securities denominated or quoted in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of securities held by the Fund and the unrealized
appreciation or depreciation of investments. Currencies of certain countries
may be volatile and subject to risk of revaluation and therefore may affect
the value of securities denominated in such currencies.
Investments in foreign sovereign debt securities, especially in emerging
market countries, will expose the Fund to the direct or indirect consequences
of political, social or economic changes in the countries that issue the
securities or in which the issuers are located. Certain countries in which the
Fund may invest, especially emerging market countries, have historically
experienced, and may continue to experience, high rates of inflation, high
interest rates, exchange rate fluctuations, large amounts of external debt,
balance of payments and trade difficulties and extreme poverty and
unemployment. Many of these countries are also characterized by political
uncertainty or instability. The cost of servicing external debt will generally
be adversely affected by rising international interest rates because many
external debt obligations bear interest at rates which are adjusted based upon
international interest rates. A substantial portion of the Fund's foreign
sovereign and foreign corporate debt securities portfolio is expected to be
issued by issuers/obligors located in emerging markets countries, and
investments in such securities are particularly speculative.
The ability of a foreign sovereign obligor, especially an obligor in an
emerging market country, to make timely and ultimate payments on its external
debt obligations will also be strongly influenced by the obligor's balance of
payments, including export performance, its access to international credits
and investments, fluctuations of interest rates, the extent of its foreign
reserves, and the particular country's cash flow situation, international
currency reserves, access to foreign exchange, the availability of sufficient
foreign exchange on the date a payment is due, the relative size of its debt
service burden to the economy as a whole, and the government's policy towards
the International Monetary Fund (the "IMF"), the International Bank for
Reconstruction and Development (the "World Bank") and other international
agencies to which a government debtor may be subject. Currency devaluations
may affect the ability of a sovereign obligor to obtain sufficient foreign
exchange to service its external debt. The risks enumerated above generally
are heightened with regard to issuers in emerging market countries.
In the event a governmental obligor defaults on its obligations, the Fund
may have limited legal recourse against the issuer and/or guarantor. Remedies
must, in some cases, be pursued in the courts of the defaulting
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party itself, and the ability of the holder of foreign sovereign debt
securities to obtain recourse may be subject to the political climate in the
relevant country. In addition, no assurance can be given that the holders of
commercial bank debt will not contest payments to the holders of other foreign
sovereign debt obligations in the event of default under their commercial bank
loan agreements. Payments to holders of the foreign sovereign debt securities
in which the Fund may invest may be subject to withholding and other taxes
imposed by a foreign government. Although the holders may be entitled to tax
gross-up payments from the issuers of such instruments, there is no assurance
that such payments will be made.
As a result of these potential risks, Conseco Capital may determine that,
notwithstanding otherwise favorable investment criteria, it may not be
practicable or appropriate to invest in a particular country. The Fund may
invest in countries in which foreign investors, including Conseco Capital,
have had no or limited prior experience.
ILLIQUID SECURITIES. The Fund may invest without limit in obligations for
which no readily available market exists or which are otherwise illiquid,
subject to the Fund's policy of not investing in excess of 30% of the Fund's
assets in foreign securities or in excess of 10% of its assets in Distressed
Securities. The Fund may not be able readily to dispose of such securities at
prices that approximate those at which the Fund could sell such securities if
they were more widely traded and, as a result of such illiquidity, the Fund
may have to sell other investments or engage in borrowing transactions if
necessary to raise cash to meet its obligations. To the extent the Fund
invests in illiquid securities, it will be more difficult for the Fund to
effect open market repurchases or tender offers for Fund shares. In addition,
any proposed conversion of the Fund to an open-end investment company will be
made more difficult to the extent the Fund invests in illiquid securities. See
"Certain Provisions of the Declaration of Trust--Repurchase of Shares;
Conversion to an Open-end Investment Company."
MORTGAGE-RELATED SECURITIES. Mortgage-related securities are subject to
credit risks associated with the performance of the underlying mortgage
properties. Adverse changes in economic conditions and circumstances are more
likely to have an adverse impact on mortgage-related securities secured by
loans on certain types of commercial properties than on those secured by loans
on residential properties. In addition, these securities are subject to
prepayment risk, although commercial mortgages typically have shorter
maturities than residential mortgages and prepayment protection features. In
certain instances, the credit risk associated with mortgage-related securities
can be reduced by third-party guarantees or other forms of credit support.
Improved credit risk does not reduce prepayment risk which is generally
unrelated to the rating assigned to the mortgage-related security. Prepayment
risk can lead to fluctuations in value of the mortgage-related security which
may be pronounced. If a mortgage-related security is purchased at a premium,
all or part of the premium may be lost if there is a decline in the market
value of the security, whether resulting from changes in interest rates or
prepayments on the underlying mortgage collateral. Certain mortgage-related
securities that may be purchased by the Fund, such as inverse floating rate
collateralized mortgage obligations, have coupons that move inversely to a
multiple of a specific index which may result in a form of leverage. As with
other interest-bearing securities, the prices of certain mortgage-related
securities are inversely affected by changes in interest rates. However,
although the value of a mortgage-related security may decline when interest
rates rise, the converse is not necessarily true, since in periods of
declining interest rates the mortgages underlying the security are more likely
to be prepaid. For this and other reasons, a mortgage-related security's
stated maturity may be shortened by unscheduled prepayments on the underlying
mortgages, and, therefore, it is not possible to predict accurately the
security's return to the Fund. Moreover, with respect to certain stripped
mortgage-backed securities, if the underlying mortgage securities experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup its initial investment even if the securities are rated in the highest
rating category by a Rating Agency. During periods of rapidly rising interest
rates, prepayments of mortgage-related securities may occur at slower than
expected rates. Slower prepayments effectively may lengthen a mortgage-related
security's expected maturity which generally would cause the value of such
security to fluctuate more widely in response to changes in interest rates.
Were the prepayments on the Fund's mortgage-related securities to decrease
broadly, the Fund's effective duration, and thus sensitivity to interest rate
fluctuations, would increase.
NON-DIVERSIFIED STATUS. The Fund is classified as a "non-diversified"
management investment company under the Investment Company Act, which means
that the Fund may invest a greater portion of its assets in a limited number
of issuers than would be the case if the Fund were classified as a
"diversified" management investment company. Accordingly, the Fund may be
subject to greater risk with respect to its portfolio securities
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than a management investment company that is "diversified" because changes in
the financial condition or market assessment of a single issuer may cause
greater fluctuations in the net asset value of the Shares.
MARKET PRICE, DISCOUNT AND NET ASSET VALUE OF SHARES. Shares of closed-end
management investment companies in the past frequently have traded at a
discount to their net asset values. The risk of loss associated with this
characteristic of closed-end management investment companies may be greater
for investors purchasing Shares in the initial public offering and expecting
to sell the Shares soon after the completion thereof. Whether investors will
realize gains or losses upon the sale of Shares will not depend directly upon
the Fund's net asset value, but will depend upon the market price of the
Shares at the time of sale. Since the market price of the Shares will be
determined by such factors as relative demand for and supply of the Shares in
the market, general market and economic conditions and other factors beyond
the control of the Fund, the Fund cannot predict whether the Shares will trade
at, below or above net asset value or at, below or above the initial offering
price. The Shares are designed primarily for long-term investors, and
investors in the Shares should not view the Fund as a vehicle for trading
purposes.
ANTI-TAKEOVER PROVISIONS. The Fund's Declaration of Trust contains
provisions limiting (i) the ability of other entities or persons to acquire
control of the Fund, (ii) the Fund's freedom to engage in certain
transactions, and (iii) the ability of the Fund's Trustees or Shareholders to
amend the Declaration of Trust. These provisions of the Declaration of Trust
may be regarded as "anti-takeover" provisions. These provisions could have the
effect of depriving the Shareholders of opportunities to sell their Shares at
a premium over prevailing market prices by discouraging a third party from
seeking to obtain control of the Fund in a tender offer or similar
transaction.
YEAR 2000 RISKS. Like other financial and business organizations, the Fund
could be adversely affected if computer systems on which it relies do not
properly process date-related information and data involving the years 2000
and after. The Manager is taking steps that it believes are reasonable to
address this problem in its own computer systems and to obtain assurances that
comparable steps are being taken by the Fund's other major service providers.
The Manager also attempts to evaluate the potential impact of this problem on
the issuers of investment securities that the Fund purchases. However, there
can be no assurance that these steps will be sufficient to avoid any adverse
impact on the Fund.
INVESTMENT RESTRICTIONS
The Fund has adopted the following investment restrictions as fundamental
policies, which cannot be changed without approval by the holders of a
majority of the Fund's outstanding voting securities (as defined in the
Investment Company Act). The Fund may not:
1. Purchase any security if as a result 25% or more of the its total
assets of the Fund would be invested in the securities of issuers having
their principal business activities in the same industry, provided that
this restriction does not apply to U.S. Government Securities (as defined
in this Prospectus).
2. Purchase or sell in commodities or commodity contracts, except that
the Fund may purchase and sell options, futures contracts and options
thereon and may engage in interest rate and foreign currency transactions.
3. Purchase, hold, deal in or sell real estate, or oil, gas or other
mineral leases or exploration or development programs, except (i) as the
foregoing may be acquired through foreclosure, provided that these are
liquidated in a commercially reasonable period thereafter, and (ii) that
the Fund may purchase and sell securities that are issued by companies that
invest in, or that are secured by, oil, gas or other minerals, real estate,
or interests therein.
4. Issue senior securities or borrow money except as permitted by the
Investment Company Act.
5. 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
other investments of the type contemplated by the Fund's investment
objectives and policies.
6. Underwrite securities of other issuers, except to the extent the Fund
may be deemed an underwriter under the Securities Act in connection with
the purchase or sale of portfolio securities.
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MANAGEMENT OF THE FUND
INVESTMENT MANAGER AND ADMINISTRATOR. Conseco Capital located at 11825 N.
Pennsylvania Street, Carmel, Indiana 46032, serves as investment manager and
administrator to the Fund. Conseco Capital is a wholly-owned subsidiary of
Conseco, Inc., a publicly-owned financial services company, the principal
operations of which are in development, marketing, and administration of
specialized annuity, life and health insurance products. Conseco Capital also
provides investment management and advisory services to ten mutual funds, as
well as to public and corporate pension plans, corporations, individuals,
foundations and endowments, and manages all of the invested assets of its
parent company, Conseco, Inc., which owns or manages several life insurance
subsidiaries. As of March 31, 1998, Conseco Capital managed in excess of $32
billion in assets, approximately $3.5 billion of which consisted of High Yield
Obligations and approximately $2.3 billion of which were invested in foreign
securities. Total assets under management have increased from approximately
$16.1 billion in 1992.
Conseco Capital supervises and assists in the overall management of the
Fund's affairs under an Investment Management and Administration Agreement
with the Fund, subject to the authority of the Fund's Board in accordance with
Massachusetts law. Conseco Capital manages the Fund's investments in
accordance with the stated policies of the Fund, subject to the supervision of
the Fund's Board. Conseco Capital is responsible for investment decisions, and
provides the Fund with portfolio managers who are authorized by the Board to
execute purchases and sales of securities. Conseco Capital also maintains a
research department with a professional staff of portfolio managers and
securities analysts who provide research services for the Fund as well as for
other funds advised by Conseco Capital. Peter C. Andersen, CFA, and William F.
Ficca are the Fund's portfolio managers. They have held those positions since
the Fund's inception. Mr. Andersen has been employed by Conseco Capital as
Second Vice President since 1997. Prior thereto, Mr. Andersen was a portfolio
manager for Colonial Management Associates in Boston, where he managed over
$650 million in high yield, tax-free investment companies, including two
closed-end investment companies. Mr. Andersen also serves as co-manager to the
Conseco High Yield Fund, an open-end mutual fund which invests in high yield
securities. Mr. Ficca has been employed by Conseco Capital as Vice President
since 1991, serves as the Director of Fixed Income Research and as portfolio
manager of certain other investment products managed by the Manager. In
addition, he also manages the Fund's research efforts. Prior thereto, he
worked in investment banking and traded corporate and government bonds.
Conseco Capital provides research services for the Fund and for other funds
advised by Conseco Capital through a professional staff of portfolio managers
and securities analysts. Under the direction of the Fund's portfolio managers,
Conseco Capital's team of analysts will select individual securities for the
Fund. Each analyst has developed expertise in a particular industry. The same
management team is responsible for the Conseco High Yield Fund, and various
client portfolios. Conseco Capital believes in a "bottom up" investment
strategy of selecting individual securities (i.e., analysis on a case-by-case
basis). It believes that this research driven approach helps to manage risk
and to identify potentially attractive investments.
Conseco Capital also provides administration services to the Fund that
include, among other services, maintaining office facilities on behalf of the
Fund, furnishing certain statistical and research data, clerical help, data
processing, certain bookkeeping and internal auditing services, arranging for
persons to serve as Fund officers, preparing or assisting in preparing
materials for Shareholders and regulatory bodies, and overseeing the provision
to the Fund of custodial, accounting and certain other required services to
the Fund. Conseco Capital also may make such advertising and promotional
expenditures, using its own resources, as it deems appropriate. Conseco
Capital may engage its affiliate Conseco Services LLC ("Conseco Services") to
provide some or all of these administration services to the Fund, and will
compensate Conseco Services out of its own assets, and not those of the Fund.
The following persons are officers and/or directors of Conseco
Capital: Maxwell E. Bublitz, President and Chief Executive Officer; William T.
Devanney, Jr., Senior Vice President, Corporate Taxes; Albert J. Gutierrez,
Senior Vice President, Investments; Gregory J. Hahn, Senior Vice President,
Portfolio Analytics; Thomas A. Meyers, Senior Vice President, Director of
Marketing; Nora A. Bammann,Vice President, Investment Operations; Andrew S.
Chow, Vice President, Investments; Christene H. Darnell, Vice President,
Management Reporting; Joseph F. DeMichele, Vice President, Investments;
William F. Ficca, Vice President, Director of
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Research; Eric R. Johnson, Vice President, Senior Securities Analyst; John R.
Kline, Vice President, Finance and Treasurer; William P. Latimer, Esq., Vice
President, Senior Counsel and Secretary, Chief Compliance Officer; Jude T.
Driscoll, Vice President, Investments; Thomas J. Pence, Vice President,
Investments; See Yeng Quek, Vice President, Investments; N. Gordon Smith, Vice
President, Portfolio Analytics; Andrew E. Sommers, Vice President, Portfolio
Analytics; Eric D. Todd, Vice President, Senior Securities Analyst; Upender V.
Rao, Vice President, Senior Securities Analyst; Jeffrey A. Whitehead, Director
of Insurance Marketing; Virgil R. Barber, Jr., Director of Taft-Hartley
Marketing; Richard W. Burke, II, Second Vice President, Investment Information
System; Peter C. Andersen, Second Vice President, Portfolio Manager; Robert L.
Cook, Second Vice President, Senior Securities Analyst; Mohammed S. Alhaffar,
Assistant Vice President, Technical Support; Karen R. Palczynski, Assistant
Vice President, Portfolio Manager; Rodney A. Schmucker, Assistant Vice
President, Investment Operations; Lisa M. Zimmerman, Assistant Vice President,
Corporate Taxes; John C. Saf, Assistant Vice President, Asset Liability
Analyst; Ryan K. Brist, Assistant Vice President, Investments; Mathew J.
Stephens, Assistant Vice President, Quantitative Analyst; Wei Wei, Assistant
Vice President, Quantitative Analyst; Michael R. Glickman, Assistant Vice
President, Senior Securities Analyst; DIRECTORS: Maxwell E. Bublitz, Rollin M.
Dick, William P. Latimer, Esq.
INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENT. Conseco Capital provides
investment management and administration services to the Fund pursuant to the
Investment Management and Administration Agreement (the "Agreement") dated
July 23, 1998 with the Fund. As compensation for Conseco Capital's services to
the Fund, the Fund has agreed to pay Conseco Capital a monthly investment
management and administration fee ("Management and Administration Fee") at the
annual rate of 0.90 of 1% of the value of the average weekly value of the
total assets of the Fund minus the sum of accrued liabilities (other than the
aggregate indebtedness constituting financial leverage) (the "Managed
Assets"). After an initial term of 2 years, the Agreement is subject to annual
approval by (i) the Fund's Board or (ii) vote of a majority of the outstanding
voting securities (as defined in the Investment Company Act) of the Fund,
provided that in either event the continuance also is approved by a majority
of the Board members who are not "interested persons" (as defined in the
Investment Company Act) of the Fund or Conseco Capital, by vote cast in person
at a meeting called for the purpose of voting on such approval. The Agreement
was approved by the Fund's Board, including a majority of the Board members
who are not "interested persons" of any party to the Agreement, at a meeting
held on July 13, 1998. The Agreement was approved by the Fund's initial
Shareholder on July 17, 1998. The Agreement is terminable without penalty, on
60 days' notice, by the Fund's Board or by vote of the holders of a majority
of the outstanding voting securities (as defined in the Investment Company
Act) of the Fund, or, on not less than 90 days' notice, by Conseco Capital.
The Agreement will terminate automatically in the event of its assignment (as
defined in the Investment Company Act). Conseco Capital or an affiliate (not
the Fund) from its own assets will pay a commission to the Underwriters in
connection with sales of the Shares. Conseco Capital may recover some or all
of this expense to the extent that it realizes a profit from fees paid under
the Agreement.
During periods in which the Fund is utilizing financial leverage, the
Management and Administration Fee payable to Conseco Capital will be higher
than if the Fund did not utilize a leveraged capital structure because these
fees are calculated as a percentage of the Fund's Managed Assets including
those purchased with leverage.
EXPENSES. All expenses incurred in the operation of the Fund are borne by
the Fund, except to the extent specifically assumed by Conseco Capital. The
expenses borne by the Fund include: taxes, interest, brokerage fees and
commissions, if any, fees of Board members who are not officers, trustees,
employees or holders of 5% or more of the outstanding voting securities of
Conseco Capital or any of its affiliates, SEC fees, state Blue Sky
qualification fees, advisory and administration fees, shareholder servicing
fees, charges of custodians, transfer and dividend disbursing agents' fees,
certain insurance premiums, industry association fees, outside auditing and
legal expenses, costs of maintaining the Fund's existence, expenses of
reacquiring Shares, expenses in connection with the Fund's Automatic Dividend
Reinvestment Plan, costs of maintaining the required books and accountings of
the Fund (including the costs of calculating the net asset value of the Fund's
Shares), costs of preparing reports regarding the Fund's financial
transactions, the Fund's tax returns and certain SEC and state regulatory
filings, costs of independent pricing services, costs attributable to investor
services (including, without limitation, telephone and personnel expenses),
costs of preparing and printing prospectuses, and mailing Share certificates,
proxy statements and costs of Shareholders' reports and meetings, and any
extraordinary expenses.
40
<PAGE>
TRUSTEES AND OFFICERS OF THE FUND
The Fund has a Board composed of five (5) Trustees which supervises the
Fund's investment activities and reviews contractual arrangements with
companies that provide the Fund with services. The following lists the
Trustees and officers and their positions with the Fund and their present and
principal occupations during the past five years. Each Trustee who is an
"interested person" (as defined in the Investment Company Act) of the Fund is
indicated by an asterisk (*). All of the Trustees also serve as Trustees of
two open-end investment companies managed by Conseco Capital, Conseco Series
Trust ("CST") and Conseco Fund Group ("CFG"). Each Trustee who is not an
"interested person," except Mr. Daves, serves on the Audit Committee of the
Board. Each Trustee who is not an "interested person" serves on the Nominating
Committee of the Board. All of the Fund's officers listed below, except Mr.
Hahn, also serve as officers for CST and CFG.
TRUSTEES AND OFFICERS OF THE FUND
The Trustees and officers of the Fund, their affiliations, if any, with the
Manager and their principal occupations are set forth below.
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH THE FUND DURING PAST 5 YEARS
------------- ------------- -----------------------
<S> <C> <C>
William P. Daves,
Jr.(72)................ Chairman of the Board, Consultant to insurance and healthcare
5723 Trail Meadow Trustee industries. Director, President and
Dallas, TX 75230 Chief Executive Officer, FFG Insurance
Co. Chairman of the Board and Trustee
of CFG and CST.
Maxwell E. Bublitz*
(42)................... President and Trustee Chartered Financial Analyst. President
11825 N. Pennsylvania and Director, Conseco Capital.
St. Previously, Senior Vice President,
Carmel, IN 46032 Conseco Capital. President and Trustee
of CFG and CST.
Harold W. Hartley (74).. Trustee Retired. Chartered Financial Analyst.
502 Canal Cove Ct. Previously, Executive Vice President,
Ft. Myers Beach, Fl Tenneco Financial Services, Inc.
33913 Trustee of CFG and CST. Director,
Ennis Business Forms, Inc.
Dr. R. Jan LeCroy (67).. Trustee Retired. Previously President, Dallas
Dallas Citizens Council Citizens Council. Trustee of CFG and
1201 Main Street, CST. Director, Southwest Securities
Suite 2444 Group, Inc.
Dallas, TX 75202
Dr. Jesse H. Parrish
(70)................... Trustee Former President, Midland College.
2805 Sentinel Higher Education Consultant. Trustee
Midland, TX 79701 of CFG and CST.
Gregory J. Hahn (37).... Vice President Chartered Financial Analyst. Senior
11825 N. Pennsylvania Vice President, Conseco Capital.
St. Portfolio Manager of the fixed income
Carmel, IN 46032 portion of Conseco Balanced and Fixed
Income Funds. Trustee of CFG.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION HELD PRINCIPAL OCCUPATION(S)
AND AGE WITH FUND DURING PAST 5 YEARS
------------- ------------- -----------------------
<S> <C> <C>
William P. Latimer
(62)................... Vice President and Vice President, Senior Counsel,
11825 N. Pennsylvania Secretary Secretary, Chief Compliance Officer
St. and Director of Conseco Capital. Vice
Carmel, IN 46032 President, Senior Counsel, Secretary
and Director, Conseco Equity Sales,
Inc. Vice President and Secretary of
CFG and CST. Previously, Consultant to
securities industry. Previously,
Senior Vice President--Compliance,
USF&G Investment Services, Inc. and
Vice President, Axe-Houghton
Management Inc.
James S. Adams (38)..... Treasurer Senior Vice President, Bankers
11825 N. Pennsylvania National, Great American Reserve.
St. Senior Vice President, Treasurer, and
Carmel, IN 46032 Director, Conseco Equity Sales, Inc.
Senior Vice President and Treasurer,
Conseco Services, LLC. Treasurer of
CFG and CST.
William T. Devanney, Jr.
(42)................... Vice President Senior Vice President, Corporate
11825 N. Pennsylvania Taxes, Bankers National and Great
St. American Reserve. Senior Vice
Carmel, IN 46032 President, Corporate Taxes, Conseco
Equity Sales, Inc. and Conseco
Services LLC. Vice President of CFG
and CST.
</TABLE>
- --------
* The Trustee so indicated is an "interested person," as defined in the
Investment Company Act, of the Fund due to the positions indicated with the
Manager and its affiliates.
The address of each officer of the Fund is 11825 N. Pennsylvania Street,
Carmel, Indiana 46032.
The officers and Trustees of the Fund as a group owned beneficially less
than 1% of the total shares of the Fund outstanding as of July 23, 1998.
No officer of the Fund receives any compensation from the Fund for serving
as an officer or Trustee of the Fund. The Fund pays each disinterested Trustee
$5,000 per annum. In addition, the Fund pays each disinterested Trustee $1,000
per Board meeting attended and reimburses each Trustee for travel and out-of-
pocket expenses.
ESTIMATED AGGREGATE TOTAL COMPENSATION FROM THE FUND AND FUND COMPLEX
The following table shows the estimated compensation of each disinterested
Trustee for the fiscal year ending June 30, 1999.
COMPENSATION TABLE
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM INVESTMENT
AGGREGATE COMPENSATION COMPANIES IN THE FUND COMPLEX PAID TO
NAME OF PERSON FROM THE FUND* TRUSTEES (INCLUDES CST AND CFG)
-------------- ---------------------- -------------------------------------
<S> <C> <C>
William P. Daves, Jr.... $10,000 $28,000
Harold W. Hartley....... $10,000 $28,000
Dr. R. Jan LeCroy....... $10,000 $28,000
Dr. Jesse H. Parrish.... $10,000 $28,000
</TABLE>
- --------
* Compensation received from the Fund in 1998 includes an annual fee.
42
<PAGE>
PORTFOLIO TRANSACTIONS
Conseco Capital assumes general supervision over placing orders on behalf of
the Fund for the purchase or sale of portfolio securities. Allocation of
brokerage transactions, including their frequency, is made in the best
judgment of Conseco Capital and in a manner deemed fair and reasonable to
Shareholders. The primary consideration is prompt execution of orders at the
most favorable net price. Subject to this consideration, and to the Conduct
Rules of the NASD, Conseco Capital may select brokers who provide research or
other services or who sell shares of the Fund to effect portfolio
transactions. Such services may be useful to Conseco Capital in serving both
the Fund and other investment advisory clients which it advises and,
conversely, supplemental information obtained by the placement of business of
other clients may be useful to Conseco Capital in carrying out its obligations
to the Fund. Conseco Capital may also select an affiliated broker to execute
transactions for the Fund or other funds managed, advised or administered by
Conseco Capital, 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 Fund does not have a predetermined rate of portfolio turnover since such
turnover will be incidental to transactions taken with a view to achieving its
objectives. It is anticipated that the annual turnover rate of the Fund
normally will not exceed 400%. Turnover rates in excess of 100% generally
result in higher transaction costs and a possible increase in realized short-
term capital gains or losses.
DETERMINATION OF NET ASSET VALUE
The Fund's net asset value per share is determined on the last business day
of each week and each month, as of the close of regular trading on the New
York Stock Exchange on that day (normally 4:00 p.m. Eastern Time) by dividing
the value of the Fund's net assets by the number of Fund shares outstanding.
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. Foreign securities are valued
on the basis of quotations from the primary market in which they are traded,
and are translated from the local currency into U.S. dollars using current
exchange rates. Debt securities with maturities of sixty (60) days or less are
valued at amortized cost.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Board of Trustees. Interests in such securities, including Corporate
Loans and Distressed Securities, will be valued by Conseco Capital on behalf
of the Fund on the basis of available market quotations and transactions in
instruments which Conseco Capital believes may be comparable to these
investments with respect to the following characteristics: credit quality,
interest rate, interest rate redetermination period and maturity. Such
instruments may include commercial paper, negotiable certificates of deposit
and short-term variable rate securities which have rate redetermination
periods comparable to the Corporate Loans and Distressed Securities in the
Fund's portfolio. In determining the relationship between such instruments and
such investments in the Fund's portfolio, Conseco Capital will consider on an
ongoing basis, among other factors, (i) the credit worthiness of the Borrower
and (ii) the current interest rate, the period until next interest rate
redetermination and maturity of such interests. Because a secondary trading
market in Corporate Loans has not yet fully developed, in valuing Corporate
Loans, Conseco Capital may not rely solely on but may consider, to the extent
it believes such information to be reliable, prices or quotations provided by
banks, dealers or pricing services with respect to secondary market
transactions in Corporate Loans. To the extent that an active secondary market
in Corporate Loans develops to a reliable degree, Conseco Capital may rely to
an increasing extent on such market prices and quotations in valuing the
Corporate Loans in the Fund's portfolio.
43
<PAGE>
Portfolio securities may be valued on the basis of prices furnished by one
or more pricing services which determine prices for securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders.
The holidays (as observed) on which the New York Stock Exchange is closed
currently are: New Year's Day, Martin Luther King Jr. Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and
Christmas.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Fund intends to distribute substantially all of its net investment
income monthly. All net realized capital gains, if any, generally will be
distributed to the Fund's Shareholders at least annually, although net capital
gains (i.e., the excess of net-long term capital gains over net short-term
capital losses) may be retained by the Fund. In the latter event, the retained
gains would be subject to Fund-level tax that, in effect, would be "passed
through" to the Shareholders. The Fund will distribute to the Shareholders at
least annually all net realized gains from foreign currency transactions, if
any. The Fund may make additional distributions if necessary to avoid a 4%
excise tax on certain undistributed income and capital gain. See "Taxes." The
Fund may change the foregoing distribution policy if its experience indicates,
or its Board of Trustees for any reason determines, that changes are
desirable.
Under the Investment Company Act, the Fund is not permitted to incur
indebtedness unless after such incurrence the Fund has an asset coverage of at
least 300% of the aggregate outstanding principal balance of the indebtedness.
Additionally, under the Investment Company Act, the Fund may not declare any
dividend or other distribution upon any class of its capital shares, or
purchase any such capital shares, unless its aggregate indebtedness has, at
the time of the declaration of any such dividend or other distribution or at
the time of any such purchase, an asset coverage of at least 300% after
deducting the amount of the dividend, other distribution, or purchase price,
as the case may be. While any preferred shares are outstanding, the Fund may
not declare any cash dividend or other distribution on the Shares, unless at
the time of the declaration, (1) all accumulated preferred share dividends
have been paid and (2) the net asset value of the Fund's portfolio (determined
after deducting the amount of the dividend or other distribution) is at least
200% of the liquidation value of the outstanding preferred shares (expected to
be equal to the original purchase price per share plus any accumulated and
unpaid dividends thereon). In addition to the limitations imposed by the
Investment Company Act as described in this paragraph, certain lenders may
impose additional restrictions on the payment of dividends or other
distributions on the Fund's Shares in the event of a default on the Fund's
borrowings. Any limitation on the Fund's ability to make distributions on its
Shares could in certain circumstances impair the ability of the Fund to
maintain its qualification for taxation as a regulated investment company
("RIC"). See "Other Investment Practices--Leverage" and "Taxes."
See "Automatic Dividend Reinvestment Plan" for information concerning the
manner in which dividends and other distributions to Shareholders may be
automatically reinvested in Shares. Dividends and other distributions will be
taxable to Shareholders whether they are reinvested in Shares or received in
cash.
The Fund expects that it will commence paying dividends within 60 days of
the date of this Prospectus.
TAXES
The following discussion is a general summary of certain U.S. federal income
tax considerations relating to the Fund and to the acquisition, ownership and
disposition of Shares. The discussion is based on the Internal Revenue Code of
1986, as amended (the "Code"), applicable Treasury regulations and rulings now
in effect, all of which are subject to change, possibly retroactively. This
summary does not purport to discuss all the income tax consequences applicable
to the Fund or to investors that may be subject to special tax rules, such as
banks, tax-exempt organizations, insurance companies, dealers in securities or
currencies, persons that will hold the
44
<PAGE>
Shares as part of an integrated investment (including a "straddle") comprised
of Shares and one or more other positions, or persons having a "functional
currency" other than the U.S. dollar. Investors considering the purchase of
Shares should consult their own tax advisors regarding the application of U.S.
federal income tax laws to their particular situations, as well as any tax
consequences arising under the laws of any state, local, or foreign taxing
jurisdiction.
TAXATION OF THE FUND. The Fund intends to elect to be, and to qualify to be
treated as, a RIC under the Code. For each taxable year that the Fund so
qualifies, the Fund (but not the Shareholders) will be relieved of federal
income tax on that part 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) and net capital gain that it
distributes to the Shareholders.
To qualify for treatment as a RIC under the Code, the Fund must elect to be
so treated, must distribute to the Shareholders for each taxable year at least
90% of its investment company taxable income ("Distribution Requirement") and
must meet several additional requirements. These requirements include the
following: (1) the Fund must derive at least 90% of its gross income each
taxable year from dividends, interest, payments with respect to securities
loans and gains from the sale or other disposition of securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in securities or
those currencies ("Income Requirement"); (2) at the close of each quarter of
the Fund's taxable year, 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 that are 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 (3) at the close of each quarter of the Fund's taxable
year, not more than 25% of the value of its total assets may be invested in
securities (other than U.S. government securities or the securities of other
RICs) of any one issuer.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to
the extent it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that year and capital gain net
income for the one-year period ending on October 31st of that year, plus
certain other amounts. For these purposes, any such income retained by the
Fund, and on which it pays federal income tax, will be treated as having been
distributed. The Fund anticipates that it will make such distributions as are
necessary to avoid the imposition of the Excise Tax.
The Fund may acquire zero coupon or other securities issued with original
issue discount. As a holder of such securities, the Fund must include in its
gross income the original issue discount that accrues on them during the
taxable year, even if it receives no corresponding payment on the securities
during the year. The Fund also must include in its gross income each year any
"interest" distributed in the form of additional securities on pay-in-kind
securities. Because the Fund annually must distribute substantially all of its
investment company taxable income, including any accrued original issue
discount and other non-cash income, to satisfy the Distribution Requirement
and avoid imposition of the Excise Tax, the Fund may be required in a
particular year to distribute as a dividend an amount that is greater than the
total amount of cash it actually receives. Those distributions will be made
from the Fund's cash assets or from the proceeds of sales of portfolio
securities, if necessary. The Fund may recognize capital gains or losses from
those sales, which would increase or decrease its investment company taxable
income and/or net capital gain.
The use of certain Derivatives, such as selling (writing) and purchasing
options and futures and entering into forward currency contracts, involves
complex rules that will determine for federal income tax purposes the amount,
character and timing of recognition of the gains and losses the Fund realizes
in connection therewith. These rules also may require the Fund to "mark to
market" (that is, treat as sold for their fair market value) at the end of
each taxable year certain positions in its portfolio, which may cause the Fund
to recognize income or gain without receiving cash with which to make
distributions necessary to satisfy the Distribution Requirement and avoid
imposition of the Excise Tax.
45
<PAGE>
Gains from the disposition of foreign currencies, and gains from options,
futures and forward currency contracts derived by the Fund with respect to its
business of investing in securities or foreign currencies, will be treated as
qualifying income under the Income Requirement. Under section 988 of the Code,
foreign currency gains or losses from certain forward contracts not traded in
the interbank market as well as certain other gains or losses attributable to
currency exchange rate fluctuations are typically treated as ordinary income
or loss. Such income or loss may increase or decrease (or possibly eliminate)
the Fund's income available for distribution. If, under the rules governing
the tax treatment of foreign currency gain and losses, the Fund's income
available for distribution is decreased or eliminated, all or a portion of the
distributions by the Fund may be treated for federal income tax purposes as a
return of capital or, in some circumstances, as capital gain.
Income received and gains realized by the Fund from investments in foreign
securities may be subject to income, withholding or other taxes imposed by
foreign countries and U.S. possessions that would reduce its yield and/or
total return thereon. Such taxes will not be deductible or creditable by
Shareholders. Tax conventions between certain countries and the United States
may reduce or eliminate those taxes.
If the Fund has an "appreciated financial position"--generally, an interest
(including an interest through an option, futures or forward currency
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 currency contract entered
into by the Fund or a related person with respect to the same or substantially
similar property. In addition, if the appreciated financial position is itself
a short sale or such a contract, acquisition of the underlying property or
substantially similar property will be deemed a constructive sale.
TAXATION OF THE SHAREHOLDERS. Dividends from the Fund's investment company
taxable income (whether received in cash or reinvested in additional Shares)
generally will be taxable to the Shareholders as ordinary income to the extent
of the Fund's earnings and profits. Distributions of the Fund's net capital
gain (whether received in cash or reinvested in additional Shares), when
designated as such, will be taxable to the Shareholders as long-term capital
gain, regardless of how long they have held their Shares. (See below for a
summary of the tax rate applicable to capital gain distributions.) A
participant in the Automatic Dividend Reinvestment Plan will be treated as
having received a distribution in the amount of the cash used to purchase
Shares on his or her behalf, including a pro rata portion of the brokerage
fees incurred by the Transfer Agent. Distributions by the Fund to the
Shareholders in any year that exceed the Fund's earnings and profits generally
may be applied by each Shareholder against his or her basis for the Shares,
and any such distribution in excess of that basis will be taxable at capital
gains rates (assuming the Shares are held as a capital asset). Shareholders
who are not liable for tax on their income and whose Shares are not debt-
financed generally are not required to pay tax on dividends or other
distributions they receive from the Fund.
The Fund may retain its net capital gain for investment. If the Fund does
so, however, it will be subject to a tax of 35% on the retained amount. In
that event, the Fund expects to designate the retained amount as undistributed
capital gain in a notice to the Shareholders, who (1) will be required to
include in income for tax purposes, as long-term capital gain, their
proportionate shares of the undistributed amount, (2) will be entitled to
credit their proportionate shares of the 35% tax paid by the Fund against
their federal income tax liabilities, if any, and to claim refunds to the
extent the credit exceeds those liabilities, and (3) will increase the tax
basis of their Shares by an amount equal to 65% of the amount of undistributed
capital gain included in their gross income.
The Fund will notify the Shareholders following the end of each calendar
year of the amounts of dividends and capital gain distributions paid (or
deemed paid) that year and undistributed capital gain designated for that
year.
46
<PAGE>
Dividends and other distributions declared by the Fund in December of any
year and payable to Shareholders of record on a date in that month will be
deemed to have been paid by the Fund and received by the Shareholders on
December 31st if the distributions are paid by the Fund during the following
January. Accordingly, those distributions will be taxed to the Shareholders
for the year in which that December 31st falls.
An investor should be aware that, if Shares are purchased shortly before the
record date for any dividend or other distribution, the investor will pay full
price for the Shares and will receive some portion of the purchase price back
as a taxable distribution.
On the sale or exchange of Shares (including a sale pursuant to a Share
repurchase or tender offer by the Fund), a Shareholder generally will
recognize a taxable gain or loss equal to the difference between his or her
adjusted basis for the Shares and the amount received. Any such gain or loss
will be treated as a capital gain or loss if the Shares are capital assets in
the Shareholder's hands and will be long-term capital gain or loss if the
Shares have been held for more than one year. (See below for a discussion of
the tax rates applicable to capital gains.) Any loss recognized on a sale or
exchange of Shares that were held for six months or less will be treated as
long-term, rather than short-term, capital loss to the extent of any capital
gain distributions previously received thereon or any undistributed capital
gain designated with respect thereto. A loss realized on a sale or exchange of
Shares will be disallowed to the extent those Shares are replaced by other
Shares within a period of 61 days beginning 30 days before and ending 30 days
after the date of disposition of the Shares (which could occur, for example,
as a result of participation in the DRIP). In that event, the basis of the
replacement Shares will be adjusted to reflect the disallowed loss.
Under the Taxpayer Relief Act of 1997 ("1997 Tax Act"), as modified by
recent legislation, the maximum tax rates applicable to net capital gains
recognized by individuals and other noncorporate taxpayers are (1) the same as
ordinary income rates for capital assets held for one year or less and (2) 20%
(10% for taxpayers in the 15% marginal tax bracket) for capital assets held
for more than one year. The 1997 Tax Act did not affect the maximum net
capital gain tax rate for corporations, which remains at 35%. These rates will
apply to distributions by the Fund of net short-term capital gain and net
capital gain, as well as to gains recognized on sales and exchanges of Shares.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and repurchase proceeds payable to any individual Shareholders
and certain other noncorporate Shareholders who do not provide the Fund with a
correct taxpayer identification number. The Fund is also required to withhold
31% of all dividends and capital gain distributions payable to such
Shareholders who otherwise are subject to backup withholding.
47
<PAGE>
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Pursuant to the Fund's Automatic Dividend Reinvestment Plan (the "DRIP"),
unless a Shareholder otherwise elects, all dividends and capital gain
distributions will be automatically reinvested in additional Shares by PNC
Bank, National Association ("PNC"), as agent for Shareholders in administering
the DRIP (the "DRIP Agent"). Shareholders who elect not to participate in the
DRIP will receive all dividends and other distributions in cash paid by check
mailed directly to the Shareholder of record (or, if the Shares are held in
street or other nominee name, then to such nominee) by PNC as dividend
disbursing agent. DRIP participants may elect not to participate in the DRIP
and to receive all dividends and capital gain distributions in cash by sending
written instructions to PNC, as dividend disbursing agent, at the address set
forth below. Participation in the DRIP is completely voluntary and may be
terminated or resumed at any time without penalty by written notice if
received by the DRIP Agent not less than ten days prior to any distribution
record date; otherwise such termination will be effective with respect to any
subsequently declared dividend or other distribution.
Whenever the Fund declares an income dividend or a capital gain distribution
(collectively referred to in this section as "dividends") payable either in
Shares or in cash, non-participants in the DRIP will receive cash and
participants in the DRIP will receive the equivalent in Shares. The Shares
will be acquired by the DRIP Agent or an independent broker-dealer for the
participants' accounts, depending upon the circumstances described below,
either (1) through receipt of additional unissued but authorized Shares from
the Fund ("newly issued shares") or (2) by purchase of outstanding Shares on
the open market ("open-market purchases") on the NYSE or elsewhere. If on the
payment date for the dividend, the net asset value per Share is equal to or
less than the market price per Share plus estimated brokerage commissions
(such condition being referred to herein as "market premium"), the DRIP Agent
will invest the dividend amount in newly issued Shares on behalf of the
participants. The number of newly issued Shares to be credited to each
participant's account will be determined by dividing the dollar amount of the
dividend by the net asset value per Share on the date the Shares are issued,
provided that the maximum discount from the then current market price per
Share on the date of issuance may not exceed 5%. If on the dividend payment
date, the net asset value per Share is greater than the market value thereof
(such condition being referred to herein as "market discount"), the DRIP Agent
will invest the dividend amount in Shares acquired on behalf of the
participants in open-market purchases.
In the event of a market discount on the dividend payment date, the DRIP
Agent will have until the last business day before the next date on which the
Shares trade on an "ex-dividend" basis, but no more than 30 days after the
dividend payment date, to invest the dividend amount in Shares acquired in
open-market purchases. It is contemplated that the Fund will pay monthly
income dividends. Therefore, the period during which open-market purchases can
be made will exist only from the payment date of the dividend through the date
before the next "ex-dividend" date, which typically will be approximately ten
days. If, before the DRIP Agent has completed its open-market purchases, the
market price of a Share exceeds the net asset value per Share, the average per
Share purchase price paid by the DRIP Agent may exceed the net asset value per
share, resulting in the acquisition of fewer Shares than if the dividend had
been paid in newly issued Shares on the dividend payment date. Because of the
foregoing difficulty with respect to open-market purchases, the DRIP provides
that if the DRIP Agent is unable to invest the full dividend amount in open-
market purchases during the purchase period or if the market discount shifts
to a market premium during the purchase period, the DRIP Agent will cease
making open-market purchases and will invest the uninvested portion of the
dividend amount in newly issued Shares at the close of business on the earlier
of the last day of the purchase period or the first day during the purchase
period on which the market discount shifts to a market premium.
The DRIP Agent maintains all Shareholders' accounts in the DRIP and
furnishes written confirmation of all transactions in the accounts, including
information needed by Shareholders for tax records. Shares in the account of
each DRIP participant will be held on his or her behalf by the DRIP Agent on
behalf of the DRIP participant, and each Shareholder proxy will include those
Shares purchased or received pursuant to the DRIP. The DRIP Agent will forward
all proxy solicitation materials to participants and vote proxies for Shares
held pursuant to the DRIP in accordance with the instructions of the
participants.
48
<PAGE>
In the case of Shareholders such as banks, brokers or nominees that hold
Shares for others who are the beneficial owners, the DRIP Agent will
administer the DRIP on the basis of the number of Shares certified from time
to time by the record Shareholder's name and held for the account of
beneficial owners who participate in the DRIP.
There will be no brokerage charges with respect to Shares issued directly by
the Fund as a result of dividends payable either in Shares or in cash.
However, each participant will pay a pro rata share of brokerage commissions
incurred with respect to the DRIP Agent's open-market purchases in connection
with the reinvestment of dividends.
The automatic reinvestment of dividends will not relieve participants of any
federal, state or local income tax that may be payable (or required to be
withheld) on the dividends. See "Taxes."
Shareholders participating in the DRIP may receive benefits not available to
Shareholders not participating in the DRIP. If the market price (plus
commissions) of the Fund's Shares is above their net asset value, participants
in the DRIP will receive Shares of the Fund at less than they could otherwise
purchase them and will have Shares with a cash value greater than the value of
any cash distribution they would have received on their Shares. If the market
price (plus commissions) is below the net asset value, participants will
receive distributions in Shares with a net asset value greater than the value
of any cash distribution they would have received on their Shares. However,
there may be insufficient Shares available in the market to make distributions
in Shares at prices below the net asset value. Also, because the Fund does not
redeem its Shares, the price on resale may be more or less than the net asset
value. See "Taxes" for a discussion of tax consequences of participating in
the DRIP.
Experience under the DRIP may indicate that changes are desirable.
Accordingly, the Fund reserves the right to amend or terminate the DRIP. There
is no direct service charge to participants in the DRIP; however, the Fund
reserves the right to amend the DRIP to include a service charge payable by
the participants.
All correspondence concerning the DRIP should be directed to the DRIP Agent
at PNC Bank, N.A., P.O. Box 8950, Wilmington, DE 19899.
49
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Crowell, Weedon & Co., Legg Mason Wood Walker
Incorporated, McDonald & Company Securities, Inc., and Morgan Keegan &
Company, Inc. are acting as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions contained in the
underwriting agreement (the "Underwriting Agreement"), to purchase from the
Fund the number of Shares set forth below opposite their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Prudential Securities Incorporated..............................
Crowell, Weedon & Co............................................
Legg Mason Wood Walker Incorporated.............................
McDonald & Company Securities, Inc..............................
Morgan Keegan & Company, Inc....................................
---------
Total...........................................................
=========
</TABLE>
The Fund is obligated to sell, and the Underwriters are obligated to
purchase, all of the Shares offered hereby, if any are purchased.
As set forth in the notes to the table on the cover page of this Prospectus,
the Sales Load to the Underwriters will not be paid by the Fund but by Conseco
Capital or Conseco, Inc., from its own assets in the amount of $0.75 per Share
(5.0% of the public offering price per Share) or an aggregate amount of $
($ assuming full exercise of the over-allotment option) for all Shares
covered by this Prospectus. The Underwriters, through the Representatives,
have advised the Fund that they propose to offer the Shares to the public
initially at the public offering price set forth on the cover page of this
Prospectus, and that the Underwriters may allow to selected dealers a
concession of $ per share and that such dealers may reallow a concession of
$ per share to certain other dealers. After completion of the offering, the
initial public offering price and the concessions may be changed by the
Representatives.
The Fund has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to an additional Shares
at the initial public offering price, less underwriting discounts and
commissions as set forth on the cover page of this Prospectus. The
Underwriters may exercise such option solely for the purpose of covering over-
allotments incurred in the sale of the Shares offered hereby. To the extent
that such option to purchase is exercised, each Underwriter will become
obligated and will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage of such additional Shares as the
number set forth next to such Underwriter's name in the preceding table bears
to .
The Fund, Conseco Capital and Conseco, Inc. have agreed to indemnify the
several Underwriters against and contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.
The Representatives have informed the Fund that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
The Fund, its officers and trustees, have agreed not to, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any Shares of the Fund, or any securities
convertible or exercisable or exchangeable for any Shares of the Fund (other
than pursuant to the over-allotment option granted to the Underwriters, and
pursuant to the DRIP), for a period of 180 days in the case of the Fund, and
one year in the case of the Fund's officers and Trustees, from the closing of
this offering, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters. Prudential Securities
Incorporated may, in its sole discretion, at any time and without notice,
release all or any portion of the Shares subject to the foregoing lock-up
agreements.
50
<PAGE>
The Fund's Shares have been approved for listing on the NYSE under the
symbol "CFD," subject to official notice of issuance. In order to meet one of
the requirements for listing the Shares on the NYSE, the Underwriters have
undertaken to sell (i) lots of 100 or more Shares to a minimum of 2,000
beneficial holders, (ii) a minimum of 1.1 million Shares and (iii) Shares with
a minimum aggregate market value of $40.0 million.
Prior to the Offering, there has been no public market for the Shares. The
initial public offering price has been determined through negotiations between
the Fund and the Representatives. Among the factors considered in such
determination were prevailing market conditions, the yields and financial
characteristics of registered investment companies that the Fund and the
Representatives believe to be comparable to the Fund, the Fund's expected
performance and yield, estimates of future earnings prospects of the Fund as a
whole and the current state of the lower grade and corporate loan markets.
In the ordinary course of their businesses, Prudential Securities
Incorporated, other Underwriters, and their respective affiliates have in the
past engaged, and may in the future engage, in investment banking or financial
transactions with the Fund, the Manager and their affiliates.
In connection with this offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Shares.
Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Shares for the purpose of stabilizing its market price.
The Underwriters also may create a short position for the account of the
Underwriters by selling more Shares in connection with this offering than they
are committed to purchase from the Fund, and in such case may purchase Shares
in the open market following completion of this offering to cover all or a
portion of such short position. The Underwriters may also cover all or a
portion of such short position, up to Shares, by exercising the
Underwriters' over-allotment option referred to previously. In addition,
Prudential Securities Incorporated, on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby
they may reclaim from an Underwriter (or any dealer participating in this
offering) for the account of the other Underwriters, the selling concession
with respect to Shares that are distributed in this offering but subsequently
purchased by Prudential Securities Incorporated for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Shares at a level
above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph are required and, if they are
undertaken, each may be discontinued at any time.
ADDITIONAL INFORMATION
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Fund's Registration Statement. Each such statement is qualified in all
respects by such reference and the exhibits and schedules thereto. The Fund's
Registration Statement and such exhibits and schedules may be obtained from
the SEC at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the SEC. The SEC maintains a
website at http:\\www.sec.gov containing reports, proxy and information
statements and other information regarding registrants, including the Fund,
that file electronically with the SEC. The Fund's Shares have been approved
for listing on the NYSE under the symbol "CFD," subject to official notice of
issuance and, as such, similar information concerning the Fund will be
available for inspection and copying at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
The Fund intends to furnish its shareholders with annual reports containing
audited financial statements and a report thereon by independent certified
public accountants.
51
<PAGE>
SHAREHOLDER SERVICING AGENT, CUSTODIAN AND
TRANSFER AND DIVIDEND DISBURSING AGENT
Pursuant to a Shareholder Servicing Agreement between Conseco Services LLC
(the "Shareholder Servicing Agent") and the Fund, the Shareholder Servicing
Agent will (i) undertake to make public information pertaining to the Fund on
an ongoing basis and to communicate to investors and prospective investors the
Fund's features and benefits (including periodic seminars or conference calls,
responses to questions from current or prospective shareholders and specific
shareholder contact where appropriate); (ii) make available to investors and
prospective investors market price, net asset value, yield and other
information regarding the Fund, if reasonably obtainable, for the purpose of
maintaining the visibility of the Fund in the investor community; (iii) at the
request of the Fund, provide certain economic research and statistical
information and reports, if reasonably obtainable, on behalf of the Fund, and
consult with representatives and Trustees of the Fund in connection therewith,
which information and reports shall include: (a) statistical and financial
market information with respect to the Fund's market performance and (b)
comparative information regarding the Fund and other closed-end management
investment companies with respect to (1) the net asset value of their
respective shares, (2) the respective market performance of the Fund and such
other companies and (3) other relevant performance indicators; and (iv) at the
request of the Fund, provide information to and consult with the Board of
Trustees with respect to applicable strategies designed to address market
value discounts, which may include share repurchase, tender offers,
modifications to dividend policies or capital structure, repositioning or
restructuring of the Fund, conversion of the Fund to an open-end investment
company, liquidation or merger; provided, however, that under the terms of the
Shareholder Servicing Agreement, the Shareholder Servicing Agent is not
obligated to render any opinions, valuations or recommendations of any kind or
to perform any such similar services. For these services, the Fund will pay
the Shareholder Servicing Agent a fee equal on an annual basis to 0.10% of the
Fund's average weekly Managed Assets (as defined above under "Management of
the Fund--Investment Management and Administration Agreements"), payable in
arrears at the end of each calendar month. The Shareholder Servicing Agent may
contract with other parties, at its own expense, to provide the services
referred to in the Shareholder Servicing Agreement with the Fund. Under the
terms of the Shareholder Servicing Agreement, the Shareholder Servicing Agent
is relieved from liability to the Fund for any act or omission in the course
of its performance under the Shareholder Servicing Agreement, in the absence
of gross negligence or willful misconduct by the Shareholder Servicing Agent.
The Fund has agreed to indemnify the Shareholder Servicing Agent or contribute
to losses arising out of certain liabilities under the Shareholder Servicing
Agreement. The Shareholder Servicing Agreement will continue for an initial
term of two years and thereafter for successive one-year periods unless
terminated by either party upon 60 days written notice. In this regard, as
part of its ongoing oversight responsibilities, the Board of Trustees will
monitor the performance of the Shareholder Servicing Agent and the continuing
appropriateness of the Shareholder Servicing Agreement.
PNC will serve as custodian of the assets of the Fund. In this capacity, PNC
may utilize sub-custodians outside the U.S. approved by the Board of Trustees
in accordance with regulations under the Investment Company Act. PNC will also
serve as the Fund's Transfer and Dividend Disbursing Agent. PFPC Inc., an
affiliate of PNC, will provide certain bookkeeping and accounting services for
the Fund and will perform other services, including preparing certain reports
and regulatory filings, federal and state tax returns and certain SEC and
shareholder reports.
52
<PAGE>
DESCRIPTION OF SHARES
The Fund is a newly organized unincorporated business trust under the laws
of the Commonwealth of Massachusetts created pursuant to a Declaration of
Trust on June 2, 1998. The Fund is authorized to issue an unlimited number of
shares of beneficial interest, par value $.001 per share. Each Share has one
vote and, when issued and paid for in accordance with the terms of the
offering, will be fully paid and non-assessable. Fund Shares are of one class
and have equal rights as to dividends and in liquidation. Shares have no
preemptive, subscription or conversion rights and are freely transferable.
Under Massachusetts law, Shareholders could, under certain circumstances, be
held personally liable for the obligations of a Massachusetts business trust.
However, the Declaration of Trust disclaims shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation or instrument entered into or executed by the
Fund or a Trustee. The Declaration of Trust also provides that the Trust shall
indemnify and hold each Shareholder harmless from and against all claims and
liabilities, to which such Shareholder may become subject by reason of his or
her having been a Shareholder, other than by reason of his or her own wrongful
act or omission. Thus, the risk of a Shareholder incurring financial loss on
account of Shareholder liability is normally limited to circumstances in which
the Fund itself would be unable to meet its obligations, a possibility which
the Fund's management believes is remote. Upon payment of any liability
incurred by the Fund, the Shareholder paying such liability will be entitled
to reimbursement from the general assets of the Fund. The Fund intends to
conduct its operations in such a way so as to avoid, as far as possible,
ultimate liability of the Shareholders for liabilities of the Fund.
The Fund has no present intention of offering additional Shares, except as
described herein and under the DRIP, as it may be amended from time to time.
See "Automatic Dividend Reinvestment Plan." Other offerings of its Shares, if
made, will require approval of the Fund's Board of Trustees. Any additional
offering will not be sold at a price per Share below the then current net
asset value (exclusive of underwriting discounts and commissions) except in
connection with an offering to existing Shareholders or with the consent of a
majority of the Fund's outstanding Shares. In accordance with the rules of the
NYSE, the Fund will hold Annual Meetings of Shareholders.
53
<PAGE>
CERTAIN PROVISIONS OF THE DECLARATION OF TRUST
ANTI-TAKEOVER PROVISIONS
The Fund's Declaration of Trust includes provisions that could have the
effect of limiting the ability of other entities or persons to acquire control
of the Fund or to change the composition of its Board of Trustees and could
have the effect of depriving Shareholders of an opportunity to sell their
shares at a premium over prevailing market prices by discouraging a third
party from seeking to obtain control of the Fund. These provisions may have
the effect of discouraging attempts to acquire control of the Fund, which
attempts could have the effect of increasing the expenses of the Fund and
interfering with the normal operation of the Fund.
The Board of Trustees shall be divided into three classes. The term of
office of all of the Trustees shall expire on the date of the first annual or
special meeting of Shareholders following the effective date of the
Registration Statement of which this Prospectus is a part. Thereafter, the
terms of one class of Trustees will expire at each annual meeting of
Shareholders or special meeting in lieu thereof. At each such annual or
special meeting, one class of Trustees will be elected to a three-year term.
This provision for a classified Board could delay the ability of Shareholders
to replace a majority of the Board of Trustees. A Trustee may be removed from
office with or without cause but only by vote of the holders of at least 66
2/3% of the shares entitled to be voted on the matter.
In addition, the Declaration of Trust requires the favorable vote of the
holders of at least 66 2/3% of the Fund's Shares to approve, adopt or
authorize the following:
(i) a merger or consolidation or statutory share exchange of the Fund
with any other corporate entity or partnership;
(ii) a sale of all or substantially all of the Fund's assets (other than
in the regular course of the Fund's investment activities); or
(iii) a liquidation or dissolution of the Fund,
unless such action has been approved, adopted or authorized by the affirmative
vote of at least two-thirds of the total number of Trustees, in which case the
affirmative vote of a majority of the Fund's Shares is required. Following any
issuance of preferred stock by the Fund, it is anticipated that the approval,
adoption or authorization of the foregoing also would require the favorable
vote of a majority of the Fund's shares of preferred stock then entitled to be
voted, voting as a separate class.
REPURCHASE OF SHARES; CONVERSION TO AN OPEN-END INVESTMENT COMPANY
Shares of closed-end management investment companies often trade at a
discount to their net asset values, and the Fund's Shares may likewise trade
at a discount to their net asset value, although it is possible that they may
trade at a premium above net asset value. The market price of the Fund's
Shares will be determined by such factors as relative demand for and supply of
such Shares in the market, the Fund's net asset value, general market and
economic conditions and other factors beyond the control of the Fund. See
"Determination of Net Asset Value." Although the Fund's Shareholders will not
have the right to redeem their Shares, the Fund may take action to repurchase
Shares in the open market or make tender offers for its Shares at their net
asset value. This may have the effect of reducing any market discount from net
asset value.
There is no assurance that if action is undertaken to repurchase or tender
for Shares, such action will result in the Shares' trading at a price which
approximates their net asset value. Although Share repurchases and tenders
could have a favorable effect on the market price of the Fund's Shares, it
should be recognized that the acquisition of Shares by the Fund will decrease
the total assets of the Fund and, therefore, have the effect of increasing the
Fund's expense ratio. Any Share repurchases or tender offers will be made in
accordance with requirements of the Securities Exchange Act of 1934, as
amended, and the Investment Company Act.
The Fund may also be converted to an open-end investment company to reduce
the market discount at which the Fund's Shares trade relative to their net
asset value (or otherwise). Following any such conversion, it is possible that
certain of the Fund's investment policies and strategies would have to be
modified to assure sufficient portfolio liquidity, which could cause the Fund
to dispose of portfolio securities or other assets at a time when it is not
advantageous to do so, and could adversely affect the ability of the Fund to
meet its investment objectives. Doing so also would require the redemption of
any outstanding preferred shares and any indebtedness not constituting bank
loans, which could eliminate or alter the leveraged capital structure of the
54
<PAGE>
Fund with respect to the Shares. Finally, in the event of conversion, the
Shares would cease to be listed on the NYSE or other national securities
exchange or market system.
Conversion of the Fund to an open-end investment company would require an
amendment to the Fund's Declaration of Trust. The amendment would have to be
declared advisable by the Board of Trustees prior to its submission to
Shareholders. Such an amendment would require the favorable vote of the
holders of at least 66 2/3% of the Fund's outstanding shares (including any
preferred stock) entitled to be voted on the matter, voting as a single class
(or a majority of such shares if the amendment previously was approved,
adopted or authorized by at least two-thirds of the total number of Trustees),
and, assuming preferred stock is issued, the affirmative vote of a majority of
outstanding shares of preferred stock of the Fund, voting as a separate class.
Such a vote also would satisfy a separate requirement in the Investment
Company Act that the change be approved by the Shareholders.
Shareholders of an open-end investment company may require the company to
redeem their shares at any time (except in certain circumstances as authorized
by or under the Investment Company Act) at their net asset value, less such
redemption charge, if any, as might be in effect at the time of a redemption.
The Fund expects to pay all such redemption requests in cash, but intends to
reserve the right to pay redemption requests in a combination of cash or
securities. If a payment in securities were made, investors may incur
brokerage costs in converting such securities to cash. If the Fund were
converted to an open-end fund, it is likely that new common shares would be
sold at net asset value plus a sales load.
The Board of Trustees has determined that provisions with respect to the
Board of Trustees and the 66 2/3% voting requirements described above, which
are greater than the minimum requirements under Massachusetts law or the
Investment Company Act, are in the best interest of Shareholders generally.
Reference should be made to the Declaration of Trust on file with the SEC for
the full text of these provisions.
OTHER INFORMATION
Prior to the registration statement becoming effective, the Underwriters or
other appropriate party may distribute advertising or other solicitation
material which discusses (i) economic and market conditions and trends
generally; (ii) historical and current conditions and trends in the lower
grade securities market, and risk and reward potential in such market; (iii)
comparative information, including statistical analysis and performance-
related information, related to lower grade securities generally and investing
in lower grade securities; (iv) the special considerations and potential
benefits of investing in closed-end management investment companies; and (v)
information about Conseco Capital and the Fund's portfolio managers,
biographical information about the Fund's portfolio managers, and information
and commentary on investment strategy or other matters of general interest to
investors.
LEGAL OPINIONS
Certain legal matters in connection with the Shares offered hereby will be
passed upon for the Fund by Kirkpatrick & Lockhart LLP, Washington, DC, and
for the Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New
York.
EXPERTS
The statement of assets and liabilities of the Fund included in this
Prospectus has been so included in reliance upon the report of
PricewaterhouseCoopers LLP, independent auditors, and on their authority as
experts in auditing and accounting.
55
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees
and Shareholders of
The Conseco Strategic Income Fund
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of The Conseco
Strategic Income Fund (the "Fund") at July 15, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our
audit of this financial statement in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
July 20, 1998
56
<PAGE>
CONSECO STRATEGIC INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 15, 1998
<TABLE>
<CAPTION>
<S> <C>
Assets:
Cash................................................................. $100,005
Organizational costs................................................. 60,000
--------
Total assets....................................................... $160,005
--------
Payable to Conseco, Inc................................................ 60,000
--------
Net assets......................................................... $100,005
========
Net assets consist of:
Capital.............................................................. $100,005
========
Outstanding shares..................................................... 6,667
========
Net asset value per share.............................................. $ 15.00
========
</TABLE>
The accompanying notes are an integral part of the statement of assets and
liabilities.
57
<PAGE>
CONSECO STRATEGIC INCOME FUND
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
JULY 15, 1998
NOTE 1. ORGANIZATION
The Fund is a closed-end, non-diversified management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on June 2, 1998, and has had no operations other than the sale
to Conseco, Inc. of an aggregate of 6,667 shares for $100,005, on July 15,
1998.
NOTE 2. ORGANIZATION COSTS
The Fund has capitalized certain costs of start-up activities and
organization. Pursuant to Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities", such costs estimated at $60,000, will be amortized on
a monthly basis through December 31, 1998, and any remaining amounts will be
charged to operations on December 31, 1998.
NOTE 3. MANAGEMENT AND ADMINISTRATION ARRANGEMENTS
The Fund has engaged Conseco Capital Management, Inc. ("Conseco Capital") to
provide investment management and administration services to the Fund. Conseco
Capital will receive a monthly fee for advisory and administration services at
an annual rate equal to 0.90% of the Fund's average weekly value of the
Managed Assets. Conseco Capital may engage Conseco Services LLC to provide
administration services to the Fund, at Conseco Capital's own expense, and not
that of the Fund.
NOTE 4. FEDERAL INCOME TAXES
The Fund intends to qualify as a "regulated investment company" and as such
(and by complying with the applicable provisions of the Internal Revenue Code
of 1986, as amended) will not be subject to Federal income tax on taxable
income (including realized capital gains) that is distributed to shareholders.
58
<PAGE>
APPENDIX A
RATINGS OF CORPORATE BONDS
DESCRIPTION OF CORPORATE BOND RATINGS OF STANDARD & POOR'S, A DIVISION OF THE
MCGRAW-HILL COMPANIES, INC.:
AAA--Bonds rated AAA have the highest rating assigned by S&P. Capacity to
repay principal is extremely strong.
AA--Bonds rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A--Bonds rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity to pay interest and repay
principal for bonds in this category than for bonds in higher rated
categories.
BB--Bonds rated BB have less near-term vulnerability to default than other
speculative grade debt. However, they face major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
B--Bonds rated B have a greater vulnerability to default but presently have
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions would likely impair capacity or
willingness to pay interest and repay principal.
CCC--Bonds rated CCC have a current identifiable vulnerability to default
and are dependent upon favorable business, financial and economic conditions
to meet timely payments of interest and repayment of principal. In the event
of adverse business, financial or economic conditions, they are not likely to
have the capacity to pay interest and repay principal.
CC--The rating CC is currently highly vulnerable to nonpayment.
C--The rating C may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this
obligation are being continued.
D--Bonds rated D are in default, and payment of interest and/or repayment of
principal is in arrears.
S&P's letter ratings may be modified by the addition of a plus (+) or a
minus (-) sign designation, which is used to show relative standing within the
major rating categories, except in the AAA (Prime Grade) category.
DESCRIPTION OF BOND RATINGS OF MOODY'S INVESTORS SERVICE, INC.:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge." 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 generally are 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-1
<PAGE>
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
length 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, therefore, 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 the 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 present 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, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative standing
within the major rating categories, except in the Aaa category and in the
categories below B. The modifier 1 indicates a ranking for the security in the
higher end of a rating category; the modifier 2 indicates a mid-range ranking;
and the modifier 3 indicates a ranking in the lower end of a rating category.
A-2
<PAGE>
APPENDIX B
MORTGAGE--RELATED SECURITIES
Government-Agency Securities. Mortgage-related securities issued by the
Government National Mortgage Association ("GNMA") include GNMA Mortgage Pass-
Through Certificates (also known as "Ginnie Maes") which are guaranteed as to
the timely payment of principal and interest by GNMA and such guarantee is
backed by the full faith and credit of the United States. GNMA is a wholly-
owned U.S. Government corporation within the Department of Housing and Urban
Development. GNMA certificates also are supported by the authority of GNMA to
borrow funds from the U.S. Treasury to make payments under its guarantee.
Government-Related Securities. Mortgage-related securities issued by the
Federal National Mortgage Association ("FNMA") include FNMA Guaranteed
Mortgage Pass-Through Certificates (also known as "Fannie Maes") which are
solely the obligations of FNMA and are not backed by or entitled to the full
faith and credit of the United States. FNMA is a government-sponsored
organization owned entirely by private shareholders. Fannie Maes are
guaranteed as to timely payment of principal and interest by FNMA. Mortgage-
related securities issued by the Federal Home Loan Mortgage Corporation
("FHLMC") include FHLMC Mortgage Participation Certificates (also known as
"Freddie Macs" or "PCs"). FHLMC is a shareholder-owned, government-sponsored
enterprise created on July 24, 1970 pursuant to the Federal Home Loan Mortgage
Corporation Act, Title III of the Emergency Home Finance Act of 1970, as
amended, 12 U.S.C. (S)(S) 1451-1459. Freddie Macs are not guaranteed by the
United States or by any Federal Home Loan Bank and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by
FHLMC. FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. When FHLMC does not
guarantee timely payment of principal, FHLMC may remit the amount due on
account of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after
it becomes payable.
Private Entity Securities. These mortgage-related securities are issued by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Timely
payment of principal and interest on mortgage-related securities backed by
pools created by non-governmental issuers often is supported partially by
various forms of insurance or guarantees, including individual loan, title,
pool and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers. There can be
no assurance that the private insurers or mortgage poolers can meet their
obligations under the policies, so that if the issuers default on their
obligations the holders of the security could sustain a loss. No insurance or
guarantee covers the Fund or the price of the Fund's Shares. Mortgage-related
securities issued by non-governmental issuers generally offer a higher rate of
interest than government-agency and government-related securities because
there are no direct or indirect government guarantees of payment.
Commercial Mortgage-Related Securities. Commercial mortgage-related
securities generally are multi-class debt or pass-through certificates secured
by mortgage loans on commercial properties. These mortgage-related securities
generally are structured to provide protection to the senior classes of
investors against potential losses on the underlying mortgage loans. This
protection generally is provided by having the holders of subordinated classes
of securities ("Subordinated Securities") take the first loss if there are
defaults on the underlying commercial mortgage loans. Other protection, which
may benefit all of the classes or particular classes, may include issuer
guarantees, reserve funds, additional Subordinated Securities, cross-
collateralization and over-collateralization.
The Fund may invest in Subordinated Securities issued or sponsored by
commercial banks, savings and loan institutions, mortgage bankers, private
mortgage insurance companies and other non-governmental issuers. Subordinated
Securities have no governmental guarantee, and are subordinated in some manner
as to the payment of principal and/or interest to the holders of more senior
mortgage-related securities arising out of the same pool
B-1
<PAGE>
of mortgages. The holders of Subordinated Securities typically are compensated
with a higher stated yield than are the holders of more senior mortgage-
related securities. On the other hand, Subordinated Securities typically
subject the holder to greater risk than senior mortgage-related securities and
tend to be rated in a lower rating category, and frequently a substantially
lower rating category, than the senior mortgage-related securities issued in
respect of the same pool of mortgages. Subordinated Securities generally are
likely to be more sensitive to changes in prepayment and interest rates and
the market for such securities may be less liquid than is the case for
traditional fixed-income securities and senior mortgage-related securities.
The market for commercial mortgage-related securities developed more
recently and in terms of total outstanding principal amount of issues is
relatively small compared to the market for residential single-family
mortgage-related securities. In addition, commercial lending generally is
viewed as exposing the lender to a greater risk of loss than one- to four-
family residential lending. Commercial lending, for example, typically
involves larger loans to single borrowers or groups of related borrowers than
residential one- to four-family mortgage loans. In addition, the repayment of
loans secured by income producing properties typically is dependent upon the
successful operation of the related real estate project and the cash flow
generated therefrom. Consequently, adverse changes in economic conditions and
circumstances are more likely to have an adverse impact on mortgage-related
securities secured by loans on commercial properties than on those secured by
loans on residential properties.
Collateralized Mortgage Obligations ("CMOs"). A CMO is a multi-class bond
backed by a pool of mortgage pass-through certificates or mortgage loans. CMOs
may be collateralized by (a) Ginnie Mae, Fannie Mae, or Freddie Mac pass-
through certificates, (b) unsecuritized mortgage loans insured by the Federal
Housing Administration or guaranteed by the Department of Veterans' Affairs,
(c) unsecuritized conventional mortgages, (d) other mortgage-related
securities, or (e) any combination thereof. Each class of CMOs, often referred
to as a "tranche," is issued at a specific coupon rate and has a stated
maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than the
stated maturities or final distribution dates. The principal and interest on
the underlying mortgages may be allocated among the several classes of a
series of a CMO in many ways. One or more tranches of a CMO may have coupon
rates which reset periodically at a specified increment over an index, such as
the London Interbank Offered Rate ("LIBOR") (or sometimes more than one
index). These floating rate CMOs typically are issued with lifetime caps on
the coupon rate thereon. The Fund also may invest in inverse floating rate
CMOs. Inverse floating rate CMOs constitute a tranche of a CMO with a coupon
rate that moves in the reverse direction to an applicable index such as LIBOR.
Accordingly, the coupon rate thereon will increase as interest rates decrease.
Inverse floating rate CMOs are typically more volatile than fixed or floating
rate tranches of CMOs. Many inverse floating rate CMOs have coupons that move
inversely to a multiple of the applicable indexes. The effect of the coupon
varying inversely to a multiple of an applicable index creates a leverage
factor. Inverse floaters based on multiples of a stated index are designed to
be highly sensitive to changes in interest rates and can subject the holders
thereof to extreme reductions of yield and loss of principal. The markets for
inverse floating rate CMOs with highly leveraged characteristics at times may
be very thin. The Fund's ability to dispose of its positions in such
securities will depend on the degree of liquidity in the markets for such
securities. It is impossible to predict the amount of trading interest that
may exist in such securities, and therefore the future degree of liquidity.
Stripped Mortgage-Backed Securities. The Fund also may invest in stripped
mortgage-backed securities. Stripped mortgage-backed securities are created by
segregating the cash flows from underlying mortgage loans or mortgage
securities to create two or more new securities, each with a specified
percentage of the underlying security's principal or interest payments.
Mortgage securities may be partially stripped so that each investor class
receives some interest and some principal. When securities are completely
stripped, however, all of the interest is distributed to holders of one type
of security, known as an interest-only security, or IO, and all of the
principal is distributed to holders of another type of security known as a
principal-only security, or PO. Strips can be created in a pass-through
structure or as tranches of a CMO. The yields to maturity on IOs and POs are
very sensitive to the rate of principal payments (including prepayments) on
the related underlying mortgage assets. If
B-2
<PAGE>
the underlying mortgage assets experience greater than anticipated prepayments
of principal, the Fund may not fully recoup its initial investment in IOs.
Conversely, if the underlying mortgage assets experience less than anticipated
prepayments of principal, the yield on POs could be materially and adversely
affected.
Real Estate Investment Trusts. A REIT is a corporation or a business trust
that would otherwise be taxed as a corporation, which meets the definitional
requirements of the Internal Revenue Code of 1986, as amended (the "Code").
The Code permits a qualifying REIT to deduct dividends paid, thereby
effectively eliminating corporate-level Federal income tax and making the REIT
a pass-through vehicle for Federal income tax purposes. To meet the
definitional requirements of the Code, a REIT must, among other things, invest
substantially all of its assets in interests in real estate (including
mortgages and other REITs) or cash and government securities, derive most of
its income from rents from real property or interest on loans secured by
mortgages on real property, and distribute to shareholders annually a
substantial portion of its otherwise taxable income. REITs are characterized
as equity REITs, mortgage REITs and hybrid REITs. Equity REITs, which may
include operating or finance companies, own real estate directly and the value
of, and income earned by, the REITs depends upon the income of the underlying
properties and the rental income they earn. Equity REITs also can realize
capital gains (or losses) by selling properties that have appreciated (or
depreciated) in value. Mortgage REITs can make construction, development or
long-term mortgage loans and are sensitive to the credit quality of the
borrower. Mortgage REITs derive their income from interest payments on such
loans. Hybrid REITs combine the characteristics of both equity and mortgage
REITs, generally by holding both ownership interests and mortgage interests in
real estate. The value of securities issued by REITs are affected by tax and
regulatory requirements and by perceptions of management skill. They also are
subject to heavy cash flow dependency, defaults by borrowers or tenants, self-
liquidation and the possibility of failing to qualify for conduit status under
the Code or to maintain exemption from the Investment Company Act.
Adjustable-Rate Mortgage Loans ("ARMs"). ARMs eligible for inclusion in a
mortgage pool will generally provide for a fixed initial mortgage interest
rate for a specified period of time, generally for either the first three,
six, twelve, thirteen, thirty-six, or sixty scheduled monthly payments.
Thereafter, the interest rates are subject to periodic adjustment based on
changes in an index. ARMs typically have minimum and maximum rates beyond
which the mortgage interest rate may not vary over the lifetime of the loans.
Certain ARMs provide for additional limitations on the maximum amount by which
the mortgage interest rate may adjust for any single adjustment period.
Negatively amortizing ARMs may provide limitations on changes in the required
monthly payment. Limitations on monthly payments can result in monthly
payments that are greater or less than the amount necessary to amortize a
negatively amortizing ARM by its maturity at the interest rate in effect
during any particular month.
Other Mortgage-Related Securities. Other mortgage-related securities include
securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage
loans on real property, including CMO residuals. Other mortgage-related
securities may be equity or debt securities issued by agencies or
instrumentalities of the U.S. Government or by private originators of, or
investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
B-3
<PAGE>
APPENDIX C
OPTIONS, FUTURES AND FORWARD CURRENCY CONTRACTS
Options--In General. The Fund may purchase and write (i.e., sell) call or
put options with respect to specific securities. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell,
the underlying security or securities at the exercise price at any time during
the option period, or at a specific date. Conversely, a put option gives the
purchaser of the option the right to sell, and obligates the writer to buy,
the underlying security or securities at the exercise price at any time during
the option period, or at a specific date.
A covered call option written by the Fund is a call option with respect to
which the Fund owns the underlying security or otherwise covers the
transaction by segregating cash or other liquid assets. A put option written
by the Fund is covered when, among other things, cash or liquid assets having
a value equal to or greater than the exercise price of the option are placed
in a segregated account with the Fund's custodian to fulfill the obligation
undertaken. The principal reason for writing covered call and put options is
to realize, through the receipt of premiums, a greater return than would be
realized on the underlying securities alone. The Fund receives a premium from
writing covered call or put options which it retains whether or not the option
is exercised.
There is no assurance that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist for any particular option
or at any particular time, and for some options no such secondary market may
exist. A liquid secondary market in an option may cease to exist for a variety
of reasons. In the past, for example, higher than anticipated trading activity
or order flow, or other unforeseen events, at times have rendered certain of
the clearing facilities inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on certain types of orders
or trading halts or suspensions in one or more options. There can be no
assurance that similar events, or events that may otherwise interfere with the
timely execution of customers' orders, will not recur. In such event, it might
not be possible to effect closing transactions in particular options. If, as a
covered call option writer, the Fund is unable to effect a closing purchase
transaction in a secondary market, it will not be able to sell the underlying
security until the option expires or it delivers the underlying security upon
exercise or it otherwise covers its position.
Specific Options Transactions. The Fund may purchase and sell call and put
options on foreign currency. These options convey the right to buy or sell the
underlying currency at a price which is expected to be lower or higher than
the spot price of the currency at the time the option is exercised or expires.
The Fund may purchase and sell call and put options in respect of specific
securities (or groups or "baskets" of specific securities) or indices listed
on national securities exchanges or traded in the over-the-counter market. An
option on an index is similar to an option in respect of specific securities,
except that settlement does not occur by delivery of the securities comprising
the index. Instead, the option holder receives an amount of cash if the
closing level of the index upon which the option is based is greater than, in
the case of a call, or less than, in the case of a put, the exercise price of
the option. Thus, the effectiveness of purchasing or writing index options
will depend upon price movements in the level of the index rather than the
price of a particular security.
The Fund also may purchase cash-settled options on swaps in pursuit of its
investment objectives. A cash-settled option on a swap gives the purchaser the
right, but not the obligation, in return for the premium paid, to receive an
amount of cash equal to the value of the underlying swap as of the exercise
date. These options typically are purchased in privately negotiated
transactions from financial institutions, including securities brokerage
firms.
Successful use by the Fund of options will be subject to the ability of
Conseco Capital to predict correctly movements in the prices of individual
securities, the securities markets generally, foreign currencies, or interest
rates. To the extent such predictions are incorrect, the Fund may incur
losses.
C-1
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE FUND OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTI-
TUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES BY ANY-
ONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO
DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITA-
TION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURI-
TIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DE-
LIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary....................................................... 3
Fee Table................................................................ 15
The Fund................................................................. 16
Use of Proceeds.......................................................... 16
Investment Objectives and Policies....................................... 17
Other Investment Practices............................................... 28
Risk Factors and Special Considerations.................................. 32
Investment Restrictions.................................................. 38
Management of the Fund................................................... 39
Trustees and Officers of the Fund........................................ 41
Portfolio Transactions................................................... 43
Determination of Net Asset Value......................................... 43
Dividends and Other Distributions........................................ 44
Taxes.................................................................... 44
Automatic Dividend Reinvestment Plan..................................... 48
Underwriting............................................................. 50
Additional Information................................................... 51
Shareholder Servicing Agent, Custodian and Transfer and Dividend
Disbursing Agent........................................................ 52
Description of Shares.................................................... 53
Certain Provisions of the Declaration of Trust........................... 54
Other Information........................................................ 55
Legal Opinions........................................................... 55
Experts.................................................................. 55
Independent Auditors' Report............................................. 56
Statement of Assets, Liabilities and Capital............................. 57
Appendix A: Ratings of Corporate Bonds................................... A-1
Appendix B: Mortgage--Related Securities................................. B-1
Appendix C: Options, Futures and Forward Currency Contracts.............. C-1
</TABLE>
===============================================================================
===============================================================================
Shares
[LOGO OF CONSECO(R) APPEARS HERE]
Conseco Strategic Income Fund
---------------
P R O S P E C T U S
---------------
PRUDENTIAL SECURITIES INCORPORATED
CROWELL, WEEDON & CO.
LEGG MASON WOOD WALKER
INCORPORATED
MCDONALD & COMPANY
SECURITIES, INC.
MORGAN KEEGAN & COMPANY, INC.
July , 1998
===============================================================================
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements:
Report of Independent Auditors
Statement of Assets and Liabilities
(2) Exhibits
(a)(1) Declaration of Trust--(1)
(2) Amendment to Declaration of Trust--(2)
(b) Bylaws--(2)
(c) Inapplicable
(d) (1) Form of Certificate Representing Shares of Beneficial Interest--(2)
(2) Portions of Declaration of Trust Relating to Shareholders' Rights--
Incorporated by Reference to the Declaration of Trust of Conseco
Strategic Income Fund, Articles VI,VII, VIII, IX and XII. (1)
(3) Portions of Bylaws Relating to Shareholders' Rights--Incorporated by
Reference to the By-laws of Conseco Strategic Income Fund, Articles
III,VII, VIII, and XII. (1)
(e) Form of Terms and Conditions of Dividend Reinvestment Plan--(2)
(f) Inapplicable
(g) Form of Investment Management and Administration Agreement--(2)
(h)(1) Form of Master Agreement Among Underwriters--(2)
(2) Form of Underwriting Agreement--(2)
(3) Form of Master Selected Dealers Agreement--(2)
(i) Inapplicable
(j) Form of Custodian Contract--(2)
(k)(1) Form of Transfer Agency Agreement. (2)
(2) Form of Shareholder Servicing Agreement--(2)
(3) Form of Accounting Services Agreement--(2)
(l) Opinion and Consent of Counsel--(2)
(m) Inapplicable
(n) Consent of Independent Auditors--(2)
(o) Inapplicable
(p) Initial Capital Agreement--(2)
(q) Inapplicable
(r) Inapplicable
- --------
(1) Previously filed.
(2) Filed herewith.
Part C-1
<PAGE>
ITEM 25. MARKETING ARRANGEMENTS
Reference is made to the Form of Underwriting Agreement for Registrant's
shares of beneficial interest that is filed in this amendment to this
Registration Statement.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission Fees......................... $ 35,621.25
NASD Fees and Expenses.......................................... $ 12,500.00
New York Stock Exchange Listing Fee(1).......................... $ 98,600.00
Printing(1)..................................................... $128,000.00
Accounting Fees and Expenses(1)................................. $ 1,500.00
Legal Fees(1)................................................... $150,000.00
Blue Sky Fees and Expenses...................................... $ 0
Reimbursement of Underwriters' Expenses......................... $250,000.00
Miscellaneous(1)................................................ $ 15,278.75
-----------
Total......................................................... $691,500.00
===========
</TABLE>
- --------
(1) Expenses are estimated.
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 28. NUMBER OF RECORD HOLDERS OF SECURITIES
1 as of July 22, 1998
ITEM 29. INDEMNIFICATION
Article VI of the Registrant's Declaration of Trust provides as follows:
Section 6.1. No Shareholder shall be subject to any personal liability
whatsoever to any Person in connection with Fund Property or the acts,
obligations or affairs of the Fund. The Trustees shall have no power to bind
any Shareholder personally or to call upon any Shareholder for the payment of
any sum of money or assessment whatsoever other than such as the Shareholder
may at any time personally agree to pay by way of subscription to any Shares
or otherwise. Shareholder liability for the acts and obligations of the Fund
is hereby expressly disclaimed. Every note, bond, contract, or other
undertaking issued by or on behalf of the Fund or the Trustees relating to the
Fund shall include a notice and provision limiting the obligation represented
thereby to the Fund and its assets (but the omission of such notice and
provision shall not operate to impose any liability or obligation on any
Shareholder). No Trustee, officer, employee or agent of the Fund shall be
subject to any personal liability whatsoever to any Person, in connection with
the Fund Property or the affairs of the Fund, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless disregard for his or
her duty to such Person; and all such Persons shall look solely to the Fund
Property for satisfaction of claims of any nature arising in connection with
the affairs of the Fund. If any Shareholder, Trustee, officer, employee or
agent, as such, of the Fund is made a party to any suit or proceeding to
enforce any such liability, he or she shall not, on account thereof, be held
to any personal liability. The Fund shall indemnify and hold each Shareholder
harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason of his or her being or having been a
Shareholder, other than by reason of his or her own wrongful act or omission,
and shall reimburse such Shareholder for all legal and other expenses
reasonably incurred by him or her in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 6.1 shall
not exclude any other right to which such Shareholder may be lawfully
entitled, nor shall anything herein contained restrict the right of the Fund
to indemnify or reimburse a Shareholder in any appropriate situation even
though not specifically provided herein.
Section 6.2. No Trustee, officer, employee or agent of the Fund shall be
liable to the Fund, its Shareholders, or to any Shareholder, Trustee, officer,
employee, or agent thereof for any action or failure to act
Part C-2
<PAGE>
(including without limitation the failure to compel in any way any former or
acting Trustee to redress any breach of trust) except for his or her own bad
faith, willful misfeasance, gross negligence or reckless disregard of his or
her duties.
Section 6.3. (a) The Trustee shall provide for indemnification by the Fund
of any person who is, or has been, a Trustee, officer, employee or agent of
the Fund against all liability and against all expenses reasonably incurred or
paid by him in connection with any claim, action, suit or proceeding in which
he becomes involved as a party or otherwise by virtue of his being or having
been a Trustee, officer, employee or agent and against amounts paid or
incurred by him in the settlement thereof, in such manner as the Trustees may
provide from time to time in the by-laws. (b) The words "claim," "action,"
"suit," or "proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals), actual or
threatened; and the words "liability" and "expenses" shall include, without
limitation, attorney's fees, costs, judgments, amounts paid in settlement,
fines, penalties and other liabilities.
Insofar as indemnification for liability arising under the Securities Act of
1933 ("1933 Act") may be permitted to trustees, officers and controlling
persons of the Fund, pursuant to the foregoing provisions, or otherwise, the
Fund has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
1933 Act and is, therefore, unenforceable. In the event that a claim for a
trustee, officer or controlling person of the Fund in the successful defense
of any action, suit or proceeding or payment pursuant to any insurance policy)
is asserted against the Fund by such trustee, officer or controlling person in
connection with the securities being registered, the Fund will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Conseco Capital Management, Inc. (the "Manager") is a Delaware corporation
which offers investment advisory services. The Manager is a wholly-owned
subsidiary of Conseco, Inc., also a Delaware corporation, a publicly owned
financial services company. Both the Manager's and Conseco, Inc.'s offices are
located at 11825 N. Pennsylvania Street, Carmel, Indiana 46032.
Information as to the officers and directors of the Manager is included in
its current Form ADV filed with the SEC and is incorporated by reference
herein.
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS
The accounts, books and other documents of the Registrant required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and rules
promulgated thereunder will be maintained at the office of the Registrant's
custodian at 400 Bellevue Parkway, Wilmington, Delaware, 19809, and the
Registrant's dividend disbursing agent and registrar at 400 Bellevue Parkway,
Wilmington, Delaware, 19809, except that the Registrant's corporate records
(its declaration of trust, by-laws, and minutes of the meetings of its Board
of Trustees and shareholders) will be maintained at the offices of the
Registrant's investment manager and administrator at 11825 N. Pennsylvania
Street, Carmel, Indiana 46032.
ITEM 32. MANAGEMENT SERVICES
None
ITEM 33. UNDERTAKINGS
(1) The Registrant undertakes to suspend offering of its shares until it
amends its prospectus if (1) subsequent to the effective date of its
Registration Statement, the net asset value declines more than 10 percent from
its net asset value as of the effective date of the Registration Statement or
(2) the net asset value increases to an amount greater than its net proceeds
as stated in the prospectus.
(2) Inapplicable
Part C-3
<PAGE>
(3) Inapplicable
(4) Inapplicable
(5) the undersigned registrant hereby undertakes that:
(a) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of a registration statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the Registrant pursuant to Rule
482(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of the registration statement as of the time it was declared
effective.
(b) For the purposes of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(6) Inapplicable
Part C-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON BEHALF OF THE UNDERSIGNED, THERETO DULY
AUTHORIZED, IN THE CITY OF CARMEL, AND STATE OF INDIANA ON THE 22ND DAY OF
JULY, 1998.
Conseco strategic Income Fund
By: /s/ Maxwell E. Bublitz
---------------------------------
MAXWELL E. BUBLITZ PRESIDENT AND
TRUSTEE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSON IN THE
CAPACITIES INDICATED ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Maxwell E. Bublitz President (Chief July 22, 1998
- ------------------------------------- Executive Officer)
MAXWELL E. BUBLITZ and Trustee
/s/ William P. Daves, Jr. Chairman of the July 22, 1998
- ------------------------------------- Board, Trustee
WILLIAM P. DAVES, JR.
/s/ Harold W. Hartley Trustee July 22, 1998
- -------------------------------------
HAROLD W. HARTLEY
/s/ Dr. R. Jan LeCroy Trustee July 22, 1998
- -------------------------------------
DR. R. JAN LECROY
/s/ Dr. Jesse H. Parrish Trustee July 22, 1998
- -------------------------------------
DR. JESSE H. PARRISH
/s/ James S. Adams Treasurer July 22, 1998
- -------------------------------------
JAMES S. ADAMS
</TABLE>
Part C-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION REFERENCE
- ------- -------------------- ---------
<S> <C> <C>
99.(a) (1) Declaration of Trust. (1)
(2) Amendment to Declaration of Trust (2)
(b) Bylaws (2)
(c) Inapplicable
(1) Form of Certificate Representing Shares of Beneficial
(d) Interest (2)
(2) Portions of Declaration of Trust Relating to
Shareholders' Rights--Incorporated by Reference to the
Declaration of Trust of Conseco Strategic Income Fund,
Articles VI,VII, VIII, IX and XII. (1)
(3) Portions of Bylaws Relating to Shareholders' Rights--
Incorporated by Reference to the By-laws of Conseco
Strategic Income Fund, Articles III,VII, VIII, and XII. (1)
Form of Terms and Conditions of Dividend Reinvestment
(e) Plan (2)
(f) Inapplicable
Form of Investment Management and Administration
(g) Agreement (2)
(h) (1) Form of Master Agreement Among Underwriters (2)
(2) Form of Underwriting Agreement (2)
(3) Form of Master Selected Dealers Agreement (2)
(i) Inapplicable
(j) Form of Custodian Contract (2)
(k) (1) Form of Transfer Agency Agreement (2)
(2) Form of Shareholder Servicing Agreement (2)
(3) Form of Accounting Services Agreement (2)
(l) Opinion and Consent of Counsel (2)
(m) Inapplicable
(n) Consent of Independent Auditors (2)
(o) Inapplicable
(p) Initial Capital Agreement (2)
(q) Inapplicable
(r) Inapplicable
</TABLE>
- --------
(1) Previously filed.
(2) Filed herewith.
<PAGE>
EXHIBIT 99.2(a)(2)
AMENDMENT TO THE DECLARATION OF TRUST
OF
CONSECO STRATEGIC INCOME FUND
THIS AMENDMENT TO DECLARATION OF TRUST of the Conseco Strategic Income Fund
(the "Trust") was authorized by the Sole Trustee of the Trust by written consent
on July 11, 1998.
WITNESSETH:
WHEREAS, the Sole Trustee established the Trust under the laws of the
Commonwealth of Massachusetts for the investment and reinvestment of funds
contributed thereto under a Declaration of Trust dated May 29, 1998 (the
"Original Declaration of Trust"); and
WHEREAS, the Trustees desire to make a permitted change to said Original
Declaration of Trust as hereinafter provided;
NOW, THEREFORE, BE IT RESOLVED THAT:
The first sentence of the Original Declaration of Trust is hereby
amended to delete the words "Conseco High Income Fund," and to insert
in lieu thereof the words "Conseco Strategic Income Fund"
IN WITNESS WHEREOF, the party hereto has executed and delivered this
Amendment to Declaration of Trust as of the date first written above.
/s/ Gregory J. Hahn
-------------------------------
Gregory J. Hahn
Vice President and Sole Trustee
<PAGE>
EXHIBIT 99.2(b)
BY-LAWS
OF
CONSECO STRATEGIC INCOME FUND
(A MASSACHUSETTS BUSINESS TRUST)
ADOPTED JUNE 2, 1998
ARTICLE I
DEFINITIONS
The terms "Commission", "Declaration", "Fund", "Investment Adviser", "Majority
Shareholder Vote", "1940 Act", "Shareholder", "Shares", "Transfer Agent", and
"Trustees" have the respective meanings given them in the Declaration of Trust
of the Conseco Strategic Income Fund (the "Fund") dated May 29, 1998, as amended
from time to time.
ARTICLE II
OFFICES
SECTION 2.1. PRINCIPAL OFFICE. Until changed by the Trustees, the principal
office of the Fund shall be 11815 North Pennsylvania Street, Carmel, Indiana
46032.
SECTION 2.2. OTHER OFFICES. In addition to its principal office, the Fund may
have an office or offices at such other places within and without the
Commonwealth of Massachusetts as the Trustees may from time to time designate or
the business of the Fund may require.
ARTICLE III
SHAREHOLDERS' MEETINGS
SECTION 3.1. PLACE OF MEETINGS. Meetings of Shareholders shall be held at such
place, within or without the Commonwealth of Massachusetts, as may be designated
from time to time by the Trustees.
SECTION 3.2. ANNUAL MEETINGS. Meetings of Shareholders, at which the
Shareholders shall elect Trustees and transact such other business as may
properly come before the meeting, shall be held annually so long as such annual
meetings shall be required by the New York Stock Exchange or the other exchange
or trading system on which Shares are principally traded.
SECTION 3.3. SPECIAL MEETINGS. Special meetings of Shareholders of the Fund
shall be held whenever called by the Board of Trustees or the Chairman of the
Fund. Special meetings of Shareholders shall also be called by the Secretary to
the extent required by, and in the manner provided in, the Declaration or upon
the written request of the holders of Shares entitled to vote not less than
thirty-five percent (35%) of all the votes entitled to be cast at such meeting.
Such request shall state the purpose or purposes of such meeting and the matters
proposed to be acted on thereat. When a meeting has been requested by
<PAGE>
Shareholders, the Secretary shall inform such Shareholders of the reasonable
estimated cost of preparing and mailing such notice of the meeting, and, upon
payment to the Fund of such costs, the Secretary shall give notice stating the
purpose or purposes of the meeting to all entitled to vote at such meeting. No
special meeting need be called upon the request of the holders of Shares
entitled to cast less than a majority of all votes entitled to be cast at such
meeting, to consider any matter which is substantially the same as a matter
voted upon at any special meeting of Shareholders held during the preceding
twelve months.
SECTION 3.4. NOTICE OF MEETINGS. Written or printed notice of every
Shareholders' meeting, stating the place, date, and purpose or purposes thereof,
shall be given by the Secretary not less than ten (10) nor more than ninety (90)
days before such meeting to each Shareholder entitled to vote at such meeting.
Such notice shall be deemed to be given when deposited in the United States
mail, postage prepaid, directed to the Shareholder at his address as it appears
on the records of the Fund.
SECTION 3.5. QUORUM AND ADJOURNMENT OF MEETINGS. Except as otherwise provided
by law, by the Declaration or by these By-Laws, at all meetings of Shareholders
the holders of a majority of the Shares issued and outstanding and entitled to
vote thereat, present in person or represented by proxy, shall be requisite and
shall constitute a quorum for the transaction of business. In the absence of a
quorum, the Shareholders present or represented by proxy and entitled to vote
thereat shall have power to adjourn the meeting from time to time. Any
adjourned meeting may be held as adjourned without further notice. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted as if the meeting had been held as originally called.
SECTION 3.6. VOTING RIGHTS PROXIES. At each meeting of Shareholders, each
holder of record of Shares entitled to vote thereat shall be entitled to one
vote in person or by proxy, executed in writing by the Shareholder or his duly
authorized attorney-in-fact, for each Share of beneficial interest in the Fund
and for the fractional portion of one vote for each fractional Share entitled to
vote so registered in his name on the records of the Fund on the date fixed as
the record date for the determination of Shareholders entitled to vote at such
meeting. No proxy shall be valid after eleven months from its date, unless
otherwise provided in the proxy. At all meetings of Shareholders, unless the
voting is conducted by inspectors, all questions relating to the qualification
of voters and the validity of proxies and the acceptance or rejection of votes
shall be decided by the chairman of the meeting. Pursuant to a resolution of a
majority of the Trustees, proxies may be solicited in the name of one or more
Trustees or officers of the Fund.
SECTION 3.7. VOTE REQUIRED. Except as otherwise provided by law, by the
Declaration, or by these By-Laws, at each meeting of Shareholders at which a
quorum is present, all matters shall be decided by Majority Shareholder Vote.
SECTION 3.8. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at the
meeting or any adjournment thereof. If Inspectors of Election are not so
appointed, the chairman of any meeting of Shareholders may, and on the request
of any Shareholder or his proxy shall, appoint Inspectors of Election of the
meeting. In case any person appointed as Inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Trustees in
advance of the convening of the meeting or at the meeting by the person acting
as Chairman. The Inspectors of Election shall determine the number of
2
<PAGE>
Shares outstanding, the Shares represented at the meeting, the existence of a
quorum, the authenticity, validity and effect of proxies, shall receive votes,
ballots or consents, shall hear and determine all challenges and questions in
any way arising in connection with the right to vote, shall count and tabulate
all votes or consents, determine the results, and do such other acts as may be
proper to conduct the election or vote with fairness to all Shareholders. On
request of the chairman of the meeting, or of any Shareholder or his proxy, the
Inspectors of Election shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of any
facts found by them.
SECTION 3.9. INSPECTION OF BOOKS AND RECORDS. Shareholders shall have such
rights and procedures of inspection of the books and records of the Fund as are
granted to Shareholders under the Corporations and Associations Law of the
Commonwealth of Massachusetts.
SECTION 3.10. ACTION BY SHAREHOLDERS WITHOUT MEETING. Except as otherwise
provided by law, the provisions of these By-Laws relating to notices and
meetings to the contrary notwithstanding, any action required or permitted to be
taken at any meeting of Shareholders may be taken without a meeting if a
majority of the Shareholders entitled to vote upon the action consent to the
action in writing and such consents are filed with the records of the Fund.
Such consent shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ARTICLE IV
TRUSTEES
SECTION 4.1. MEETINGS OF THE TRUSTEES. The Trustees may in their discretion
provide for regular or special meetings of the Trustees. Regular meetings of
the Trustees may be held at such time and place as shall be determined from time
to time by the Trustees without further notice. Special meetings of the
Trustees may be called at any time by the Chairman and shall be called by the
Chairman or the Secretary upon the written request of any two (2) Trustees.
SECTION 4.2. NOTICE OF SPECIAL MEETINGS. Written notice of special meetings of
the Trustees, stating the place, date and time thereof, shall be given not less
than two (2) days before such meeting to each Trustee, personally, by telegram,
by mail, or by leaving such notice at his place of residence or usual place of
business. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Trustee at his address
as it appears on the records of the Fund. Subject to the provisions of the 1940
Act, notice or waiver of notice need not specify the purpose of any special
meeting.
SECTION 4.3. TELEPHONE MEETINGS. Except as may otherwise be required by law,
any Trustee, or any member or members of any committee designated by the
Trustees, may participate in a meeting of the Trustees, or any such committee,
as the case may be, by means of a conference telephone or similar communications
equipment if all persons participating in the meeting can hear each other at the
same time. Participation in a meeting by these means constitutes presence in
person at the meeting.
SECTION 4.4. QUORUM, VOTING AND ADJOURNMENT OF MEETINGS. At all meetings of
the Trustees, a majority of the Trustees shall be requisite to and shall
constitute a quorum for the transaction of business. If a quorum is present,
the affirmative vote of a majority of the Trustees
3
<PAGE>
present shall be the act of the Trustees, unless the concurrence of a greater
proportion is expressly required for such action by law, the Declaration or
these By-Laws. If at any meeting of the Trustees there be less than a quorum
present, the Trustees present thereat may adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a quorum shall have
been obtained.
SECTION 4.5. ACTION BY TRUSTEES WITHOUT MEETING. The provisions of these By-
Laws covering notices and meetings to the contrary notwithstanding, and except
as required by law, any action required or permitted to be taken at any meeting
of the Trustees may be taken without a meeting if a consent in writing setting
forth the action shall be signed by a majority of the Trustees entitled to vote
upon the action and such written consent is filed with the minutes of
proceedings of the Trustees.
SECTION 4.6. EXPENSES AND FEES. Each Trustee may be allowed expenses, if any,
for attendance at each regular or special meeting of the Trustees, and each
Trustee who is not an officer or employee of the Fund or of its investment
manager or underwriter or of any corporate affiliate of any of said persons
shall receive for services rendered as a Trustee of the Fund such compensation
as may be fixed by the Trustees. Nothing herein contained shall be construed to
preclude any Trustee from serving the Fund in any other capacity and receiving
compensation therefor.
SECTION 4.7. EXECUTION OF INSTRUMENTS AND DOCUMENTS AND SIGNING OF CHECKS AND
OTHER OBLIGATIONS AND TRANSFERS. All instruments, documents and other papers
shall be executed in the name and on behalf of the Fund and all checks, notes,
drafts and other obligations for the payment of money by the Fund shall be
signed, and all transfer of securities standing in the name of the Fund shall be
executed, by the President, any Vice President or the Treasurer or by any one or
more officers or agents of the Fund as shall be designated for that purpose by
vote of the Trustees.
SECTION 4.8. INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AND AGENTS. (a)
As used in these By-Laws, the following terms shall have the meanings set forth
below:
(i) the term "indemnitee" shall mean any present or former Trustee,
officer or employee of the Fund, any present or former Trustee,
partner, Director or officer of another trust, partnership,
corporation or association whose securities are or were owned by
the Fund or of which the Fund is or was a creditor and who served
or serves in such capacity at the request of the Fund, and the
heirs, executors, administrators, successors and assigns of any
of the foregoing; however, whenever conduct by an indemnitee is
referred to, the conduct shall be that of the original indemnitee
rather than that of the heir, executor, administrator, successor
or assignee;
(ii) the term "covered proceeding" shall mean any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, to which an indemnitee is or was
a party or is threatened to be made a party by reason of the fact
or facts under which he or it is an indemnitee as defined above;
4
<PAGE>
(iii) the term "disabling conduct" shall mean willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of the office in question;
(iv) the term "covered expenses" shall mean expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by an indemnitee in connection
with a covered proceeding; and
(v) the term "adjudication of inability" shall mean, as to any
covered proceeding and as to any indemnitee, an adverse
determination as to the indemnitee whether by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent.
(b) The Fund shall not indemnify any indemnitee for any covered expenses
in any covered proceeding if there has been an adjudication of
liability against such indemnitee expressly based on a finding of a
disabling conduct.
(c) Except as set forth in paragraph (b) above, the Fund shall indemnify
any indemnitee for covered expenses in any covered proceeding, whether
or not there is an adjudication of liability as to such indemnitee,
such indemnification by the Fund to be to the fullest extent now or
hereafter permitted by any applicable law unless the By-Laws limit or
restrict the indemnification to which any indemnitee may be entitled.
The Board of Trustees may adopt By-Law provisions to implement
paragraphs (a), (b) and (c) hereof.
(d) Nothing herein shall be deemed to affect the right of the Fund and/or
any indemnitee to acquire and pay for any insurance covering any or
all indemnities to the extent permitted by applicable law or to affect
any other indemnification rights to which any indemnitee may be
entitled to the extent permitted by applicable law. Such rights to
indemnification shall not, except as otherwise provided by law, be
deemed exclusive of any other rights to which such indemnitee may be
entitled under any statute, By-Law, contract or otherwise.
(e) In case any Shareholder or former Shareholder shall be held to be
personally liable solely by reason of his being or having been a
Shareholder and not because of his acts or omissions or for some other
reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or, in the
case of a corporation or other entity, its corporate or other general
successor) shall be entitled out of the Fund estate to be held
harmless from and indemnified against all loss and expense arising
from such liability. The Fund shall, upon request by the Shareholder,
assume the defense of any such claim made against any Shareholder for
any act or obligation of the Fund and satisfy any judgment thereon.
ARTICLE V
COMMITTEES
5
<PAGE>
SECTION 5.1. EXECUTIVE AND OTHER COMMITTEES. The Trustees, by resolution
adopted by a majority of the Trustees, may designate an Executive Committee
and/or other committees, each committee to consist of one (1) or more of the
Trustees of the Fund and may delegate to such committees, in the intervals
between meetings of the Trustees, any or all of the powers of the Trustees in
the management of the business and affairs of the Fund. In the absence of any
member of any such committee, the member(s) thereof present at any meeting,
whether or not they constitute a quorum, may appoint a Trustee to act in place
of such absent member. Each such committee shall keep a record of its
proceedings.
The Executive Committee and any other committee shall fix its own rules or
procedures, but the presence of at least fifty percent (50%) of the members of
the whole committee shall in each case be necessary to constitute a quorum of
the committee and the affirmative vote of the majority of the members of the
committee present at the meeting shall be necessary to take action.
All actions of the Executive Committee shall be reported to the Trustees at the
meeting thereof next succeeding to the taking of such action.
SECTION 5.2. ADVISORY COMMITTEE. The Trustees may appoint an advisory
committee which shall be composed of persons who do not serve the Fund in any
other capacity and which shall have advisory functions with respect to the
investments of the Fund but which shall have no power to determine that any
security or other investment shall be purchased, sold or otherwise disposed of
by the Fund. The number of persons constituting any such advisory committee
shall be determined from time to time by the Trustees. The members of any such
advisory committee may receive compensation for their services and may be
allowed such fees and expenses for the attendance at meetings as the Trustees
may from time to time determine to be appropriate.
SECTION 5.3. COMMITTEE ACTION WITHOUT MEETING. The provisions of these By-Laws
covering notices and meetings to the contrary notwithstanding, and except as
required by law, any action required or permitted to be taken at any meeting of
any committee of the Trustees appointed pursuant to Section 5.1 of these By-Laws
may be taken without a meeting if a consent in writing setting forth the action
shall be signed by a majority of the members of the committee entitled to vote
upon the action and such written consent is filed with the records of the
proceedings of the committee.
ARTICLE VI
OFFICERS
SECTION 6.1. EXECUTIVE OFFICERS. The executive officers of the Fund shall be a
Chairman, a President, one or more Vice Presidents, a Secretary and a Treasurer.
The Chairman shall be selected from among the Trustees but none of the other
executive officers need be a Trustee. Two or more offices, except those of
President and any Vice President, may be held by the same person, but no officer
shall execute, acknowledge or verify any instrument in more than one capacity.
The executive officers of the Fund shall be elected annually by the Trustees and
each executive officer so elected shall hold office until his successor is
elected and has qualified.
6
<PAGE>
SECTION 6.2. OTHER OFFICERS AND AGENTS. The Trustees may also elect one or
more Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers
and may elect, or may delegate to the President the power to appoint, such other
officers and agents as the Trustees shall at any time or from time to time deem
advisable.
SECTION 6.3. TERM, REMOVAL AND VACANCIES. Each officer of the Fund shall hold
office until his successor is elected and has qualified. Any officer or agent
of the Fund may be removed by the Trustees whenever, in their judgment, the best
interests of the Fund will be served thereby, but such removal shall be without
prejudice to the contractual rights, if any, of the person so removed.
SECTION 6.4. COMPENSATION OF OFFICERS. The compensation of officers and agents
of the Fund shall be fixed by the Trustees, or by the President to the extent
provided by the Trustees with respect to officers appointed by the President.
SECTION 6.5. POWER AND DUTIES. All officers and agents of the Fund, as between
themselves and the Fund, shall have such authority and perform such duties in
the management of the Fund as may be provided in or pursuant to these By-Laws,
or to the extent not so provided, as may be prescribed by the Trustees;
provided, that no rights of any third party shall be affected or impaired by any
such By-Law or resolution of the Trustees unless he has knowledge thereof.
SECTION 6.6. THE CHAIRMAN. The Chairman shall preside at all meetings of the
Shareholders and of the Trustees, and he shall perform such other duties as the
Trustees may from time to time prescribe.
SECTION 6.7. THE PRESIDENT. The President shall be the chief executive officer
of the Fund; he shall have general and active management of the business of the
Fund, shall see that all orders and resolutions of the Trustees are carried into
effect, and, in connection therewith, shall be authorized to delegate to one or
more Vice Presidents such of his powers and duties at such times and in such
manner as he may deem advisable.
SECTION 6.8. THE VICE PRESIDENTS. The Vice Presidents shall be of such number
and shall have such titles as may be determined from time to time by the
Trustees. The Vice President, or, if there be more than one, the Vice
Presidents in the order of their seniority as may be determined from time to
time by the Trustees or the President, shall, in the absence or disability of
the President, exercise the powers and perform the duties of the President, and
he or they shall perform such other duties as the Trustees or the President may
from time to time prescribe.
SECTION 6.9. THE ASSISTANT VICE PRESIDENTS. The Assistant Vice President, or,
if there be more than one, the Assistant Vice Presidents, shall perform such
duties and have such powers as may be assigned them from time to time by the
Trustees or the President.
SECTION 6.10. THE SECRETARY. The Secretary shall attend all meetings of the
Trustees and all meetings of the Shareholders and record all the proceedings of
the meetings of the Shareholders and of the Trustees in a book to be kept for
that purpose, and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
Shareholders and special meetings of the Trustees, and shall perform such other
duties and have such
7
<PAGE>
powers as the Trustees, or the President, may from time to time prescribe. He
shall keep in safe custody the seal of the Fund and affix or cause the same to
be affixed to any instrument requiring it, and, when so affixed, it shall be
attested by his signature or by the signature of an Assistant Secretary.
SECTION 6.11. THE ASSISTANT SECRETARIES. The Assistant Secretary, or, if there
be more than one, the Assistant Secretaries in the order determined by the
Trustees or the President, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such duties and have such other powers as the Trustees or the President may from
time to time prescribe.
SECTION 6.12. THE TREASURER. The Treasurer shall be the chief financial
officer of the Fund. He shall keep or cause to be kept full and accurate
accounts of receipts and disbursements in books belonging to the Fund, and he
shall render to the Trustees and the President, whenever any of them require it,
an account of his transactions as Treasurer and of the financial condition of
the Fund; and he shall perform such other duties as the Trustees, or the
President, may from time to time prescribe.
SECTION 6.13. THE ASSISTANT TREASURERS. The Assistant Treasurer, or, if there
shall be more than one, the Assistant Treasurers in the order determined by the
Trustees or the President, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Trustees, or the President,
may from time to time prescribe.
SECTION 6.14. DELEGATION OF DUTIES. Whenever an officer is absent or disabled,
or whenever for any reason the Trustees may deem it desirable, the Trustees may
delegate the powers and duties of an officer or officers to any other officer or
officers or to any Trustee or Trustees.
ARTICLE VII
DIVIDENDS AND DISTRIBUTIONS
Subject to any applicable provisions of law and the Declaration, dividends and
distributions upon the Shares may be declared at such intervals as the Trustees
may determine, in cash, in securities or other property, or in Shares, from any
sources permitted by law, all as the Trustees shall from time to time determine.
Inasmuch as the computation of net income and net profits from the sale of
securities or other properties for federal income tax purposes may vary from the
computation thereof on the records of the Fund, the Trustees shall have power,
in their discretion, to distribute as income dividends and as capital gain
distributions, respectively, amounts sufficient to enable the Fund to avoid or
reduce liability for federal income taxes.
ARTICLE VIII
CERTIFICATES OF SHARES
8
<PAGE>
SECTION 8.1. CERTIFICATES OF SHARES. Certificates of Shares of the Fund shall
be in such form and of such design as the Trustees shall approve, subject to the
right of the Trustees to change such form and design at any time or from time to
time, and shall be entered in the records of the Fund as they are issued. Each
such certificate shall bear a distinguishing number; shall exhibit the holder's
name and certify the number of full Shares owned by such holder; shall be signed
by or in the name of the Fund by the President, or a Vice President, and
countersigned by the Secretary or an Assistant Secretary or the Treasurer and an
Assistant Treasurer of the Fund; shall be sealed with the seal; and shall
contain such recitals as may be required by law. Where any certificate is
signed by a Transfer Agent or by a Registrar, the signature of such officers and
the seal may be facsimile, printed or engraved. The Fund may, at its option,
determine not to issue a certificate or certificates to evidence Shares owned of
record by any Shareholder.
In case any officer or officers who shall have signed, or whose facsimile
signature or signatures shall appear on, any such certificate or certificates
shall cease to be such officer or officers of the Fund, whether because of
death, resignation or otherwise, before such certificate or certificates shall
have been delivered by the Fund, such certificate or certificates shall,
nevertheless, be adopted by the Fund and be issued and delivered as though the
person or persons who signed such certificate or certificates or whose facsimile
signature or signatures shall appear therein had not ceased to be such officer
or officers of the Fund.
No certificate shall be issued for any Share until such Share is fully paid.
SECTION 8.2. TRANSFER OF SHARES. Shares shall be transferable on the books of
the Fund by the holder thereof in person or by his duly authorized attorney or
legal representative, upon surrender and cancellation of certificates, if any,
for the same number of Shares, duly endorsed or accompanied by proper
instruments of assignment and transfer, with such proof of the authenticity of
the signature as the Fund or its agent may reasonably require; in the case of
Shares not represented by certificates, the same or similar requirements may be
imposed by the Board of Trustees.
SECTION 8.3. SHARE LEDGERS. The share ledgers of the Fund, containing the
names and addresses of the Shareholders of the Fund and the number of Shares
held by them respectively, shall be kept at the principal offices of the Fund
or, if the Fund employs a transfer agent, at the offices of the Transfer Agent
of the Fund.
SECTION 8.4. LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. The Trustees
may direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Fund alleged to have been
lost, stolen or destroyed, upon satisfactory proof of such loss, theft, or
destruction; and the Trustees may, in their discretion, require the owner of the
lost, stolen or destroyed certificate, or his legal representative, to give to
the Fund and to such Registrar, Transfer Agent and/or Transfer Clerk as may be
authorized or required to countersign such new certificate or certificates, a
bond in such sum and of such type as they may direct, and with such surety or
sureties, as they may direct, as indemnity against any claim that may be against
them or any of them on account of or in connection with the alleged loss, theft
or destruction of any such certificate.
ARTICLE IX
9
<PAGE>
WAIVER OF NOTICE
Whenever any notice of the time, place or purpose of any meeting of
Shareholders, Trustees, or of any committee is required to be given in
accordance with law or under the provisions of the Declaration or these By-Laws,
a waiver thereof in writing, signed by the person or persons entitled to such
notice and filed with the records of the meeting, whether before or after the
holding thereof, or actual attendance at the meeting of Shareholders, Trustees
or committee, as the case may be, in person, shall be deemed equivalent to the
giving of such notice to such person.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. LOCATION OF BOOKS AND RECORDS. The books and records of the Fund
may be kept outside the Commonwealth of Massachusetts at such place or places as
the Trustees may from time to time determine, except as otherwise required by
law.
SECTION 10.2. RECORD DATE. The Trustees may fix in advance a date as the
record date for the purpose of determining Shareholders entitled to notice of,
or to vote at, any meeting of Shareholders, or Shareholders entitled to receive
payment of any dividend or the allotment of any rights, or in order to make a
determination of Shareholders for any other proper purpose. Such date, in any
case, shall be not more than ninety (90) days, and in case of a meeting of
Shareholders not less than ten (10) days, prior to the date on which particular
action requiring such determination of Shareholders is to be taken. In lieu of
fixing a record date, the Trustees may provide that the transfer books shall be
closed for a stated period but not to exceed, in any case, twenty (20) days. If
the transfer books are closed for the purpose of determining Shareholders
entitled to notice of a vote at a meeting of Shareholders, such books shall be
closed for at least ten (10) days immediately preceding such meeting.
SECTION 10.3. SEAL. The Trustees shall adopt a seal, which shall be in such
form and shall have such inscription thereon as the Trustees may from time to
time provide. The seal of the Fund may be affixed to any document, and the seal
and its attestation may be lithographed, engraved or otherwise printed on any
document with the same force and effect as if it had been imprinted and attested
manually in the same manner and with the same effect as if done by a
Massachusetts business trust under Massachusetts law.
SECTION 10.4. FISCAL YEAR. The fiscal year of the Fund shall end on such date
as the Trustees may by resolution specify, and the Trustees may by resolution
change such date for future fiscal years at any time and from time to time.
SECTION 10.5. ORDERS FOR PAYMENT OF MONEY. All orders or instructions for the
payment of money of the Fund, and all notes or other evidences of indebtedness
issued in the name of the Fund, shall be signed by such officer or officers or
such other person or persons as the Trustees may from time to time designate, or
as may be specified in or pursuant to the agreement between the Fund and the
bank or trust company appointed as Custodian of the securities and funds of the
Fund.
ARTICLE XI
10
<PAGE>
COMPLIANCE WITH FEDERAL REGULATIONS
The Trustees are hereby empowered to take such action as they may deem to be
necessary, desirable or appropriate so that the Fund is or shall be in
compliance with any federal or state statute, rule or regulation with which
compliance by the Fund is required.
ARTICLE XII
AMENDMENTS
These By-Laws may be amended, altered, or repealed, or new By-Laws may be
adopted, (a) by a Majority Shareholder Vote, or (b) by the Trustees; provided,
however, that no By-Law may be amended, adopted or repealed by the Trustees if
such amendment, adoption or repeal requires, pursuant to law, the Declaration,
or these By-Laws, a vote of the Shareholders. The Trustees shall in no event
adopt By-Laws which are in conflict with the Declaration, and any apparent
inconsistency shall be construed in favor of the related provisions in the
Declaration.
ARTICLE XIII
DECLARATION OF TRUST
The Declaration establishing the Fund, dated May 29, 1998, a copy of which is on
file in the office of the Secretary of State of the Commonwealth of
Massachusetts, provides that the name the Conseco Strategic Income Fund refers
to the Trustees under the Declaration of Trust collectively as Trustees, but not
as individuals or personally; and no Trustee, Shareholder, officer, employee or
agent of the Fund shall be held to any personal liability, nor shall resort be
had to their private property for the satisfaction of any obligation or claim or
otherwise, in connection with the affairs of said Fund, but the Fund Estate only
shall be liable.
11
<PAGE>
EXHIBIT 99.2(d)(1)
<TABLE>
<CAPTION>
TEMPORARY CERTIFICATE--EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE WHEN READY FOR DELIVERY
<S> <C>
SHARES OF
BENEFICIAL INTEREST THIS CERTIFICATE
IS TRANSFERABLE
PAR VALUE IN PHILADELPHIA, PA
$.001 PER SHARE AND NEW YORK CITY
CONSECO STRATEGIC INCOME FUND SHARES
A BUSINESS TRUST ORGANIZED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS ________________
| |
|________________|
CUSIP 20847A102
____________________________________________________________________________________________________________________________________
THIS CERTIFIES THAT
is the owner of
____________________________________________________________________________________________________________________________________
<CAPTION>
<S> <C>
FULLY PAID AND NON-ASSESSABLE SHARES OF BENEFICIAL INTEREST OF
CONSECO STRATEGIC INCOME FUND transferable only on the books of the Trust by the holder hereof
in person or by duly authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate and the shares represented hereby are issued and shall be subject to all of
the provisions of the Declaration of Trust and Bylaws of the Trust, each as from time to time
amended, copies of which are on file with the Transfer Agent, to all of which the holder by
acceptance hereof assents. This Certificate is not valid until countersigned and registered by
the Transfer Agent and Registrar.
Witness the facsimile seal of the Trust and the facsimile signatures of its duly authorized officers.
______________ Dated:
[ LOGO OF
CORPORATE SEAL
APPEARS HERE ]
______________ Treasurer President
PNC BANK, NATIONAL ASSOCIATION
------------------------------
COUNTERSIGNED AND RECEIVED
BY:
----------------------------
TRANSFER AGENT AND REGISTRAR
----------------------------
AUTHORIZED SIGNATURE
</TABLE>
<PAGE>
The Trust is authorized to issue one or more classes of shares. The
Trust will furnish to any shareholder on request and without charge a full
statement of the designation and any preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends, qualifications and
terms and conditions of redemption of the shares of each class which the Trust
is authorized to issue and, if the Trust is authorized to issue any preferred or
special class in a series, of the differences in the relative rights and
preferences between the shares of each series to the extent they have been set
and the authority of the Board of Trustees to set the relative rights and
preferences of subsequent series.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT Custodian
TENENT -- as tenants by the entireties ---------------------- ----------------------
JT TEN -- as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts to Minors
tenants in common Act
--------------------------------------------------
(State)
UNIF TRSFR MIN ACT Custodian
---------------------- ---------------------
under Uniform Transfers to Minors
Act
-------------------------------------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
---------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
| |
| |
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assignee
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares of Beneficial Interest
- ------------------------------------------------
represented by the within Certificate, and do hereby irrevocably constitute
and appoint
--------------------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Trust with
full power of substitution in the premises.
Date,
--------------------------------
----------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
<PAGE>
EXHIBIT 99.2(e)
FORM OF TERMS AND CONDITIONS OF THE CONSECO STRATEGIC INCOME FUND DIVIDEND
REINVESTMENT PLAN
All shareholders participating (the "Participants") in the Dividend
Reinvestment Plan (the "Plan") of the Conseco Strategic Income Fund (the
"Fund") will be bound by the following provisions:
PNC Bank, National Association (the "Agent") will act as Agent for each
Participant, and will open an account for each Participant under the Plan in the
same name as their present shares are registered, and put into effect for them
the dividend reinvestment option of the Plan as of the first record date for a
dividend or capital gains distribution.
Whenever the Fund declares an income dividend or capital gains distribution
payable in shares of the Fund or cash at the option of the shareholders, each
Participant that does not opt for cash distributions shall take such
distribution entirely in shares. If on the payment date for a dividend or
distribution, the net asset value is equal to or less than the market price per
share plus estimated brokerage commissions, the Agent shall automatically
receive such shares, including fractions, for each Participant's account except
in the circumstances described in the next paragraph. Except in such
circumstances, the number of additional shares to be credited to each
Participant's account shall be determined by dividing the dollar amount of the
income dividend or capital gains distribution payable on their shares by the
greater of the net asset value per share determined as of the date of purchase
or 95% of the then current market price per share of the Fund's shares on the
payment date.
Should the net asset value per share of the Fund's shares exceed the market
price per share plus estimated brokerage commissions on the payment date for a
share or cash income dividend or capital gains distribution, the Agent or a
broker-dealer selected by the Agent shall endeavor, for a purchase period
lasting until the last business day before the next date on which the Fund's
shares trade on an "ex-dividend" basis, last in no event, except as provided
below, more than 30 days following the payment date, to apply the amount of such
dividend or distribution on each Participant's shares (less their pro rata share
of brokerage commissions incurred with respect to the Agent's open-market
purchases in connection with the reinvestment of such dividend or distribution)
to the purchase of shares of the Fund on the open market for each Participant's
account. In no event may such purchases be made more than 30 days after the
payment date for such dividend except where temporary curtailment or suspension
of purchase is necessary to comply with applicable provisions of federal
securities laws. If, at the close of business on any day during the purchase
period the net asset value per share equals or is less than the market price per
share plus estimated brokerage commissions, the Agent will not make any further
open-market purchases in connection with the reinvestment of such dividend or
distribution. If the Agent is unable to invest the full dividend or distribution
amount through open-market purchases during the purchase period, the Agent shall
request that, with respect to the uninvested portion of such dividend or
distribution amount, the Fund issue new shares at the close of business on the
earlier of the last day of the purchase period or the first day during the
purchase period on which the net asset value per share equals or is less than
the market price per share, plus estimated brokerage commissions, such shares to
be issued in accordance with the terms specified in the third paragraph hereof.
These newly issued shares will be valued at the then-current market price per
share of the Fund's shares at the time such shares are to be issued.
For purposes of making the dividend reinvestment purchase comparison under the
Plan, (a) the market price of the Fund's shares on a particular date shall be
the last sales price on the New York Stock Exchange on that date, or, if there
is no sale on such Exchange on that date, then the mean between the closing bid
and asked quotations for such shares on such Exchange on such date and (b) the
net asset value per share of the Fund's shares on a particular date shall be the
net asset value per share most recently calculated by or on behalf of the Fund.
All dividends, distributions and other payments (whether in cash or in Fund
shares) shall be made net any applicable withholding tax.
Open-market purchases provided for above may be made on any securities
exchange where the Fund's shares are traded, in the over-the-counter market or
in negotiated transactions and may be on such terms as to price, delivery and
otherwise as the Agent shall determine. Each Participant's uninvested funds held
by the Agent will not bear interest, and it is understood that, in any event,
the Agent shall have no liability in connection with any inability to purchase
shares within the time period provided for in the first sentence of the fourth
paragraph hereof or with the timing of any purchases effected. The Agent shall
have no responsibility as to the value of the Fund's shares acquired for each
Participant's account. For the purpose of cash investments, the Agent may
commingle each Participant's funds with those of other shareholders of the Fund
for whom the Agent similarly acts as Agent, and the average price (including
brokerage commissions) of all shares purchased by the Agent as Agent shall be
the price per share allocable to each Participant in connection therewith.
The Agent may hold each Participant's shares acquired pursuant to the Plan
together with the shares of other shareholders of the Fund acquired pursuant to
the Plan in noncertificated form in the Agent's name or that of the Agent's
nominee. The Agent will forward to each Participant any proxy solicitation
material and will vote any shares so held for each Participant in accordance
with the instructions set forth on proxies
<PAGE>
returned by the participant to the Fund. Upon a Participant's written request,
the Agent will deliver to the Participant, without charge, a certificate or
certificates for the full shares.
The Agent will confirm to each Participant each acquisition made for their
account as soon as practicable but not later than 60 days after the date
thereof. Although each Participant may from time to time have an undivided
fractional interest (computed to three decimal places) in a share of the Fund,
no certificates for a fractional share will be issued. However, dividends and
distributions on fractional shares will be credited to each Participant's
account. In the event of termination of a Participant's account under the Plan,
the Agent will adjust for any such undivided fractional interest in cash at the
market value of the Fund's shares at the time of termination.
Any share dividends or split shares distributed by the Fund on shares held by
the Agent for Participants will be credited to their accounts. In the event
that the Fund makes available to its shareholders rights to purchase additional
shares of other securities, the shares held for each Participant under the Plan
will be added to other shares held by the Participant in calculating the number
of rights to be issued to each Participant.
The Agent's service fee for handling capital gains distributions or income
dividends will be paid by the Fund. Each Participant will be charged their pro
rata share of brokerage commissions on all open-market purchases.
Each Participant may terminate their account under the Plan by notifying the
Agent in writing. Such termination will be effective immediately if the
Participant's notice is received by the Agent not less than ten days prior to
any dividend or distribution record date, otherwise such termination will be
effective shortly after the investment of such dividend distribution with
respect to any subsequent dividend or distribution. The Plan may be terminated
by the Agent or the Fund upon notice in writing mailed to each Participant at
least 30 days prior to any record date for the payment of any dividend or
distribution by the Fund. Upon any termination, the Agent will cause a
certificate or certificates to be issued for the full shares held for each
Participant under the Plan and cash adjustment for any fraction to be delivered
to them without charge.
These terms and conditions may be amended or supplemented by the Agent or the
Fund at any time or times but, except when necessary or appropriate to comply
with applicable law or the rules or policies of the Securities and Exchange
Commission or any other regulatory authority, only by mailing to each
Participant appropriate written notice at least 30 days prior to the effective
date thereof. The amendment or supplement shall be deemed to be accepted by
each Participant unless, prior to the effective date thereof, the Agent receives
written notice of the termination of their account under the Plan. Any such
amendment may include an appointment by the Agent in its place and stead of a
successor Agent under these terms and conditions, with full power and authority
to perform all or any of the acts to be performed by the Agent under these terms
and conditions. Upon any such appointment of any Agent for the purpose of
receiving dividends and distributions, the Fund will be authorized to pay to
such successor Agent, for each Participant's account, all dividends and
distributions payable on shares of the Fund held in their name or under the Plan
for retention or application by such successor Agent as provided in these terms
and conditions.
The Agent shall at all times act in good faith and agree to use its best
efforts within reasonable limits to ensure the accuracy of all services
performed under this Agreement and to comply with applicable law, but assumes no
responsibility and shall not be liable for loss or damage due to errors unless
such error is caused by the Agent's gross negligence, bad faith, or willful
misconduct or that of its employees.
These terms and conditions shall be governed by the laws of the State of
Delaware.
<PAGE>
<TABLE>
<S> <C>
CONSECO STRATEGIC INCOME FUND This form is for shareholders who hold stock in their own names.
If your shares are held through a brokerage firm, bank or other
nominee, you may need to instruct your nominee to opt out on
your behalf.
-------------------------------------------------------------------
I hereby elect not to participate in the Plan as provided in the Terms and Conditions. I understand that I may elect to
participate in the Plan at any time.
- ---------------------------------------------------------------- -----------------------------------------------------------------
Print Name(s) (Last, First, M.I.) Stockholder signature
- ---------------------------------------------------------------- -----------------------------------------------------------------
Print Address Stockholder signature
- ---------------------------------------------------------------- -----------------------------------------------------------------
Date
Please sign exactly as your shares are registered. All persons
( ) whose names appear on the stock certificates must sign.
- ----------------------------------------------------------------
Print Telephone Number
YOU SHOULD RETURN THIS FORM IF YOU WISH TO RECEIVE CASH AND DO NOT WISH TO PARTICIPATE IN THE FUND'S DIVIDEND REINVESTMENT PLAN
</TABLE>
THIS IS NOT A PROXY
This form, when signed, should be mailed to:
Conseco Strategic Income Fund
c/o PNC Bank, N.A.
P.O. Box 8950
Wilmington, DE 19899
<PAGE>
CONSECO STRATEGIC INCOME FUND
ELECTION NOT TO PARTICIPATE IN REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
(Please read carefully before signing.)
I hereby elect not to participate in the Conseco Strategic Income Fund
Dividend Reinvestment Plan.
<PAGE>
EXHIBIT 99.2(g)
FORM OF
-------
INVESTMENT MANAGEMENT AND
-------------------------
ADMINISTRATION
---------------
AGREEMENT
---------
Between
CONSECO STRATEGIC INCOME FUND
and
CONSECO CAPITAL MANAGEMENT, INC.
THIS INVESTMENT MANAGEMENT AND ADMINISTRATION AGREEMENT is entered into as
of this ______ day of July, 1998, by and between Conseco Strategic Income Fund
(the "Fund"), a Massachusetts business trust, and Conseco Capital Management,
Inc. ("CCM"), an Indiana corporation (the "Parties").
WITNESSETH:
----------
WHEREAS, the Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as a closed-end management investment company; and
WHEREAS, CCM is registered as an investment adviser under the Investment
Advisers Act of 1940; and
WHEREAS, the Fund desires to retain CCM to render investment advice,
furnish portfolio management services, and provide administrative services to
the Fund, and CCM is willing to provide said services pursuant to the terms and
conditions set forth herein, directly or through other entities;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the Parties mutually agree as follows:
1. Employment; Duties of CCM. (a) The Fund hereby employs CCM as
-------------------------
investment manager and administrator of the Fund. CCM hereby accepts such
employment and agrees to provide the services set forth herein in return for the
compensation under Paragraph 7.
(b) Subject to the supervision and direction of the Fund's Board of
Trustees (the "Trustees"), CCM shall provide a continuous investment program for
the Fund and shall, as part of its duties hereunder, (i) furnish investment
research and management with respect to the investment of the assets of the
Fund; (ii) determine from time to time securities or other investments to be
purchased, sold, retained or lent by the Fund; and (iii) maintain all books and
records with respect to portfolio transactions of the Fund.
(c) Subject to the supervision and direction of the Trustees, CCM
shall supervise the Fund's business and affairs and shall provide the services
required for the effective
<PAGE>
administration of the Fund to the extent not otherwise provided by employees,
agents or contractors of the Fund. These services shall include:
(i) furnishing, without cost to the Fund, such office space,
equipment, facilities and personnel as needed in connection with the Fund's
operations; (ii) supervising the preparation and filing of all documents
required for compliance by the Fund with the federal and state securities laws;
(iii) monitoring and reporting on compliance by the Fund with its investment
policies and restrictions; (iv) furnishing clerical and bookkeeping services as
needed by the Fund in connection with its operation (including establishing
appropriate expense accruals, maintaining expense files and coordinating payment
of invoices); (v) maintaining such books and records required by the 1940 Act
not otherwise required to be maintained by another agent of the Fund; (vi)
assisting in the preparation and distribution of annual and other reports to
shareholders of the Fund; (vii) supervising the preparation and filing of any
federal, state and local income tax returns; (viii) preparing for meetings of
the Trustees and shareholders; (ix) permitting its directors, officers and
employees to serve, without compensation from the Fund, as Trustees or officers
of the Fund; (x) overseeing the determination and publication of the Fund's net
asset value per share in accordance with the Fund's policies, and (xi)
overseeing relations with, and the performance of, agents engaged by the Fund,
such as its transfer agent, accounting services agent, custodian, independent
accountants and legal counsel. Nothing contained herein shall be deemed to
relieve or deprive the Trustees of their responsibility for and control of the
conduct of the affairs of the Fund.
(d) CCM will place orders for the Fund either directly with the
issuer or with any broker or dealer. In placing orders with brokers and
dealers, CCM will attempt to obtain the best net results in terms of price and
execution. Consistent with this obligation, CCM may, in its discretion,
purchase and sell portfolio securities to and from brokers and dealers that
provide brokerage and research services. CCM may pay such brokers and dealers a
higher commission than may be charged by other brokers and dealers if CCM
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided. This determination may
be viewed in terms either of the particular transaction or of the overall
responsibility of CCM to the Fund and its other clients.
(e) The administrative services provided hereunder will exclude (i)
portfolio custodial services provided by the Fund's custodian; (ii) transfer
agency services provided by the Fund's transfer agent, and (iii) accounting
services provided by the Fund's accounting services agent.
(f) CCM shall carry out its duties under this Agreement in accordance
with the Fund's stated investment objectives, policies, and restrictions, the
1940 Act and other applicable laws and regulations, and such other guidelines as
the Trustees may reasonably establish from time to time.
2. Delegation of Certain Administrative Duties. CCM may delegate to
-------------------------------------------
Conseco Services LLC, a limited liability company organized under the laws of
the State of Indiana, or to another sub-administrator agreeable to the Fund, the
performance of any or all of those duties set forth in Subparagraph 1.(c)
herein. CCM shall be responsible to the Fund for the acts and omissions of any
sub-administrator to the same extent as it is for its own acts and omissions.
-2-
<PAGE>
CCM shall compensate any sub-administrator retained pursuant to this Agreement
out of the fees it receives pursuant to Paragraph 7 below.
3. Independent Contractor Status; Services Not Exclusive. CCM shall, for
-----------------------------------------------------
all purposes herein, be deemed to be an independent contractor. The services to
be rendered by CCM pursuant to the provisions of this Agreement are not to be
deemed exclusive and CCM shall therefore be free to render similar or different
services to others, provided that, its ability to render the services described
herein shall not be impaired thereby.
4. Furnishing of Information. (a) The Fund shall from time to time
-------------------------
furnish or make available to CCM detailed statements of the investments and
assets of the Fund, information pertaining to the investment objectives and
needs of the Fund, financial reports, proxy statements, and such legal or other
information as CCM may reasonably request in connection with the performance of
its obligations hereunder.
(b) CCM will furnish the Trustees with such periodic and special
reports (including data on securities, economic conditions and other pertinent
subjects) as the Trustees may reasonably request.
5. Fund Records. In compliance with the requirements of Rule 31a-3
------------
under the 1940 Act, CCM agrees that all records which it maintains for the Fund
shall be the property of the Fund and shall be surrendered promptly to the Fund
upon request. CCM further agrees to preserve all such records for the periods
prescribed by Rule 31a-2 under the 1940 Act. CCM agrees that it will maintain
all records and accounts regarding the investment activities of the Fund in a
confidential manner. All such accounts or records shall be made available within
five (5) business days of request to the accountants or auditors of the Fund
during regular business hours at CCM's offices. In addition, CCM will provide
any materials reasonably related to the investment advisory services provided
hereunder as may be reasonably requested in writing by the designated officers
of the Fund or as may be required by any duly constituted authority.
6. Allocation of Costs and Expenses. (a) CCM shall pay the costs of
--------------------------------
rendering its services pursuant to the terms of this Agreement, other than the
costs of securities (including brokerage commissions, if any) purchased by the
Fund.
(b) The Fund shall bear all expenses of its operation not specifically
assumed by CCM. Expenses borne by the Fund shall include, but are not limited
to, (i) organizational and offering expenses of the Fund and expenses incurred
in connection with the issuance of shares of the Fund; (ii) fees of the Fund's
custodian, transfer agent and accounting services agent; (iii) costs and
expenses of pricing and calculating the net asset value per share for the Fund
and of maintaining the books and records required by the 1940 Act; (iv)
expenditures in connection with meetings of shareholders and Trustees, other
than those called solely to accommodate CCM; (v) compensation and expenses of
Trustees who are not interested persons of the Fund or CCM ("Disinterested
Trustees"); (vi) the costs of any liability, uncollectible items of deposit and
other insurance or fidelity bond; (vii) the cost of preparing, printing, and
distributing prospectuses and statements of additional information, any
supplements thereto, proxy statements, and reports for existing shareholders;
(viii) legal, auditing, and accounting fees; (ix) trade association dues; (x)
filing fees and expenses of registering and maintaining registration of shares
of the Fund under
-3-
<PAGE>
applicable federal and state securities laws; (xi) brokerage commissions; (xii)
taxes and governmental fees; and (xiii) extraordinary and non-recurring
expenses.
(c) To the extent CCM incurs any costs which are an obligation of the
Fund as set forth herein and to the extent such costs have been reasonably
rendered, the Fund shall promptly reimburse CCM for such costs.
7. Investment Management and Administration Fees. (a) As compensation for
---------------------------------------------
the advice and services rendered and the expenses assumed by CCM pursuant
hereto, the Fund shall pay to CCM a monthly fee at the annual rate of 0.90% of
the Fund's average weekly value of the total assets of the Fund minus the sum of
accrued liabilities (other than the aggregate indebtedness constituting
financial leverage).
(b) The investment advisory fee shall be accrued weekly by the Fund and
paid to CCM at the end of each calendar month.
(c) In case this Agreement becomes effective or terminates before the
end of any month, the investment advisory fee for that month shall be calculated
on the basis of the number of business days during which it is in effect for
that month.
8. Compliance with Applicable Law. Nothing contained herein shall be
------------------------------
deemed to require the Fund to take any action contrary to (a) the Declaration of
Trust of the Fund, (b) the By-laws of the Fund, or (c) any applicable statute or
regulation. Nothing contained herein shall be deemed to relieve or deprive the
Trustees of their responsibility for and control of the conduct of the affairs
of the Fund.
9. Liability. (a) In the absence of willful misfeasance, bad faith or
---------
gross negligence on the part of CCM, or reckless disregard by CCM of its
obligations or duties hereunder, CCM shall not be subject to liability to the
Fund or its shareholders for any act or omission in the course of or in
connection with rendering services hereunder or for any losses that may be
sustained in the purchase, holding or sale of any security.
(b) No provision of this Agreement shall be construed to protect any
Trustee or officer of the Fund, or any director or officer of CCM, from
liability to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence on the part of such person, or
reckless disregard by such person of obligations or duties hereunder.
(c) A copy of the Fund's Declaration of Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this Agreement is executed on behalf of the Trustees as Trustees and not
individually. CCM acknowledges and agrees that the obligations of the Fund
hereunder are not personally binding upon any of the Trustees or shareholders of
the Fund but are binding only upon property of the Fund.
10. Term of Agreement. This Agreement shall become effective on the
-----------------
date above written and shall continue in effect for two years from such date
unless sooner terminated as hereinafter provided. Thereafter, this Agreement
shall continue in effect from year to year so long as such continuation is
approved at least annually by (i) the Trustees or by the vote of a majority of
the outstanding voting securities of the Fund, and (ii) the vote of a majority
of the
-4-
<PAGE>
Disinterested Trustees, with such vote being cast in person at a meeting called
for the purpose of voting on such approval.
11. Termination. This Agreement may be terminated at any time without
-----------
payment of any penalty (a) by the Trustees or by vote of a majority of the
outstanding voting securities of the Fund, upon delivery of sixty (60) days'
written notice to CCM, or (b) by CCM upon ninety (90) days' written notice to
the Fund. This Agreement shall terminate automatically in the event of its
assignment.
12. Amendment of Agreement. This Agreement may only be modified or
----------------------
amended by mutual written agreement of the Parties hereto.
13. No Waiver. The waiver by any party of any breach of or default
---------
under any provision or portion of this Agreement shall not operate as or be
construed to be a waiver of any subsequent breach or default.
14. Use of Name. In consideration of the execution of this Agreement,
-----------
CCM hereby grants to the Fund the right to use the name "Conseco" as part of its
name. The Fund agrees that in the event this Agreement is terminated, it shall
immediately take such steps as are necessary to amend its name to remove the
reference to "Conseco."
15. Applicable Law. This Agreement shall be governed by and construed
--------------
in accordance with the laws of the State of Indiana, except insofar as the 1940
Act may be controlling.
16. Definitions. For purposes of application and operation of the
-----------
provisions of this Agreement, the terms "majority of the outstanding voting
securities," "interested persons," and "assignment" shall have the meaning as
set forth in the 1940 Act. In addition, when the effect of a requirement of the
1940 Act reflected in any provision of this Agreement is modified, interpreted
or relaxed by a rule, regulation or order of the Securities and Exchange
Commission, whether of special or of general application, such provision shall
be deemed to incorporate the effect of such rule, regulation or order.
17. Severability. The provisions of this Agreement shall be considered
------------
severable and if any provision of this Agreement is deemed to be invalid or
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect any other provision of this Agreement which is valid.
18. Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be an original, but all of which together shall constitute one
and the same instrument.
-5-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed and attested by their duly authorized officers on the day and year
first above written.
ATTEST: CONSECO STRATEGIC INCOME FUND
By:
- ----------------------------- ------------------------------------
Sarah L. Todd, Esq. Maxwell E. Bublitz
President
ATTEST: CONSECO CAPITAL MANAGEMENT, INC.
By:
- --------------------------- ------------------------------------
Sarah L. Todd, Esq. Maxwell E. Bublitz
President
-6-
<PAGE>
EXHIBIT 99.2(h)(1)
FORM OF MASTER AGREEMENT AMONG UNDERWRITERS
October 1, 1991
Dear Sirs:
On or after the date hereof we may invite you to participate as an
underwriter in connection with one or more public offerings of securities in
which we are serving as sole or lead representative of the underwriting
syndicates. This Agreement will confirm our mutual agreement to the following
general terms and conditions applicable to your participation in any such
underwriting syndicate.
1. APPLICABILITY OF THIS AGREEMENT; INVITATION AND ACCEPTANCE. From time
to time on or after the date hereof we may be responsible for managing or
otherwise implementing the sale of securities offered publicly pursuant to a
registration statement filed under the Securities Act of 1933, as amended (the
"Securities Act"), or offered pursuant to an exemption from registration
thereunder. The terms and conditions of this Agreement shall be applicable to
any such offering in which we have invited you to participate as an underwriter
and have expressly informed you that the terms and conditions of this Agreement
shall apply. This Agreement shall not apply to any offering of securities
effected wholly outside the United States of America. Any offering to which the
terms and conditions of this Agreement apply is herein referred to as an
"Offering", and the securities offered in an Offering, including any Over-
Allotment Securities and Additional Securities (both as hereinafter defined),
are herein referred to as the "Securities" with respect to such Offering.
We shall invite you to participate in an Offering and in connection
therewith shall advise you of:
<PAGE>
(a) the principal terms of the Securities;
(b) the names of the issuer of the Securities, any seller of Securities
other than the issuer, any guarantor or insurer of the Securities, the
trustee or trustees under any indenture governing the Securities and any
Representative (as hereinafter defined) other than us;
(c) the amount of Securities to be underwritten by you;
(d) the expected offering date and the expected closing date or dates for
the Securities; and
(e) the initial offering price or prices of the Securities and the gross
underwriting discounts and commissions in connection therewith, together
with the management fee, underwriting compensation (and, if the invitation,
as defined below, states that the provisions of Section 7(b) hereof shall
apply to the Offering, the portion of such underwriting compensation
designated as the selling underwriters' fee, as such term is defined in
Section 7(b) hereof) and selling concession to Selected Dealers (as
hereinafter defined) comprising such underwriting discounts and commissions
and with any reallowance to other dealers, except that if the initial
offering price or prices of the Securities are to be determined by
reference to the market price of the Securities or to a formula based upon
the market price of certain securities (either such procedure being herein
referred to as "Market Pricing"), we shall so indicate in lieu of
specifying such initial offering price or prices (and other applicable
terms of the Securities) and shall specify only the maximum gross
underwriting discounts and commissions and the maximum management fee,
instead of the fixed gross underwriting discounts and commissions and the
management fee, underwriting compensation (and, if applicable, selling
underwriters' fee), selling concession and reallowance.
Such invitation and additional information, to the extent applicable and
then determined, shall be conveyed to you in a telegram, telex, facsimile
transmission or other written form (electronic or otherwise) of communication
(any communication in any such form being herein referred to as a "written
communication"). Any such additional information, to the extent
2
<PAGE>
applicable but not determined at the time such invitation is conveyed to you,
will be conveyed to you in a subsequent written communication. All written
communications addressed to you with respect to the Offering are herein referred
to collectively as the "Invitation". The Invitation will include instructions
for advising us of your acceptance (your "Acceptance") of the Invitation. If we
have received your Acceptance, a subsequent written communication from us shall
state that you may reject your allotment of Securities by notifying us prior to
the time and in the manner specified in such written communication.
If any seller of Securities proposes to authorize the Underwriters (as
hereinafter defined) to solicit offers to purchase the Securities pursuant to
delayed delivery contracts (such contracts being herein referred to as "Delayed
Delivery Contracts" and an Offering of Securities pursuant to such contracts
being herein referred to as a "Delayed Delivery Offering"), we shall so advise
you in the Invitation and shall advise you of certain terms of the Delayed
Delivery Contracts and the compensation to be received in connection therewith.
If the Underwriting Agreement (as hereinafter defined) provides for the granting
by any seller of Securities to the Underwriters of an option to purchase
additional Securities solely to cover over-allotments (the "Overallotment
Securities"), we shall notify you in the Invitation of such option and of your
maximum obligation upon exercise of such option. If any seller of Securities
proposes to offer Securities through one or more underwriting syndicates (which
may be composed of a single underwriter) other than the underwriting syndicate
composed of the Underwriters, we shall notify you in the Invitation of the
extent to which the Underwriters may become obligated to purchase Securities
from, or sell Securities to, such other underwriting syndicate or syndicates
pursuant to one or more agreements between the representatives or managers of
such other syndicate or syndicates (or such single underwriter) and the
Representatives (any such agreement with respect to an Offering being referred
to herein as an "Inter-Syndicate Agreement", and any Securities purchased by the
Underwriters pursuant to an Inter-Syndicate Agreement being referred to herein
as "Additional Securities").
The Invitation may also contain provisions that amend or supplement the
terms and conditions of this Agreement as they apply to an Offering. To the
extent such supplementary terms and conditions are inconsistent with any
provision herein, such terms and conditions shall supersede any such provision
and you, by your Acceptance, shall be bound thereby. The terms
3
<PAGE>
and conditions of this Agreement, as so amended or supplemented, shall become
effective with respect to your participation in such Offering only if we have
received your Acceptance before the date and time specified in the Invitation
and have not received a subsequent written communication from you rejecting your
allotment, pursuant to the second preceding paragraph.
Except as otherwise indicated, the following provisions of this Agreement
shall apply separately to each Offering.
2. UNDERWRITING AGREEMENTS. In connection with each Offering, one or more
of the issuer, one or more shareholders of the issuer, or any seller, guarantor
or insurer of the Securities will enter into an underwriting or purchase
agreement and may enter into an associated terms agreement or similar agreement
(collectively, the "Underwriting Agreement") with us acting either as sole
representative or as lead representative of one or more other representatives of
the underwriters named in the Underwriting Agreement (the "Underwriters"). We
as sole representative of the Underwriters or we and one or more other
representatives of the Underwriters as are named in the Invitation, as the case
may be, are herein referred to as the "Representatives". The Underwriting
Agreement shall be in the form (with all such additions, modifications and
deletions as the Representatives shall deem appropriate) that shall have been
filed with, and be publicly available from, the Securities and Exchange
Commission (the "Commission") or such other regulatory authority as we shall
specify in the Invitation or that we shall send to you (or make available for
your review in our office) as soon as practicable.
By your Acceptance, you agree and authorize us to agree to purchase on your
behalf, in accordance with the terms of the Underwriting Agreement, (a) the
amount of the Securities set forth opposite your name in the Underwriting
Agreement (which amount may exceed the amount set forth in the Invitation by not
more than 20% as a result of an increase in the aggregate amount of the
Securities or a reallotment of the Securities among the Underwriters) plus the
amount of any Securities that you may become obligated to purchase, other than
the amount of any Over-Allotment Securities or Additional Securities, pursuant
to Section 5 hereof (collectively, your "Initial Commitment"), plus (b) the
amount of any Over-Allotment Securities that you may become obligated to
purchase by reason of the exercise of an option provided in the Underwriting
Agreement (including any such Securities purchased pursuant to Section 5
hereof),
4
<PAGE>
plus (c) the amount of any Additional Securities that you may become obligated
to purchase by reason of purchases for your account made pursuant to any Inter-
Syndicate Agreements (including any such Securities purchased pursuant to
Section 5 hereof), less (d) the amount of any Securities contracted to be sold
pursuant to any Delayed Delivery Contracts ("contract Securities") allocated to
you in accordance with the last paragraph of Section 6 hereof. The Securities
that, after adding any such increases to and subtracting any such decrease from
your Initial Commitment, you are obligated to purchase pursuant to the
Underwriting Agreement and any Inter-Syndicate Agreements are herein referred to
collectively as "your Securities". The percentage that an Underwriter's Initial
Commitment bears to the aggregate Initial Commitments of all of the Underwriters
is hereinafter referred to as the "Initial Commitment Percentage" of such
Underwriter.
Your Acceptance shall also constitute (i) your representation that your
commitment to purchase your Securities will not result in a violation of the
financial responsibility requirements of Rule 15c3-1 (or any successor
provision) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any similar requirements of the National Association of Securities
Dealers, Inc. ("NASD"), if you are a member, or of any securities exchange to
which you belong; (ii) your confirmation that the information that you have
given or are deemed to have given in response to the Master Underwriters'
Questionnaire, attached as Exhibit A hereto, is correct; and (iii) your consent
to the inclusion in any registration statement, prospectus or offering circular
(as hereinafter defined) in connection with an Offering, as such may be amended
or supplemented, of a reference to you as one of the Underwriters of the
Securities and of certain information that you have given or are deemed to have
given in response to the Master Underwriters' Questionnaire. You agree to notify
us immediately of any development before the termination of this Agreement with
respect to any Offering which makes untrue or incomplete any information that
you have given or are deemed to have given in response to the Master
Underwriters' Questionnaire, and you consent to the inclusion of the information
with respect to such development in such registration statement, prospectus or
offering circular.
In the event that the Securities include debt obligations maturing
serially, your Securities shall include, subject to any adjustments provided for
in the Underwriting Agreement or in the
5
<PAGE>
Invitation, a principal amount of each series of such debt obligations that
equals your Initial Commitment Percentage of the aggregate principal amount of
such series.
3. OFFERING DOCUMENTS.
(A) REGISTERED OFFERINGS. In the case of an Offering of Securities
registered under the Securities Act (a "Registered Offering"), we shall either
provide you in the Invitation with the file number of the registration statement
filed with the Commission with respect to the Securities or provide to you (or
make available for your review in our office) as soon as practicable a copy of
such registration statement and each amendment thereto (other than exhibits and
any documents incorporated therein by reference). You shall familiarize yourself
with the terms of the Securities and the other terms of the Offering reflected
in the Invitation, such registration statement, any prospectus subject to
completion included in such registration statement (a "preliminary prospectus"),
any prospectus included in such registration statement or otherwise filed with
the Commission, or any amendment or supplement to any of the foregoing. You
understand that you will not be authorized by the issuer or any seller,
guarantor or insurer of the Securities to give any information or to make any
representation not contained in the registration statement, a preliminary
prospectus or the prospectus, as amended or supplemented, in connection with the
Offering of such Securities. You authorize us, with the approval of counsel for
the Underwriters, to approve on your behalf any amendments or supplements to
such registration statement, any such preliminary prospectus or such prospectus.
Your Acceptance shall constitute your representation that the information to be
set forth in such registration statement, any such preliminary prospectus, such
prospectus and any such amendment or supplement is correct and not misleading
insofar as it relates to you. By your Acceptance you confirm that you have
delivered and agree that you will deliver all preliminary prospectuses and
prospectuses required for compliance with the provisions of Securities Act
Release No. 4968 and Rule 15c2-8 (or any successor release or provision) under
the Exchange Act and any applicable foreign laws (and any applicable rules and
regulations thereunder). By your Acceptance you agree to make a record of your
distribution of each preliminary prospectus and prospectus (including dates,
numbers of copies and person to whom sent) and you shall, if requested by the
Representatives, furnish a copy of an amended or supplemented preliminary
prospectus or prospectus to each person to whom you have furnished a previous
preliminary prospectus or
6
<PAGE>
prospectus and, if also requested by the Representatives, indicate to each such
person the changes reflected in such amended or supplemented preliminary
prospectus or prospectus.
(B) NON-REGISTERED OFFERINGS. In the case of an Offering other than a
Registered Offering, we shall provide you in the Invitation with information as
to the availability through a specified regulatory authority of a preliminary
offering circular or other document comparable to a preliminary prospectus in a
Registered Offering (a "preliminary offering circular") relating to such
Offering, a proof of an offering circular or other document comparable to a
prospectus in a Registered Offering (an "offering circular") relating to such
Offering, or such offering circular. Alternatively, we may provide to you (or
make available for your review in our office) as soon as practicable a copy of
such preliminary offering circular, proof of an offering circular or offering
circular. You shall familiarize yourself with the terms of the Securities and
the other terms of the Offering reflected in the Invitation or in any such
preliminary offering circular, proof of an offering circular or offering
circular. You understand that you will not be authorized by the issuer or any
seller, guarantor or insurer of the Securities to give any information or to
make any representation not contained in a preliminary offering circular, proof
of an offering circular or offering circular, as amended or supplemented, in
connection with the Offering of such Securities. You authorize us, with the
approval of counsel for the Underwriters, to approve on your behalf any
amendments or supplements to any such preliminary offering circular, proof of an
offering circular or offering circular. Your Acceptance shall constitute your
representation that the information to be set forth in any such preliminary
offering circular, proof of an offering circular or such offering circular is
correct and not misleading insofar as it relates to you. By your Acceptance you
confirm that you have delivered and you agree that you will delivery all
preliminary offering circulars and offering circulars required for compliance
with the applicable federal, state and foreign laws, and applicable rules and
regulations of any regulatory body promulgated under such laws, governing the
use and distribution of offering circulars by underwriters and, to the extent
consistent with such laws, rules and regulations, you confirm that you have
delivered and agree that you will deliver all preliminary offering circulars and
offering circulars that would be required if the provisions of Rule 15c2-8 (or
any successor provision) under the Exchange Act applied to such Offering. By
your Acceptance you agree to make a record of your distribution of each
preliminary offering circular, proof of an offering circular and
7
<PAGE>
offering circular (including dates, numbers of copies and persons to whom sent)
and you shall, if requested by the Representatives, furnish a copy of an amended
or supplemented preliminary offering circular, proof of an offering circular or
offering circular to each person to whom you have furnished a previous
preliminary offering circular, proof of an offering circular or offering
circular and, if also requested by the Representatives, indicate to each such
person the changes reflected in such amended or supplemented preliminary
offering circular, proof of an offering circular or offering circular.
(C) NAME AND ADDRESS. Except as you otherwise notify us in writing from
time to time your name as it should appear in the prospectus or offering
circular relating to an Offering and your address are as set forth on the
signature page hereof.
4. AUTHORITY OF THE REPRESENTATIVES. You authorize the Representatives to
execute and deliver the Underwriting Agreement on your behalf and to agree to
any variation of its terms except as to the purchase price of your Securities
(unless the offering price or prices of the Securities are to be determined by
Market Pricing) or, except as provided herein or in the Underwriting Agreement,
as to the amount of your Securities other than Additional Securities or
Securities sold or to be sold pursuant to any Inter-Syndicate Agreements. If
the offering price or prices of the Securities are to be determined by Market
Pricing, you also authorize the Representatives to determine the initial
offering price of the Securities but not to change the manner in which the
offering price or prices are to be determined. You understand that the
Representatives may change the proposed composition of the syndicate of
Underwriters. You authorize the Representatives to enter into any Inter-
Syndicate Agreements referred to in the Invitation, in the form (with all such
additions, modification and deletions as the Representatives shall deem
appropriate) that shall have been filed with, and be publicly available from,
the Commission or any such other regulatory authority as we shall specify in the
Invitation or that we shall provide to you (or make available for your review in
our office) as soon as practicable.
You authorize us to exercise all the authority and discretion vested in the
Underwriters or in the Representatives by the provisions of the Underwriting
Agreement and any Inter-Syndicate Agreements and to take all such actions as in
our discretion may be necessary or desirable to carry out the provisions of the
Underwriting Agreement, any Inter-Syndicate Agreements and
8
<PAGE>
this Agreement. You understand that, except as otherwise specifically indicated
herein, all determinations made or other actions taken by us or by the
Representatives hereunder shall be made or taken in our sole discretion and
judgment of the Representatives, as the case may be. You will be bound by all
the terms of the Underwriting Agreement and any Inter-Syndicate Agreements as
executed.
You authorize the Representatives to take such actions as may be necessary
or desirable to effect the sale and distribution of the Securities, including
the right to determine the terms of the Offering, the selling concession to
Selected Dealers and any reallowance to other dealers, the right to exercise any
option in the Underwriting Agreement relating to the purchase of Over-Allotment
Securities and the right to make any judgment relating to the satisfaction of
conditions to the obligations of the Underwriters under the Underwriting
Agreement or any Inter-Syndicate Agreement (including the waiver of any such
conditions or the termination of the Underwriting Agreement or any Inter-
Syndicate Agreement). You also authorize us to determine whether to purchase,
and, if such determination is made, to purchase, any Additional Securities for
the account of the Underwriters pursuant to the terms of any Inter-Syndicate
Agreements. You further authorize the Representatives to determine whether to
sell, and, if such determination is made, to sell, Securities for the account of
the Underwriters pursuant to any Inter-Syndicate Agreements. Any Additional
Securities purchased or any Securities sold pursuant to any Inter-Syndicate
Agreements shall be purchased or sold, as the case may be, at the offering price
then in effect for the Securities less all or any part of the concession to
Selected Dealers, all as determined by the Representatives. In the event of the
exercise by the Representatives of an option to purchase any Additional
Securities or to sell any Securities pursuant to any Inter-Syndicate Agreements,
the Representatives shall promptly so notify each Underwriter and advise each
Underwriter of the number of Additional Securities to be purchased or the number
of Securities to be sold. The Representatives shall not, without your consent,
make net purchases of Additional Securities for your account in excess of 20% of
your Initial Commitment, except as may be provided in the Invitation. In
connection with any Offering involving one or more Inter-Syndicate Agreements,
you agree to be bound by, and all offers to sell and sales by you of Securities
may be subject to, such limitations on offers to sell and sales of Securities as
may be contained in the Invitation or in the Underwriting Agreement or any
Inter-Syndicate Agreement
9
<PAGE>
as executed and you further agree that any sales made by you to dealers shall be
made only to such dealers as agree, in their offers to sell and sales, to be
bound by the same limitations. You agree to cooperate with the Representatives
to the extent possible in order to satisfy any undertakings the Representatives
may make to any national securities exchange in connection with the listing and
distribution of the Securities. You authorize the Representatives to file with
any governmental agency any reports required to be filed by the Representatives
or the Underwriters in connection with the transactions contemplated by the
Underwriting Agreement, any Inter-Syndicate Agreement or this Agreement, and you
shall furnish any information in your possession that is needed for such
reports.
If the Underwriters should be deemed to constitute a partnership for
federal income tax purposes, then you elect to be excluded from the application
of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1986 and
agree not to take any position inconsistent with such election, and you
authorize the Representatives to execute and file on your behalf such evidence
of such election as may be required by the Internal Revenue Service.
If we are acting with other firms as Representatives, your representations
and agreements set forth herein shall also be for the benefit of such other
firms; provided, however, that it is expressly understood that any action that
you herein authorize the Representatives to take may be taken by us on behalf of
all of the Representatives.
You agree that a public advertisement of the Offering may be made by the
Representatives on behalf of the Underwriters on such date as the
Representatives shall determine. Your Acceptance shall constitute your
representation that you have not advertised the Offering and that you will not
do so until after the earlier of the first Closing Date (as defined in the
Underwriting Agreement) or the first date on which the Representatives shall
have publicly advertised the Offering. You understand that any advertisement
you may then make shall be on your own responsibility and at your own expense
and risk.
5. DEFAULTING UNDERWRITERS. Until such time as the terms of this
Agreement shall cease to be applicable to an Offering, you authorize the
Representatives to arrange for the purchase by other persons, who may include
any of the Underwriters, of any Securities not taken up and paid for by any
Underwriter in default of its obligations under the Underwriting
10
<PAGE>
Agreement or any Inter-Syndicate Agreement, if such arrangements are made, the
respective amounts of the Securities to be purchased by the non-defaulting
Underwriters and such other persons shall be taken as the basis for all rights
and obligations hereunder; but this shall not in any way affect the liability of
any defaulting Underwriter to the other Underwriters of any of its obligations
hereunder or under the Underwriting Agreement or any Inter-Syndicate Agreement
except as herein or therein provided.
In event of a default by an Underwriter in respect of its obligations under
the Underwriting Agreement or any Inter-Syndicate Agreement to take up and pay
for any Securities agreed to be purchased by it thereunder or a failure by an
Underwriter to deliver any securities sold or over-allotted by the
Representatives for the account of such Underwriter pursuant to Section 10
hereof or to bear, subject to the provisions of Section 7(b) hereof, if
applicable, its Initial Commitment Percentage of expenses or liabilities
pursuant to Sections 12, 14 and 15 hereof, and to the extent that arrangements
shall not have been made by us for any other persons to assume the obligations
of such Underwriter, you agree (subject to any limitations contained in the
Underwriting Agreement or any Inter-Syndicate Agreements) to assume your
proportionate share, based upon the percentage that the amount of the Securities
set forth in the Underwriting Agreement opposite your name bears to the
aggregate amount of the Securities set forth in the Underwriting Agreement
opposite the names of all non-defaulting Underwriters, of the obligations of
such Underwriter without relieving such Underwriter of its liability therefor.
6. OFFERINGS. The Representatives shall notify you when the initial
public offering of the Securities is to be made and of the initial public
offering price or prices, if any. You hereby authorize the Representatives to
change the public offering price or prices, the selling concession to Selected
Dealers and reallowance to other dealers, and the other terms of sale hereunder
and under any agreements with Selected Dealers, by reason of changes in general
market conditions or otherwise. The public offering price or prices at any time
in effect are hereinafter referred to as the "offering price or prices". If the
offering price or prices of Securities are to be determined by market Pricing,
the offering price or prices, the selling concession and the reallowance with
respect to such Securities shall refer to such price or prices, selling
concession and reallowance as determined by the Representatives from time to
time. You agree that any of the Securities released to you for public offering
and not reserved by the
11
<PAGE>
Representatives for sale to dealers, including any firm also acting as an
Underwriter, to be selected by the Representatives (the "Selected Dealers') or
to institutions and other retail purchasers shall be promptly reoffered at the
offering price or prices, and you will not allow any discount therefrom except
as otherwise provided herein.
You authorize the Representatives, for your account, to reserve and offer
for sale to Selected Dealers such of your Securities as the Representatives may
determine. Reservations for sales to Selected Dealers for the accounts of the
Underwriters need not be made in proportion to the respective Initial Commitment
Percentages of the Underwriters. Any Securities so reserved for your account
shall be made as nearly as practicable in the ratio which the amount of your
Securities reserved for sale to Selected Dealers bears to the aggregate amount
of Securities so reserved for the accounts of all Underwriters, as calculated
from day to day. Any such offering to Selected Dealers may be made pursuant to
the terms and conditions of the Prudential Securities Incorporated Master
Selected Dealer Agreement (copies of which are available from us upon request)
or otherwise, as the Representatives may determine.
You also authorize the Representatives, for your account, to reserve and
offer for sale to institutions and other retail purchasers such of your
Securities as the Representatives may determine. Except for any such sale
designated by a purchaser to be for the account of a particular Underwriter,
such reservations and sales for your account shall be made as nearly as
practicable in accordance with your Initial Commitment Percentage, unless you
agree to a smaller amount at the request of the Representatives.
You authorize the Representatives to make purchases and sales of Securities
from or to any Selected Dealer or Underwriter at the offering price or prices
less all or any part of the selling concession to Selected Dealers set forth in
the Invitation. With the consent of the Representatives, any Underwriter may
make purchases or sales of the Securities from or to any Selected Dealer or
Underwriter at the offering price or prices less all or any part of such selling
concession. Upon the request of the Representatives, you will notify the
Representatives of the identity of any dealer to whom you allowed such a
discount and any Underwriter or Selected Dealer form whom you received such a
discount.
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<PAGE>
If an Offering is subject to the By-Laws, rules and regulations of the
NASD, the provisions of this paragraph shall also apply. Selling concessions to
Selected Dealers and reallowances to other dealers may be allowed only as
consideration for services rendered in distribution to dealers who are actually
engaged in the investment banking or securities business, who execute the
written agreement prescribed by Section 24(c) of Article III of the rules of
Fair Practice of the NASD and who are either members in good standing of the
NASD or are foreign banks, of the NASD and who are either members in good
standing of the NASD or are foreign banks, dealers or institutions not eligible
for membership in the NASD who agree to make no sales within the United States
of America, its territories or possessions or to persons who are citizens
thereof or residents therein and to comply with the NASD's Interpretation with
Respect to Free-Riding and Withholding in making sales outside the United States
of America. In connection with any purchase or sale of any of the Securities
wherein a selling concession, discount or other allowance is received or
granted, (a) each Underwriter agrees to comply with the provisions of Section 24
of Article III of the NASD's Rules of Fair Practice and (b) in the case of
Underwriters that are non-NASD member brokers or dealers in a foreign country,
each Underwriter also agrees to comply, as though such Underwriter were an NASD
member, with the provisions of Sections 8 and 36 thereof and to comply with
Section 25 thereof as that section applies to non-NASD member brokers or dealers
in a foreign country.
The Representatives shall notify each Underwriter promptly upon the initial
release of the Securities for public offering as to the amount of Securities
reserved for sale to Selected Dealers and institutions and other retail
purchasers, including, in the case of a Delayed Delivery Offering, Securities
reserved for sale to institutional investors who have entered or will enter into
Delayed Delivery Contracts. Securities not so reserved may be sold directly by
each Underwriter for its own account in conformity with the terms of offering
set forth in the prospectus or offering circular relating to such Offering,
except that from time to time the Representatives may add to the Securities
reserved for sale to Selected Dealers and institutions and other retail
purchasers any Securities retained and not sold by an Underwriter. You agree to
notify the Representatives from time to time, upon their request, of the amount
of your Securities retained by you for direct sale remaining unsold and, upon
request of the Representatives, to deliver to the Representatives for your
account, or sell to the Representatives for the account of one or more of the
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Underwriters, such amount of unsold securities as the Representatives may
designate at the offering price less an amount determined by the Representatives
not in excess of the selling concession to Selected Dealers. The
Representatives may repurchase Securities from all Underwriters or Selected
Dealers, for the account of one or more of the Underwriters, at prices
determined by the Representatives not in excess of the offering price less the
selling concession to Selected Dealers. If all the Securities reserved for
offering to Selected Dealers and institutions and other retail purchasers are
not sold by the Representatives promptly, any Underwriter may from time to time,
with the consent of the Representatives, obtain a release of all or any portion
of the Securities of such Underwriter then remaining unsold and Securities so
released shall thereafter be deemed not to have been reserved. Securities of
any Underwriter so reserved which remain unsold or, if sold, have not been paid
for at any time prior to the time that the terms of this Agreement cease to
apply to the Offering of such Securities may, in the discretion of the
Representatives or upon the request of such Underwriter, be delivered to such
Underwriter for carrying purposes or for sale by such Underwriter, but such
Securities shall remain subject to disposition by the Representatives until
delivered for sale by such Underwriter or the time that the terms of this
Agreement cease to apply to such Offering. To the extent Securities are so
delivered for sale by such Underwriter, the amount of Securities then reserved
for the account of such Underwriter shall be correspondingly reduced. Securities
delivered for carrying purposes only shall be returned to the Representatives
upon demand. If the aggregate amount of Securities so reserved at the time that
the terms of this Agreement cease to apply to such Offering does not exceed 20%
of the aggregate amount of Securities other than Securities sold by the
Representatives on behalf of the Underwriters pursuant to any Inter-Syndicate
Agreements, the Representatives may sell for the accounts of the several
Underwriters any such Securities so reserved, at such prices, on such terms and
in such manner as the Representatives may determine.
In the case of a Delayed Delivery Offering, you authorize the
Representatives to make all arrangements for the solicitation of offers to
purchase Securities from the seller or sellers pursuant to Delayed Delivery
Contracts and you agree that all such arrangements will be made only through the
Representatives, either directly or through Underwriters or Selected Dealers.
To the extent that the Representatives shall determine, Contract Securities that
have been
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directed by institutions or other retail purchasers to a particular
Underwriter or that were contracted for pursuant to arrangements made by a
particular Underwriter through the Representatives shall be allocated to such
Underwriter and all other Contract Securities shall be allocated to the accounts
of the respective Underwriters as nearly as practicable in accordance with their
respective Initial Commitment Percentages; provided, however, that the principal
amount of Contract Securities so allocated to any Underwriter shall not exceed
such Underwriter's Initial Commitment, and any Contract Securities that would
otherwise have been allocated to such Underwriter ("Excess Contract Securities")
shall be allocated among the other Underwriters in such manner as the
Representatives shall, in their discretion, determine to be equitable and
practicable. The Representatives may pay a commission to any Selected Dealer
for services rendered in respect of Contract Securities.
7. COMPENSATION TO REPRESENTATIVES AND SELLING UNDERWRITERS.
(A) COMPENSATION TO REPRESENTATIVES. As compensation for the services of
the Representatives, you agree to pay the Representatives, and authorize the
Representatives to charge your account with, an amount not in excess of the
management fee specified in the Invitation. Such fee shall not be reduced for
any Securities to be delivered pursuant to any Delayed Delivery Contracts. If
we are acting with other firms as Representatives, such compensation shall be
divided among the Representatives in such proportions as the Representatives may
determine.
(B) COMPENSATION TO SELLING UNDERWRITERS. If the Invitation states that
the provisions of this Section 7(b) shall apply to the Offering, as compensation
for the services of those Underwriters which actually sell for their own account
some or all of the Securities, whether consisting of Securities retained by or
Securities released to any such Underwriter for direct sale (each such
Underwriter being herein referred to as a "Selling Underwriter"), (i) you agree
to pay the Selling Underwriters, and authorize the Representatives to charge
your account with, an amount not in excess of the portion of the underwriting
compensation specified in the Invitation as the selling underwriters' fee (which
shall be paid with respect to all of your Securities, whether or not such
Securities are ultimately sold by an Underwriter, including you, or by Selected
Dealers), and (ii) if you become a Selling Underwriter with respect to the
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Offering, there shall be credited to your account as compensation for such
services your allocable portion of the aggregate selling underwrites' fee, as
described below. The account of each Selling Underwriter shall be credited with
an amount equal to the product of (x) the excess, if any, of *A) the aggregate
selling underwriters' fee over (B) the total amount of General Expenses (as
defined in Section 12 hereof) in connection with the Offering, and (y) the
percentage that the amount of Securities retained by or released to such Selling
Underwriter for director sale bears to the aggregate amount of Securities
retained by or released to all of the Underwriters for direct sale in the
Offering (such percentage being referred to herein as the "Selling Percentage").
With respect to any Delayed Delivery Offering, the provisions of this Section
7(b) shall be amended as provided in the invitation.
The provisions of the Section 7(b) may only be made applicable to Offerings
of securities by closed-end management investment companies.
8. PAYMENT AND DELIVERY FOR THE SECURITIES. At or before such time, on
such dates and at such places as specified in the invitation, you agree to
deliver to us, unless otherwise specified in the invitation, a certified or
official bank check or checks drawn on or by a New York Clearing House bank and
payable in next day funds to our order. Such payment shall be in an amount
equal to the initial offering price or prices (or, in the case of Additional
Securities, the offering price or prices then in effect) plus any accrued
interest, amortization or original issued discount or accumulated dividends
required to be paid to the seller or sellers pursuant to the Underwriting
Agreement, less the selling concession to Selected Dealers, in respect of either
your Securities or that portion of your Securities retained by or released to
you for direct sale, as the Representatives shall direct. You authorize the
Representatives to make payment for your Securities against delivery to the
Representatives of your Securities (which, in the case of Securities that are
debt obligations, may be in temporary form), and the difference between the
amount of such payment and the amount of your funds delivered to us therefor
shall be credited to your account. Your authorize your Representatives to
accept delivery to your Securities in definitive form upon exchange of any
Securities in temporary form received by the Representatives on the Closing Date
pursuant to the preceding sentence. You further authorize the Representatives
to make the payment referred to above with their own funds on your behalf
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and to charge current interest rates thereon. In such an event, you shall
reimburse the Representatives promptly upon request.
You authorize the Representatives to hold any of your Securities that have
been sold or reserved for sale to Selected Dealers or to institutions or other
retail purchasers and to deliver such Securities against your payment of an
amount equal to the initial offering price or prices of such Securities plus any
accrued interest, amortization or original issue discount or accumulated
dividends as the Representatives determine, less the selling concession to
Selected Dealers in respect thereof. The Representatives may cause some or all
of your Securities so reserved to be delivered to the Representatives shall
designate, but such registration shall be for administrative convenience only
and shall not affect your title to such Securities or the severalty of the
obligations of the Underwriters to the seller or sellers. Any of your
Securities not sold or reserved by the Representatives as aforesaid shall be
available for delivery to you at your office as soon as practicable after such
Securities have been delivered to the Representatives. AT such time as this
Agreement shall cease to apply to an Offering or such earlier time as the
Representatives shall determine, the Representatives shall deliver to you any of
your Securities reserved for sale to Selected Dealers or institutions or other
retail purchasers but not sold and paid for, against payment as aforesaid.
In the case of a Delayed Delivery Offering, the commission payable by the
seller or sellers in respect of Contract Securities allocated to your pursuant
the last paragraph of Section 6 hereof shall be credited to your account, after
deducting any commissions paid by the Representatives to any Selected Dealer for
services rendered in respect of such Contract Securities, and in addition you
shall be treated as a Selected Dealer in respect of your Excess Contract
Securities, if any.
If the Underwriting Agreement for any Offering provides for the payment of
a commission or other compensation to the Underwriters, you authorize the
Representatives to receive such commission or other compensation for your
account.
Notwithstanding the foregoing provisions of this Section 8, if transactions
in the Securities can be settled through the facilities of The Depository Trust
Company or any other depository or similar facility, payment for and delivery of
your Securities may be made through
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such facilities, if your are a member, unless you have otherwise notified us
within two days after the date the Securities are first released for public
offering, or, if you are not a member, settlement may be made through a
correspondent who is a member pursuant to instructions you may send to us on or
before the third business day preceding the applicable Closing Date.
9. AUTHORITY TO BORROW. You authorize the Representatives to the extent
permitted by law, to arrange loans for your account, to execute and deliver any
notes or other instruments in connection therewith and to pledge as security
therefor all or any part of your Securities or of any securities purchased for
the accounts of the several Underwriters pursuant to Section 10 hereof, as the
Representatives may deem necessary or advisable to carry out the purchase,
carrying and distributed of the Securities. You further authorize the
Representatives to advance their own funds on your behalf and to charge current
interest rates thereon, in which event you shall reimburse the Representatives
promptly upon request. The obligations of the Underwriters under loans arranged
on their behalf, including advances by the Representatives, shall be several in
proportion to their respective participations in such loans, and not joint. Any
lender is authorized to accept the instructions of the Representatives as to the
disposition of the proceeds of any such loans. The Representatives shall credit
you with the proceeds of any loans made for your account.
10. OVER-ALLOTMENT, STABILIZATION. You authorize the Representatives for
the account of each Underwriter, prior to such time as this Agreement shall
cease to be applicable to an Offering, and for such longer period as may be
necessary in the judgment of the Representatives to cover any short position
incurred for the accounts of the several Underwriters pursuant to this
Agreement, (a) to over-allot in arranging for sales of Securities to Selected
Dealers and to institutions and other retail purchasers and, if necessary, to
purchase Securities or other securities of the issuer at such prices as the
Representatives may determine for the purposes of covering such over-allotments
and 9b) for the purpose of stabilizing the market in the Securities, to make
purchases and sales of Securities or of any other securities of the issuer or
any guarantor or insurer of the Securities as the Representatives may advise by
the invitation or otherwise, on the open market or otherwise, for long or short
account, on a when-issued basis or otherwise, at such prices, in such amounts
and in such manner as the Representatives may determine; provided, however, that
at no time shall your net commitment under this Section 10,
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either for long or short account (your net commitment in the case of a short
account being computed on the assumption that all Over-Allotment Securities, if
any, are acquired ), exceed 20% (or such other amount as may be specified in the
Invitation) of the aggregate initial offering price of your Securities.
Subsequent to receipt by us on the Acceptances of the Underwriters of an
Offering, such percentage may be increased in connection with such Offering with
the approval of a majority in interest of the Underwriters. Such purchases,
sales and over-allotments shall be made for the respective accounts of the
several Underwriters as nearly as practicable in accordance with their
respective initial Commitment Percentages. It is understood that, in connection
with any particular Offering, the Representatives may make purchases of
securities of the issuer or any guarantor or insurer of the Securities of
stabilizing purposes before the time you become an Underwriter, and you agree
that any such securities so purchased shall be treated as having been purchased
for the respective accounts of the Underwriters pursuant to the foregoing
authorization. You agree to take up on demand at cost any securities so
purchased for your account and deliver on demand any securities so sold or over-
allotted for your account. You authorize the Representatives to sell for the
account of the Underwriters any securities purchased pursuant to this Section
10, upon such terms as the Representatives may deem advisable, and any
Underwriter, including any of the Representatives, may purchase such securities.
You authorize the Representatives to charge the respective account of the
Underwriters with broker's commission or dealer's mark-ups on purchases or mark-
downs on sales effected by the Representative. If the Representatives effect any
stabilizing purchases pursuant to this Section, the Representatives shall notify
you promptly of the date and time of the first stabilizing purchase and the date
and time when stabilizing was terminated. You agree to transmit to the
Representatives for filing with the Commission any report required to be made by
you pursuant to the Exchange Act as a result of any transactions in connection
with any Offering. It is understood that no assurance is given by the
Representatives or any other Underwriter that the price of any securities of the
issuer or any guarantor or insurer of the Securities will be stabilized or that
stabilizing, if commenced, will not be discontinued at any time.
If pursuant to the provisions of the preceding paragraph and prior to such
time as the terms of this agreement shall cease to be applicable to an offering
(or prior to such earlier date as the Representatives may have determined or
such later date as may be necessary in the judgment
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of the Representatives to cover any short position incurred for the accounts of
the several Underwriters pursuant to this Agreement) the Representatives
purchase or contract to purchase for the account of any Underwriter in the open
market or otherwise any Securities that were retained by, or released to, you
for direct sale, or any Securities issued in exchange for such Securities, you
authorize the Representatives either to charge your account with an amount equal
to the selling concession to Selected Dealers with respect thereto, which amount
shall be credited against the cost of such Securities, or to require you to
repurchase such Securities at a price equal to the total cost of such purchase,
including any accred interest, amortization of original issue discount,
accumulated dividends, transfer taxes, broker's commissions or dealer's mark-
ups, in lieu of such action, the Representatives may sell for your account the
Securities so purchased and debit or credit your account for the loss or profit
resulting from such sale, after giving effect to the incurrence of any of the
charges and expenses referred to above.
11. OPEN MARKET TRANSACTIONS.__You represent and agree that in each
Offering you will comply with the provisions of Rule 10b-6 (or any successor
provision ) under the Exchange Act with regard, among other things, to trading
by underwriters. By your Acceptance, you represent that you have not, since you
became a "prospective underwriter" of the Securities (as defined in said Rule),
participated in any transaction prohibited by said Rule and you will comply with
the provisions of said Rule applicable to the Offering. You agree that for
purposes of this paragraph, in addition to the Securities, other securities
specified in the Invitation shall be considered securities of the same class and
series as the Securities to which this Agreement relates unless the
Representatives shall determine otherwise and so inform you.
12. ALLOCATION AND PAYMENT OF EXPENSES. You authorize the Representatives
to charge your account, based upon your Initial Commitment Percentage, of all
expenses of a general nature incurred by the Representatives in connection with
the negotiation for the purchase, carrying, marketing and sale of the Securities
(including without limitation any expenses to be borne by the Underwriters in
accordance with any Inter-Syndicate Agreements, any expenses incurred in
connection with, and any interest on, any amounts borrowed pursuant to Section 9
hereof) on behalf of the sever Underwriters and any losses or expenses incurred
by the Representatives as a result of or in connection with any over-allotment,
stabilization or other transactions effected pursuant to Section 10 hereof and,
in the case of a Delayed Delivery
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Offering, in connection with the solicitation of offers to purchase Securities
pursuant to Delayed Delivery Contracts (all such expenses of a general nature
being herein referred to collectively as "General Expenses"); provided, however,
that in no event shall General Expenses be deemed to include any liabilities or
expenses contemplated by Sections 14 and 15 hereof. You authorize the
Representatives to charge your account with any transfer taxes on sales of
Securities made for your account (which transfer taxes shall not be deemed to
constitute General Expenses). You agree that the Representatives, in order to
facilitate a secondary offering of equity securities, may agree to pay any stock
transfer tax, subject to the reimbursement by the sellers of associated carrying
costs if such tax payment is not rebated on the day of payment and of any
portion of such tax payment not rebated. In the event that such a tax payment
results in any expense to the Representatives, such expense shall be deemed to
constitute General Expenses for purposes of this paragraph. Neither any
statement by the Representatives of any credit or debit balance in your account
nor any reservation from distribution to cover possible additional expenses
relating to the Securities shall constitute any representation by the
Representatives as to the existence or nonexistence of possible unforeseen
expenses or liabilities of or charges against the server Underwriters.
Notwithstanding the foregoing, if the Invitation states that the provisions
of Section 7(b0 hereof shall apply to the Offering, all General Expenses in
connection with the Offering shall first be charged against available funds that
would otherwise be paid or credited to the accounts of the Selling Underwriters
form the aggregate selling underwriters' fee pursuant to Section 7(b) hereof,
and, to the extent not satisfied from such funds, you will be liable for your
Initial Commitment Percentage of all such General Expenses.
As promptly as possible after such time as this Agreement shall cease to
apply to an Offering, the accounts arising pursuant hereto shall be settled and
paid, but the Representatives may reserve such amount as they deem advisable for
additional expenses. The Representatives' ascertainment of all expenses and
their apportionment thereof shall be conclusive. The Representatives may at any
time make partial distributions of credit balances or call for payment of debit
balances. Any of your funds in the hands of the Representatives may be held
with their general funds without accountability for interest. Notwithstanding
any settlement or settlements hereunder you will remain liable for any transfer
taxes on transfers for your account and for your
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Initial Commitment Percentage of all expenses and liabilities incurred by or for
the accounts of the Underwriters, including any expenses and liabilities
incurred by or for the accounts of the Underwriters, including any expenses and
liabilities referred to in Sections 14 and 15 hereof, which shall be determined
as provided in this Section 12. If the Invitation states that the provisions of
Section 7(b) hereof shall apply to the Offering and if you are a Selling
Underwriter with respect to the Offering, notwithstanding any settlement or
settlements hereunder, you shall remain liable for your Selling Percentage of
all General Expenses in connection with the Offering chargeable to the selling
underwriters' fee hereunder and for your Initial Commitment Percentage of the
balance of such general expenses in the event such expenses exceed the aggregate
selling underwriter's fee.
13. TERMINATION; AMENDMENTS. (a) This Agreement may be terminated by
either party hereto upon five business days' written notice other party;
provided, however, that with respect to any Offering, if we receive any such
notice from you after your Acceptance, this Agreement shall remain in full force
and effect as to such offering and shall terminate with respect to such Offering
in accordance with the provisions of paragraph (b) of the Section.
(b) If we have received your Acceptance with respect to an Offering, unless
this Agreement or any provision hereof is earlier terminated by us and except as
otherwise provided in the Invitation, the terms and conditions of this Agreement
shall cease to be applicable to your participation in such Offering at the close
of business on the forty-fifty day after the date the Securities are first
released for public offering, but may be extended by us by written communication
for a further period or periods not exceeding an aggregate of forty-five days;
provided, however, that the provisions of this Agreement that contemplate
obligations surviving the termination of its effectiveness and the provisions of
Sections 12, 14 and 156 hereof shall survive such termination with respect to
any Offering.
(c) This Agreement may be amended or supplemented by us by written notice
to you and without need for further action on your part and, except for
amendments or supplements set
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forth in the invitation relating to a particular Offering, any such amendment or
supplement to this Agreement shall be effective with respect to any Offering,
effected after this Agreement is so amended or supplemented. Each reference to
"this Agreement" shall, as appropriate, be to this Master Agreement Among
Underwriters as so amended and supplemented by the Invitation or otherwise.
LIABILITY OF REPRESENTATIVES AND UNDERWRITERS. Neither as Representatives
nor individually shall the Representatives be under any liability (except for
their own want of good faith and obligations expressly assumed by them
hereunder) for or in respect of the validity, value or delivery of, or title to,
any Securities or any securities issuable upon exercise, conversion or exchange
of any Securities; the form of, or the statements contained in, or the validity
of, in the case of a Registered Offering, the registration statement, any
preliminary prospectus, the prospectus, any amendment or supplement to any of
the foregoing or any materials incorporated by reference in any of the foregoing
or any materials incorporated by reference in any of the foregoing or, in the
case of an Offering other than a Registered Offering, any preliminary offering
circular, any proof of an offering circular, any offering circular, any
amendment or supplement to any of the foregoing or any materials incorporated by
reference in any of the foregoing, or, in either case, any letters or
instruments executed by or on behalf of the issuer, any seller other than the
issuer, any guarantor or insurer of the Securities or any other party; the form
or validity of any contract or agreement under which any Securities may be
issued or which governs the rights of holders of any Securities; the form or
validity of any Underwriting Agreement, any Delayed Delivery Contract, any
Inter-Syndicate Agreement or this Agreement; the performance by the issuer, any
seller other than the issuer, any guarantor or insurer of the Securities and any
other parties of any agreement on its or their parts; the
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qualification for sale in any jurisdiction of any Securities or securities
issuable upon exercise, conversion or exchange of any Securities or the legality
for investment of the Securities or such securities under the laws of any
jurisdiction; or any matter in connection with any of the foregoing, provided,
however, that nothing in this paragraph shall be deemed to relieve the
Representatives from any liability imposed by the Securities Act. The
Representatives do not waive any right that they may have under the Securities
Act or the Exchange Act or the rules and regulations promulgated thereunder or
under state law.
Nothing contained herein or in any written communication from us shall
constitute the several Underwriters an association or partners with you or each
other or with any underwriters or managers party to any Inter-Syndicate
Agreements or, except as herein expressly provided, render any Underwriter
liable for the obligations of any other Underwriter. The rights, obligations and
liabilities of each of the Underwriters are several, in accordance with their
respective obligations, and not joint. Notwithstanding any settlement of
accounts under this Agreement, you agree to pay your Initial Commitment
Percentage of the amount of any claim, demand or liability that may be asserted
against and discharged by the Underwriters, or any of them, based on the claim
that the Underwriters (and any underwriters or managers party to any Inter-
Syndicate Agreements) constitute an association, unincorporated business or
other entity, and also to pay your Initial Commitment Percentage of expenses
approved by the Representatives and incurred by the Underwriters (and any
underwriters or managers party to any Inter-Syndicate Agreements), or any of
them, in contesting any such claims, demands or liabilities.
15. INDEMNIFICATION AND CONTRIBUTION. (a) Each Underwriter agrees to
indemnify, hold harmless and reimburse each other Underwriter and each person
(other than the issuer), if
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any who controls such other Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the extent, and upon the
terms, that such Underwriter agrees to indemnify, hold harmless and reimburse
the issuer, any seller other than the issuer and certain other persons pursuant
to the provisions of the Underwriting Agreement. This indemnify agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of such other Underwriter or controlling person.
Each Underwriter represents to each other Underwriter that the information
relating to such Underwriter that has been or may be furnished in writing to the
issuer by such Underwriter expressly for use, in the case of a Registered
Offering, in the registration statement, any preliminary prospectus, any
prospectus or any amendment or supplement to any of the foregoing with respect
to such Securities or, in the case of an Offering other than a Registered
Offering, any preliminary offering circular, proof of an offering circular,
offering circular or amendment or supplement to any of the foregoing with
respect to such Securities is correct in all material respects. This
representation shall remain in full force and effect regardless of any
investigation made by or on behalf of any such other Underwriter or controlling
person.
(b) Each Underwriter agrees to pay upon the Representatives' request, as
contribution, its Initial Commitment Percentage of any losses, claims, damages
or liabilities, joint or several, under the Securities Act or otherwise, paid or
incurred by any Underwriter (including the Representatives, individually or as
representatives of the Underwriters) to any person other than an Underwriter
(including amounts paid by an Underwriter as contribution), arising out of or
based upon (i) an untrue statement or alleged untrue statement of a material
fact contained in such registration statement or any amendment thereto or
arising out of or based upon the omission or alleged omission to state therein a
material fact required to be stated therein or
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necessary to make the statements therein not misleading, (ii) an untrue
statement or alleged untrue statement of a material fact contained in any such
preliminary prospectus, prospectus, preliminary offering circular, proof of an
offering circular, offering circular, amendment or supplement to any of the
foregoing, or any other selling or advertising material used with the consent of
the Representatives by the Underwriters in connection with the sale of the
Securities, or arising out or of based upon the omission or alleged omission to
state therein a material fact necessary to make the statements therein, in the
light of the circumstances under which they are made, not misleading and (iii)
any act or omission to act or any alleged act or omission to act by the
Representatives, individually or as representatives of the Underwriters, or by
the Underwriters, as a group but not individually, in connection with any
transaction contemplated by this Agreement or undertaken in preparing for the
purchase, sale and delivery of the Securities; and each Underwriter will pay its
Initial Commitment Percentage of any legal or other expenses reasonably incurred
by the Representatives, or with their consent, in connection with investigating
or defending any such loss, claim, damage or liability, or any action in respect
thereof. In determining the amount of any Underwriter's obligation under this
paragraph, appropriate adjustment may be made by the Representatives to reflect
any amounts received by any one or more Underwriters, pursuant to the
Underwriting Agreement or otherwise, in respect of the claim upon which such
obligation is based. In respect of any claim there shall be credited against the
amount of any Underwriter's obligation under this paragraph any loss, damage,
liability or expense that is paid or incurred by such Underwriter as a result of
such claim being asserted against it, and, if such loss, damage, liability or
expense is paid or incurred by such Underwriter subsequent to any payment by it
pursuant to this paragraph, appropriate provision shall be made to effect such
credit, by refund or otherwise. If any claim to which the provisions
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of this paragraph would be applicable is asserted, the Representatives may take
such action in connection therewith as they deem necessary or desirable,
including retention of counsel for the Underwriters and separate counsel for any
particular Underwriter or group of Underwriters, and the fees and disbursements
of any counsel so retained by the Representatives shall be included in the
amounts of the Underwriters' obligations under this paragraph. The
Representatives may consent to being named as the representatives of a defendant
class of underwriters. Any underwriter may elect to retain at its own expense
its own counsel and, on advice of such counsel and with the Representatives'
consent, may settle or consent to the settlement of any such claim. The
Representatives may settle or consent to the settlement of any such claim, on
advice of counsel retained by them, with the approval of a majority in interest
of the Underwriters. Whenever any Underwriter receives notice of the assertion
of any claim to which the provisions of this paragraph would be applicable, such
Underwriter shall give prompt notice thereof to the Representatives. Whenever
the Representatives receive notice of the assertion of any such claim, they
shall give prompt notice thereof to each Underwriter. The Representatives also
shall furnish each Underwriter with periodic reports, at such times as they deem
appropriate, as to the status of any such claim and the action taken by them in
connection therein. In the event of the failure of any Underwriter to fulfill
its obligations under this paragraph, such obligations may be charged against
each non-defaulting Underwriter in the same proportion as the respective Initial
Commitment of such non-defaulting Underwriter bears to the aggregate Initial
Commitments to the non-defaulting Underwriters, without relieving such
defaulting Underwriter of its liability therefor. In determining amounts payable
pursuant to this paragraph, any loss, claim, damage, liability or expense paid
or incurred, and any amount received, by any person controlling any Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
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Exchange Act shall be deemed to have been paid or incurred or received by such
Underwriter to the extent such amount has been paid or incurred or received by
reason of such control relationship. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
16. TITLE TO SECURITIES. The Securities purchased by or on behalf of the
representative Underwriters any securities purchased pursuant to Section 10
hereof by or on behalf of the respective Underwriters shall remain the property
of such Underwriters until sold, and title to any such Securities or securities
shall not in any event pass to the Representatives by virtue of any of the
provisions of this Agreement.
17. LEGAL QUALIFICATIONS. It is understood that the Representatives
assume no responsibility with respect to the right of any Underwriter or other
person to offer or to sell Securities in any jurisdiction, notwithstanding any
"Blue Sky" memorandum or survey or any other information that the
Representatives may furnish as to the jurisdictions under the securities laws of
which it is believed the Securities may be sold. You authorize the
Representatives to file with the Department of State of the State of New York a
Further State Notice with respect to the Securities, if necessary.
If you propose to offer Securities outside the United States of America,
its territories or its possessions, you shall take, at your own expense and
risk, such action, if any, as may be necessary to comply with the laws of each
foreign jurisdiction in which you propose to offer Securities.
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<PAGE>
If the Representatives inform you that the NASD views the Offering as
subject to Schedule E to the By-Laws of the NASD, you agree that you shall, to
the extent required, offer the Securities in compliance with such Schedule and
the NASD's interpretation thereof.
If the Representatives inform you that the NASD views the Securities as
interests in a direct participation program, you agree that you shall, to the
extent required, offer the Securities in compliance with the NASD's
interpretation of Appendix F of its Rules of Fair Practice.
18. SUCCESSORS AND ASSIGNS. This Agreement shall be binding on, and inure
to the benefit of, the parties hereto and the other persons specified in Section
15 hereof, and the respective successors and assigns of each of them.
19. APPLICABLE LAW. THIS AGREEMENT AND THE TERMS AND CONDITIONS SET FORTH
HEREIN WITH RESPECT TO ANY OFFERING, TOGETHER WITH SUCH SUPPLEMENTARY TERMS AND
CONDITIONS WITH RESPECT TO SUCH OFFERING AS MAY BE CONTAINED IN THE INVITATION
IN CONNECTION THEREWITH, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
20. MISCELLANEOUS. Any notice from the Representatives or us to you shall
be deemed to have been duly given if conveyed by written communication or
telephone to you at the address set forth at the end of this Agreement, or at
such other address as you shall have advised us from time to time in writing.
Any notice from you to the Representatives or us shall be deemed to have been
duly given if conveyed by written communication or telephone to us at One
Seaport Plaza, New York, New York 10292, Attention: Capital Transactions Group.
You represent that you are actually engaged in the investment banking or
securities business and that you are either a member in good standing of the
NASD or, if you are not such a
29
<PAGE>
member, you are a foreign bank, dealer or institution not eligible for
membership in the NASD that agrees to make no sales within the United States of
America, its territories or possessions or to person who are citizens thereof or
residents therein (except that you may participate in sales to Selected Dealers
and to institutions and other retail purchasers under Section 6 hereof) and to
comply with the NASD's interpretation with Respect to Free-Riding and
Withholding in making sales outside the United States of America.
In connection with any Registered Offering of Securities of an issuer that
was not, immediately prior to the filing of the registration statement with
respect to such Securities, subject to the requirements of Section 13(a) or
15(d) of the Exchange Act, you agree that you will not sell any of such
Securities to any accounts over which you exercise discretionary authority.
Please confirm, by signing and returning this Agreement to us, your
acceptance of an agreement to the terms and conditions of this Agreement (as
supplemented and amended from time to time pursuant to Section 13 hereof),
together with and subject to any supplementary or alternative terms and
conditions contained in the Invitation and any other written communication from
us or the Representatives in connection with such Offering, all of which shall
constitute a binding agreement between you and the Representatives and among you
and the other Underwriters. Your Acceptance of an invitation with respect to an
Offering shall constitute (a) confirmation that your representatives and
warranties set forth in this Agreement are true and correct as of the times or
for the periods specified herein, (b) confirmation that your agreements set
forth in this Agreement have been and will be performed fully by you to the
extent and at the times required hereby and (c) acknowledgment of your
familiarity with the offering documents, as set forth in Section 3 hereof, with
respect to such Offering.
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<PAGE>
Very truly yours,
PRUDENTIAL SECURITIES INCORPORATED
By /s/ David Weild IV
------------------------------
David Wield IV
Managing Director
CONFIRMED as of the date first
written above:
- ------------------------------
(Name of Firm)
By:
---------------------------
Title:
------------------------
Address:
----------------------
----------------------
----------------------
Name as it should appear in any prospectus
offering circular or advertisement
(if different from above):
- ------------------------------------------
31
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*If signer is not an officer or partner, please attach evidence of
authorization.
32
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Exhibit A
MASTER UNDERWRITERS' QUESTIONNAIRE
Unless otherwise defined, capitalized terms used herein have the meanings
assigned thereto in the Master Agreement Among Underwriters dated October 1,
1991, between Prudential Securities Incorporated and you (as amended or
supplemented from time to time, the "Agreement"). Reference will be made to
this Master Underwriters' Questionnaire in each invitation described in Section
1 of the Agreement received by you from Prudential Securities Incorporated in
connection with an Offering of Securities in which Prudential Securities
Incorporated is acting as sole or lead representative of the several
Underwriters. Your Acceptance of any such invitation should refer in this
Master Underwriters' Questionnaire and should set forth any exceptions to the
following statements or state that there are no such exceptions.
(1) Neither you nor any of your directors, officers or partners has a
material relationship (as "material" is defined in Rule 405 under the
Securities Act) with the issuer of the Securities, its parent (if any) or
any guarantor, insurer or seller of the Securities.
(2) Neither you nor any of your directors, officers or partners,
separately or as a "group" (as that term is used in Section 13(d)(3) of the
Exchange Act), owns of record or beneficially (determined in accordance
with Rule 13(d)(3) under the Exchange Act) more than five percent of any
class of voting securities of the issuer, its parent (if any), or any
guarantor, insurer or seller of the Securities, nor do you have any
knowledge that more than five percent of any class of voting securities of
such issuer, parent, guarantor, insurer or seller is held or to be held
subject to any voting trust or other similar agreement.
33
<PAGE>
(3) You have not prepared any report or memorandum for external use
by the issuer or any Underwriter in connection with the Offering or, if you
have prepared any such report or memorandum, you are furnishing to
Prudential Securities Incorporated (a) three copies thereof and (b) a
statement as to the actual or proposed use, identifying each class of
persons (institutional clients, retail clients, etc.) who have received or
will receive the report or memorandum, the number of copies distributed to
each such class and the period of distribution.
(4) In the case of a Registered Offering for which the registration
statement is on Form S-1: You have not prepared any engineering,
management or similar report or memorandum relating to broad aspects of the
business, operations or products of the issuer, its parent (if any), or any
guarantor or insurer of the Securities within the past twelve months
(except for reports solely comprised of a recommendation to buy, sell or
hold the securities of the issuer, its parent (if any), any guarantor or
any insurer, unless such recommendation has changed within the past six
months) or, if any such report or memorandum has been prepared, you are
furnishing to Prudential Securities Incorporated (a) three copies thereof
and (b) a statement as to the actual or proposed use, identifying each
class of persons (institutional clients, retail clients, etc.) who have
received or will receive the report or memorandum, the number of copies
distributed to each such class and the period of distribution.
(5) If the Securities are to be issued under an indenture qualified
under the Trust Indenture Act of 1939, as amended:
(a) Neither you nor any of your directors, officers or
partners is an affiliate (as defined in Rule 0-2 or any successor
provision under such Act) of the
34
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trustee or trustees under such indenture or their respective parents
(if any), and neither such trustees nor their respective parents (if
any) nor any of their respective directors or executive officers is a
director, officer, partner, employee, appointee or representative of
yours, as those terms are defined in such Act or in the relevant
instructions to Form T-1 thereunder;
(b) Neither you nor any of your directors, partners or
executive officers, separately or as a group, owns beneficially more
than one percent of any class of voting securities of either of such
trustees or their respective parents (if any); and
(c) If you are a corporation, you do not have outstanding
nor have you assumed or guaranteed any securities otherwise than in
your corporate name, and neither of such trustees nor their respective
parents (if any) is a beneficial owner or pledgee of any of such
securities.
(6) Other than as stated or to be stated in the Agreement, the
Prudential Securities Incorporated Master Selected Dealer Agreement, the
proposed Underwriting Agreement or any proposed Inter-Syndicate Agreement
relating to the Offering, you do not know of or have reason to believe that
(a) there are any discounts or commissions to be allowed or paid to
underwriters or any other items that would be deemed by the NASD to
constitute underwriting compensation for purposes of the NASD's Rules of
Fair Practice, (b) there are any discounts or commissions to be allowed or
paid to dealers, including all cash, securities, contracts or other
considerations to be received by any dealer in connection with the sales of
the Securities, (c) there is an intention to over-allot or (d) the price of
any security may be stabilized to facilitate the offering of the
Securities.
35
<PAGE>
(7) If the issuer is a public utility: You are not a "holding
company", a "subsidiary company", or an "affiliate" of a "holding company"
or a "public-utility company", each as defined in the Public Utility
Holding Company Act of 1935, as amended.
(8) If the Offering is subject to the By-Laws, rules and regulations
of the NASD: Neither you nor any of your directors, officers, partners or
"persons associated with" you (as defined in the By-Laws of the NASD) nor,
to your knowledge, any "related person", as defined in the By-Laws of the
NASD, which definition includes counsel, financial consultants and
advisors, finders, members of the selling or distribution group, and any
other persons associated with or related to any of the foregoing) or any
broker-dealer (a) within the last eighteen months has purchased in private
transactions, or intends before, at or within six months after commencement
of the public offering of the Securities, to purchase in private
transactions, any securities (including warrants or options) of the issuer,
its parent (if any), any guarantor or insurer or any subsidiary of any of
the foregoing or (b) within the last twelve months had any dealings with
the issuer, any guarantor or insurer of the Securities or any subsidiary or
controlling person of any of the foregoing (other than with respect to the
Agreement, the proposed Underwriting Agreement or any proposed Inter-
Syndicate Agreement) as to which documents or information are required to
be filed with the NASD pursuant to its interpretation with Respect to
Review of Corporate Financing.
(9) You may, in accordance with and pursuant to the financial
responsibility requirements of Rule 15c3-1 (or any successor provision)
under the Exchange Act, agree to purchase your Securities.
36
<PAGE>
(10) If the issuer of Securities offered in a Registered Offering was
not, immediately prior to the filing of the registration statement with
respect to such Securities, subject to the requirements of Section 13(a) or
15(d) of the Exchange Act: You will not sell Securities to any accounts
over which you exercise discretionary authority.
37
<PAGE>
EXHIBIT 99.2(h)(2)
Conseco Strategic Income Fund
_____________ Shares*
of Beneficial Interest
UNDERWRITING AGREEMENT
----------------------
July __, 1998
PRUDENTIAL SECURITIES INCORPORATED
CROWELL, WEEDON & CO.
LEGG MASON WOOD WALKER INCORPORATED
McDONALD & COMPANY SECURITIES, INC.
MORGAN KEEGAN & COMPANY, INC.
As Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Dear Sirs:
Conseco Strategic Income Fund, a Massachusetts business trust (the
"Company"), Conseco Capital Management, Inc., a Delaware corporation and the
Company's investment manager and administrator (the "Manager") and Conseco,
Inc., an Indiana corporation and the parent of the Manager ("Conseco"), hereby
confirm their agreement with the several underwriters named in Schedule 1 hereto
(the "Underwriters"), for whom you have been duly authorized to act as
representatives (in such capacities, the "Representatives"), as set forth below.
If you are the only Underwriters, all references herein to the Representatives
shall be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein contained, the
----------
Company proposes to issue and sell to the several Underwriters an aggregate of
_______ (the "Firm Securities") of shares of beneficial interest in the Company,
par value, $.001 per share (the "Shares"). The Company also proposes to issue
and sell to the several Underwriters not more than _______ additional Shares if
requested by the Representatives as provided in Section 3 of this Agreement.
Any and all Shares to be purchased by the Underwriters pursuant to such option
are referred to
- ---------------------
* Plus an option to purchase from Conseco Strategic Income Fund up to _______
additional shares to cover over-allotments.
<PAGE>
herein as the "Option Securities", and the Firm Securities and any Option
Securities are collectively referred to herein as the "Securities".
2. Representations and Warranties of the Company and the Manager. (a) The
-------------------------------------------------------------
Company and the Manager jointly and severally represent and warrant to, and
agree with, each of the several Underwriters that:
(i) A registration statement on Form N-2 (File Nos. 333-55809 and
811-08795) with respect to the Securities, including a prospectus subject
to completion, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Act"), and one or more amendments to such registration
statement may have been so filed. A notification of registration on Form N-
8A (the "Notification of Registration") has also been filed with the
Commission pursuant to Section 8(a) of the Investment Company Act of 1940,
as amended (the "Investment Company Act"). After the execution of this
Agreement, the Company will file with the Commission either (A) if such
registration statement, as it may have been amended, has been declared by
the Commission to be effective under the Act, a prospectus in the form most
recently included in an amendment to such registration statement (or, if no
such amendment shall have been filed, in such registration statement), with
such changes or insertions as are required by Rule 430A under the Act or
permitted by Rule 497(h) under the Act and as have been provided to and
approved by the Representatives prior to the execution of this Agreement,
or (B) if such registration statement, as it may have been amended, has not
been declared by the Commission to be effective under the Act, an amendment
to such registration statement, including a form of prospectus, a copy of
which amendment has been furnished to and approved by the Representatives
prior to the execution of this Agreement. As used in this Agreement, the
term "Registration Statement" means such registration statement, as amended
at the time when it was or is declared effective, including all financial
schedules and exhibits thereto and including any information omitted
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined); the term "Preliminary Prospectus"
means each prospectus subject to completion filed with such registration
statement or any amendment thereto (including the prospectus subject to
completion, if any, included in the Registration Statement or any amendment
thereto at the time it was or is declared effective); and the term
"Prospectus" means the prospectus first filed with the Commission pursuant
to Rule 497(b) or (h), as the case may be, under the Act or, if applicable,
as subsequently filed pursuant to Rule 497(d) under the Act.
(ii) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any Preliminary
Prospectus was filed with the Commission it (A) contained all statements
required to be stated therein in accordance with, and complied in all
material respects with the requirements of, the Act, the Investment Company
Act and the respective rules and regulations of the Commission thereunder
and (B) did not include any untrue statement of a material fact or omit to
state any material fact necessary in
2
<PAGE>
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. When the Registration Statement
or any amendment thereto was or is declared effective, it (A) contained or
will contain all statements required to be stated therein in accordance
with, and complied or will comply in all material respects with the
requirements of, the Act, the Investment Company Act and the respective
rules and regulations of the Commission thereunder and (B) did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading. When
the Prospectus or any amendment or supplement thereto is filed with the
Commission pursuant to Rule 497(b) or (h) under the Act, as the case may
be, and, if applicable, when subsequently filed with the Commission
pursuant to Rule 497(d) under the Act (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when the
Registration Statement or the amendment thereto containing such amendment
or supplement to the Prospectus was or is declared effective), and on the
Firm Closing Date and any Option Closing Date (both as hereinafter
defined), the Prospectus, as amended or supplemented at any such time, (A)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply in all material respects with
the requirements of, the Act, the Investment Company Act and the respective
rules and regulations of the Commission thereunder and (B) did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (ii) do not apply to statements or
omissions made in any Preliminary Prospectus, the Registration Statement or
any amendment thereto or the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the Representatives
specifically for use therein.
(iii) When the Notification of Registration was filed with the
Commission, it (i) contained all statements required to be stated therein in
accordance with, and complied in all material respects with the requirements
of, the Investment Company Act and the rules and regulations of the
Commission thereunder and (ii) did not include any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein not misleading.
(iv) The Company has been duly organized and is validly existing
as a business trust in good standing under the laws of the Commonwealth of
Massachusetts and is duly qualified to transact business and is in good
standing under the laws of all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Company; and the Company holds
all licenses, certificates and permits from all governmental authorities
necessary for the conduct of its business as described in the Prospectus
(or, if the Prospectus is not in existence, the most recent
3
<PAGE>
Preliminary Prospectus) (other than, if the Registration Statement is not
effective under the Act, the order of the Commission declaring the
Registration Statement effective under the Act and similar orders as may be
required under state securities or blue sky laws). The Company has no
subsidiaries.
(v) The Company has full power (corporate and other) (i) to own or
lease its properties and conduct its business as described in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; (ii) to enter into this
Agreement, the Investment Management and Administration Agreement, dated as
of July 27, 1998 (the "Management and Administration Agreement"), between
the Company and the Manager, the Custodian Contract dated as of July 27,
1998 (the "Custody Agreement"), between the Company and PNC Bank, National
Association ("PNC") (in such capacity, the "Custodian"), the Transfer and
Dividend Disbursing Agreement, dated as of July 27, 1998 (the "Transfer and
Dividend Disbursing Agreement"), between the Company and PNC, and the
Shareholder Servicing Agreement, dated as of July 27, 1998, (the
"Shareholder Servicing Agreement"), between the Company and Conseco
Services LLC; (iii) to adopt the automatic dividend reinvestment plan (the
"Automatic Dividend Reinvestment Plan") described in the Prospectus, or, if
the prospectus is not in existence, the most recent Preliminary Prospectus;
and (iv) to carry out all the terms and provisions hereof and of any of the
foregoing agreements and plans to be carried out by it.
(vi) The Company is duly registered with the Commission pursuant to
Section 8 of the Investment Company Act as a closed-end non-diversified
management investment company; and the Company's declaration of trust and
by-laws comply in all material respects with the Investment Company Act and
the rules and regulations of the Commission thereunder.
(vii) The Company has authorized, issued and outstanding
capitalization as set forth in the Prospectus or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus. All of the issued
Shares have been duly authorized and validly issued and are fully paid and
nonassessable. The Firm Securities and the Option Securities have been duly
authorized and at the Firm Closing Date or the related Option Closing Date
(as the case may be), after payment therefor in accordance herewith, will
be validly issued, fully paid and nonassessable. The Securities have been
duly authorized for listing, subject to official notice of issuance, on the
New York Stock Exchange, and the Company's Registration Statement on Form
8-A under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), has become effective. No holders of outstanding shares of beneficial
interest of the Company are entitled as such to any preemptive or other
rights to subscribe for any of the Securities, and no holder of securities
of the Company has any right which has not been fully exercised or waived
to require the Company to register the offer or sale of any securities
owned by such holder under the Act in the public offering contemplated by
this agreement.
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(viii) The Shares conform to the description thereof contained in
the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus.
(ix) Except as disclosed in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), there are no
outstanding (A) securities or obligations of the Company convertible into
or exchangeable for any capital stock of the Company, (B) warrants, rights
or options to subscribe for or purchase from the Company any such capital
stock or any such convertible or exchangeable securities or obligations, or
(C) obligations of the Company to issue any shares of capital stock, any
such convertible or exchangeable securities or obligations, or any such
warrants, rights or options.
(x) The Statement of Assets, Liabilities and Capital of the
Company included in the Registration Statement and the Prospectus (or, if
the Prospectus is not in existence, the most recent Preliminary Prospectus)
fairly presents the financial position of the Company as of the dates
therein specified. Such Statement of Assets, Liabilities and Capital has
been prepared in accordance with generally accepted accounting principles.
(xi) PricewaterhouseCoopers LLP, who have certified certain
financial statements of the Company and delivered their report with respect
to the Statement of Assets, Liabilities and Capital of the Company included
in the Registration Statement and the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), are independent
public accountants as required by the Act, the Investment Company Act and
the respective rules and regulations thereunder.
(xii) The execution and delivery of this Agreement, the Management
and Administration Agreement, the Custody Agreement, the Transfer and
Dividend Disbursing Agreement, and the Shareholder Servicing Agreement have
been duly authorized by the Company; this Agreement, the Management and
Administration Agreement, the Custody Agreement, the Transfer and Dividend
Disbursing Agreement, and the Shareholder Servicing Agreement have been
duly executed and delivered by the Company; and assuming due authorization,
execution and delivery by the other parties thereto, the Management and
Administration Agreement, the Custody Agreement, the Transfer and Dividend
Disbursing Agreement, and the Shareholder Servicing Agreement are the
legal, valid, binding and enforceable instruments of the Company and all
such agreements and the Automatic Dividend Reinvestment Plan comply in all
material respects with the requirements of the Investment Advisers Act of
1940, as amended (the "Advisers Act"), and the Investment Company Act and
the respective rules and regulations of the Commission thereunder; and the
Automatic Dividend Reinvestment Plan has been duly adopted by the Company.
(xiii) No legal or governmental proceedings are pending to which
the Company is a party or to which the property of the Company is subject
that are
5
<PAGE>
required to be described in the Registration Statement or the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and are not described therein and, to the knowledge of the
Company and the Manager, no such proceedings have been threatened against
the Company or with respect to any of its properties; and no contract or
other document is required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement
that is not described therein (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) or filed as required by the Act,
the Investment Company Act or the respective rules and regulations of the
Commission thereunder.
(xiv) The issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by
the Company with the other provisions of this Agreement, the Management and
Administration Agreement, the Custody Agreement, the Transfer and Dividend
Disbursing Agreement, and the Shareholder Servicing Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or qualification
of or with any governmental authority, stock exchange or securities
association except such as have been obtained, such as may be required
under state securities or blue sky laws or the rules of the National
Association of Securities Dealers, Inc. (the "NASD Rules") and, if the
registration statement filed with respect to the Securities (as amended) is
not effective under the Act as of the time of execution hereof, such as may
be required (and shall be obtained as provided in this Agreement) under the
Act or the Investment Company Act, or (B) conflict with or result in a
breach or violation of any of the terms and provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Company is a party or by which the
Company or any of its properties are bound, or the declaration of trust or
by-laws of the Company or any statute or any judgment, decree, order, rule
or regulation of any court or other governmental authority or any
arbitrator applicable to the Company.
(xv) Subsequent to the date of the audited Statement of Assets,
Liabilities and Capital included in the Prospectus (or, if the Prospectus
is not in existence, the most recent Preliminary Prospectus), the Company
has not incurred any material liabilities or obligations, direct or
contingent, or entered into any material transactions not in the ordinary
course of business, and there has not been any material adverse change, or
any development involving a prospective material adverse change (including
without limitation a change in management or control of the Company), in
the condition (financial or otherwise), business prospects, financial
position or net worth of the Company, except in each case as described in
or contemplated by the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(xvi) The Company has not distributed and, prior to the later of
(i) the expiration of the option period described in Section 3(b) hereof
and (ii) the completion of the distribution of the Securities, will not
distribute any offering
6
<PAGE>
material in connection with the offering and sale of the Securities other
than the Registration Statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or
other materials, if any, permitted by the Act.
(xvii) Neither the Company nor the Manager has directly or
indirectly, (A) taken any action designed to cause or to result in, or that
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities or (B) since the filing
of the Registration Statement (X) sold, bid for, purchased, or paid anyone
any compensation for soliciting purchases of, the Securities or (Y) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(xviii) Each certificate signed by any officer of the Company in
his or her capacity as such and delivered to the Representatives or counsel
for the Underwriters shall be deemed to be a representation and warranty by
the Company to each Underwriter as to the matters covered thereby.
(xix) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions
are executed in accordance with management's general or specific
authorization and with the investment policies and restrictions of the
Company and the applicable requirements of the Investment Company Act, the
rules and regulations thereunder and the Internal Revenue Code of 1986, as
amended; (B) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted accounting
principles, to calculate net asset value, to maintain accountability for
assets and to maintain material compliance with the books and records
requirements under the Investment Company Act and the rules and regulations
thereunder; (C) access to assets is permitted only in accordance with
management's general or specific authorization; and (D) the recorded
account for assets is compared with existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(xx) The conduct by the Company of its business (as described in
the Prospectus or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) does not require it to be the owner, possessor or
licensee of any patents, patent licenses, trademarks, service marks or
trade names which it does not own, possess or license.
(b) The Manager represents and warrants to, and agrees with each of the
Underwriters that:
(i) The Manager has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware
and is duly qualified to transact business as a foreign corporation and is
in good standing under the laws of all other jurisdictions where the
ownership or leasing of its
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<PAGE>
properties or the conduct of its business requires such qualification,
except where the failure to be so qualified does not amount to a material
liability or disability to the Manager.
(ii) The Manager has full power (corporate and other) to own or
lease its properties and conduct its business as described in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus; and the Manager has full
power (corporate and other) to enter into this Agreement and the Management
and Administration Agreement and to carry out all the terms and provisions
hereof and thereof to be carried out by it.
(iii) The Manager is duly registered with the Commission as an
investment adviser under the Advisers Act; and the Manager is not
prohibited by any provision of the Advisers Act or the Investment Company
Act, or the respective rules and regulations of the Commission thereunder,
from performing its obligations under the Management and Administration
Agreement.
(iv) The execution and delivery of this Agreement and the
Management and Administration Agreement have been duly authorized by the
Manager; this Agreement and the Management and Administration Agreement
have been duly executed and delivered by the Manager; and, assuming due
authorization, execution and delivery by the Company, the Management and
Administration Agreement is the legal, valid, binding and enforceable
instrument of the Manager and complies in all material respects with the
Advisers Act and the Investment Company Act and the respective rules and
regulations of the Commission thereunder.
(v) The compliance by the Manager with the provisions of this
Agreement and the Management and Administration Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or qualification
of or with any governmental authority, stock exchange or securities
association except such as have been obtained, such as may be required
under state securities or blue sky laws or the NASD Rules and, if the
registration statement filed with respect to the Securities (as amended) is
not effective under the Act as of the time of execution hereof, such as may
be required (and shall be obtained as provided in this Agreement) under the
Act or the Investment Company Act, (B) result in a material breach or
violation of any of the terms and provisions of, or constitute a material
default under, any indenture, mortgage, deed of trust, lease or other
agreement or instrument to which the Manager is a party or by which the
Manager or any of its properties are bound, or (C) conflict with the
charter documents or by-laws of the Manager or any statute or any judgment,
decree, order, rule or regulation of any court or other governmental
authority or any arbitrator, stock exchange or securities association
applicable to the Manager.
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(vi) The description of the Manager and its business contained in
the Prospectus (or, if the Prospectus is not yet in existence, the most
recent Preliminary Prospectus) complies in all material respects with the
requirements of the Act, the Investment Company Act and the respective
rules and regulations of the Commission thereunder and does not include any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(vii) Subsequent to the date of the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
there has not been any material adverse change, or any development
involving a prospective material adverse change (including without
limitation a change in management or control of the Manager), in the
condition (financial or otherwise), business prospects, net worth or
results of operations of the Manager or in the ability of the Manager to
fulfill its respective obligations under this Agreement or the Management
and Administration Agreement.
(viii) No legal or governmental proceedings are pending to which the
Manager is a party or to which the property of the Manager is subject that
are required to be described in the Registration Statement or the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), and are not described therein and, to the
knowledge of the Manager, no such proceedings have been threatened against
the Manager or with respect to any of its properties.
(ix) Neither the Company nor the Manager has, directly or
indirectly, (A) taken any action designed to cause or to result in, or that
constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company
to facilitate the sale or resale of the Securities or (B) since the filing
of the Registration Statement (X) sold, bid for, purchased, or paid anyone
any compensation for soliciting purchases of, the Securities or (Y) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(x) The Manager has the financial resources available to it
necessary for the performance of its services and obligations as
contemplated in the Registration Statement and the Prospectus.
(xi) Conseco has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Indiana and
is duly qualified to transact business as a foreign corporation and is in
good standing under the laws of all other jurisdictions where the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Adviser.
(xii) The description of Conseco in the Prospectus (or, if the
Prospectus is not yet in existence, the most recent Preliminary Prospectus)
does not contain
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<PAGE>
any untrue statement of material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(xiii) This Agreement has been duly authorized, executed and
delivered by Conseco; and neither the execution and delivery of this
Agreement nor the performance by Conseco of its obligations hereunder will
(A) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained, (B) result in a material breach of any of the terms and
provisions of, or constitute, with or without giving notice or lapse of
time or both, a material default under, any material agreement or
instrument to which Conseco is a party or by which it is bound, or (C)
conflict with any law, order, rule or regulation applicable to it of any
jurisdiction, court, federal or state regulatory body, administrative
agency or other governmental body, stock exchange or securities association
having jurisdiction over it or its properties or operations.
3. Purchase, Sale and Delivery of the Securities. (a) On the basis of the
---------------------------------------------
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company, at a purchase
price of $15.00 per share, the number of Firm Securities set forth opposite the
name of such Underwriter in Schedule 1 hereto. One or more certificates in
definitive form for the Firm Securities that the several Underwriters have
agreed to purchase hereunder, and in such denomination or denominations and
registered in such name or names as the Representatives request upon notice to
the Company at least 48 hours prior to the Firm Closing Date, shall be delivered
by or on behalf of the Company to the Representatives for the respective
accounts of the Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by wire transfer of immediately
available funds to an account designated by the Company at least 48 hours prior
to the Firm Closing Date. Such delivery of and payment for the Firm Securities
shall be made at the offices of Cleary, Gottlieb, Steen & Hamilton, One State
Street Plaza, New York, New York at 9:30 A.M., New York time, on July __, 1998,
or at such other place, time or date as the Representatives and the Company may
agree upon or as the Representatives may determine pursuant to Section 9 hereof,
such time and date of delivery against payment being herein referred to as the
"Firm Closing Date". The Company will make such certificate or certificates for
the Firm Securities available for checking and packaging by the Representatives
at the offices in New York, New York of the Company's transfer agent or
registrar or of Prudential Securities Incorporated at least 24 hours prior to
the Firm Closing Date.
(b) For the purpose of covering any over-allotments in connection
with the distribution and sale of the Firm Securities as contemplated by the
Prospectus, the Company hereby grants to the several Underwriters an option to
purchase, severally and not jointly, the Option Securities. The purchase price
to be paid for any Option Securities shall be the same price per share as the
price per share for the Firm Securities set forth above in paragraph (a) of this
Section 3, plus, if the purchase and sale of any Option Securities takes place
after the Firm Closing Date and after the Firm Securities are trading "ex-
dividend", an amount equal to the dividends payable on such Option Securities.
The option granted hereby may be exercised as to
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<PAGE>
all or any part of the Option Securities from time to time, but not more than
three times, within forty-five days after the date of the Prospectus (or, if
such 45th day shall be a Saturday or Sunday or holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading). The
Underwriters shall not be under any obligation to purchase any of the Option
Securities prior to the exercise of such option. The Representatives may from
time to time exercise the option granted hereby by giving notice in writing or
by telephone (confirmed in writing) to the Company setting forth the aggregate
number of Option Securities as to which the several Underwriters are then
exercising the option and the date and time for delivery of and payment for such
Option Securities. Any such date of delivery shall be determined by the
Representatives but shall not be earlier than two business days or later than
seven business days after such exercise of the option and, in any event, shall
not be earlier than the Firm Closing Date. The time and date set forth in such
notice, or such other time on such other date as the Representatives and the
Company may agree upon or as the Representatives may determine pursuant to
Section 9 hereof, is herein called the "Option Closing Date" with respect to
such Option Securities. Upon exercise of the option as provided herein, the
Company shall become obligated to sell to each of the several Underwriters, and,
subject to the terms and conditions herein set forth, each of the Underwriters
(severally and not jointly) shall become obligated to purchase from the Company,
the same percentage of the total number of the Option Securities as to which the
several Underwriters are then exercising the option as such Underwriter is
obligated to purchase of the aggregate number of Firm Securities, as adjusted by
the Representatives in such manner as they deem advisable to avoid fractional
shares. If the option is exercised as to all or any portion of the Option
Securities, one or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the related Option
Closing Date in the manner, and upon the terms and conditions, set forth in
paragraph (a) of this Section 3, except that reference therein to the Firm
Securities and the Firm Closing Date shall be deemed, for purposes of this
paragraph (b), to refer to such Option Securities and Option Closing Date,
respectively.
(c) Simultaneous with delivery to the Underwriters of and payment
by the Underwriters for (i) the Firm Securities on the Firm Closing Date and
(ii) any Option Securities on the related Option Closing Date, the Manager and
Conseco jointly and severally agree to pay to the Underwriters an amount equal
to five percent (5%) of the purchase price per Share for each Share to be
purchased by the Underwriters on such date by wire transfer of immediately
available funds to an account designated by Prudential Securities Incorporated
for the respective accounts of the Underwriters purchasing the Shares on such
date.
(d) It is understood that any of you, individually and not as one
of the Representatives, may (but shall not be obligated to) make payment on
behalf of any Underwriter or Underwriters for any of the Securities to be
purchased by such Underwriter or Underwriters. No such payment shall relieve
such Underwriter or Underwriters from any of its or their obligations hereunder.
4. Offering by the Underwriters. Upon your authorization of the release of
----------------------------
the Firm Securities, the several Underwriters propose to offer the Firm
Securities for sale to the public upon the terms set forth in the Prospectus.
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<PAGE>
5. Covenants of the Company. (a) The Company covenants and agrees with each
------------------------
of the Underwriters that:
(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of
this Agreement, and any amendments thereto to become effective as
promptly as possible. If required, the Company will file the
Prospectus and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rule
497(b), (d) or (h), as the case may be, under the Act. During any
time when a prospectus relating to the Securities is required to be
delivered under the Act, the Company (A) will comply with all
requirements imposed upon it by the Act, the Investment Company Act
and the respective rules and regulations of the Commission thereunder
to the extent necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof
and of the Prospectus, as then amended or supplemented, and (B) will
not file with the Commission the prospectus or the amendment referred
to in the third sentence of Section 2(a)(i) hereof, any amendment or
supplement to such prospectus or any amendment to the Registration
Statement of which the Representatives shall not previously have been
advised and furnished with a copy for a reasonable period of time
prior to the proposed filing and as to which filing the
Representatives shall not have given their consent. The Company will
prepare and file with the Commission, in accordance with the rules
and regulations of the Commission, promptly upon request by the
Representatives or counsel for the Underwriters, any amendments to
the Registration Statement or amendments or supplements to the
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities by the several Underwriters, and will
use its best efforts to cause any such amendment to the Registration
Statement to be declared effective by the Commission as promptly as
possible. The Company will advise the Representatives, promptly after
receiving notice thereof, of the time when the Registration Statement
or any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and
will provide evidence satisfactory to the Representatives of each
such filing or effectiveness.
(ii) The Company will advise the Representatives, promptly
after receiving notice or obtaining knowledge thereof, of (A) the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any amendment thereto
or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto,
(B) the suspension of the qualification of the Securities for
offering or sale in any jurisdiction, (C) the institution,
threatening or contemplation of any proceeding for any such purpose
or (D) any request made by the Commission for amending the
Registration Statement, for amending or supplementing the Prospectus
or for additional information. The Company will use its best efforts
to prevent the issuance of any such stop order and, if any such stop
order is issued, to obtain the withdrawal thereof as promptly as
possible.
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<PAGE>
(iii) The Company will arrange for the qualification of the
Securities for offering and sale under the securities or blue sky
laws of such jurisdictions as the Representatives may designate and
will continue such qualifications in effect for as long as may be
necessary to complete the distribution of the Securities; provided,
--------
however, that in connection therewith the Company shall not be
-------
required to qualify as a foreign business trust or to execute a
general consent to service of process in any jurisdiction.
(iv) If, at any time prior to the later of (A) the final date
when a prospectus relating to the Securities is required to be
delivered under the Act or (B) the Option Closing Date, any event
occurs as a result of which the Prospectus, as then amended or
supplemented, would include an untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which
they were made, not misleading, or if for any other reason it is
necessary at any time to amend or supplement the Prospectus to comply
with the Act, the Investment Company Act or the respective rules or
regulations of the Commission thereunder, the Company will promptly
notify the Representatives thereof and, subject to Section 5(a)(i)
hereof, will prepare and file with the Commission, at the Company's
expense, an amendment to the Registration Statement or an amendment
or supplement to the Prospectus that corrects such statement or
omission or effects such compliance.
(v) The Company will, without charge, provide (A) to the
Representatives and to counsel for the Underwriters (X) a signed copy
of the Notification of Registration and (Y) a signed copy of the
registration statement originally filed with respect to the
Securities and each amendment thereto (in each case including
exhibits thereto), a conformed copy of the registration statement
originally filed with respect to the Securities and each amendment
thereto (in each case including exhibits thereto), certified by the
Secretary or an Assistant Secretary of the Company to be true and
complete copies thereof as filed with the Commission by electronic
transmission, (B) to each other Underwriter, a conformed copy of such
Notification of Registration and such registration statement and each
amendment thereto (in each case without exhibits thereto) and (C) so
long as a prospectus relating to the Securities is required to be
delivered under the Act, as many copies of each Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto
as the Representatives may reasonably request.
(vi) The Company, as soon as practicable but in no event
later than 60 days after the period covered thereby, will make
generally available to its security holders and to the
Representatives a consolidated earnings statement of the Company that
satisfies the provisions of Section 11(a) of the Act and Rule 158
thereunder.
(vii) The Company will apply the net proceeds from the sale of
the Securities as set forth under "Use of Proceeds" in the
Prospectus.
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<PAGE>
(viii) The Company will use its best efforts to list, subject
to notice of issuance, the Securities to be sold by it on the New
York Stock Exchange simultaneously with the effectiveness of the
Registration Statement.
(ix) During a period of five years from the effective
date of the Registration Statement, the Company will furnish to the
Representatives copies of all reports and other communications
(financial or other) furnished by the Company to its shareholders
and, as soon as available, copies of any reports or financial
statements furnished or filed by the Company to or with the
Commission or any national securities exchange on which any class of
securities of the Company may be listed.
(x) The Company will not, directly or indirectly, without
the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of
sale, pledge, grant of any option to purchase or other sale or
disposition) of any Shares or any securities convertible into, or
exchangeable or exercisable for, Shares for a period of 180 days
after the date hereof, except pursuant to this Agreement and to the
Automatic Dividend Reinvestment Plan.
(xi) The Company and the Manager will not, directly or
indirectly, (i) take any action designed to cause or to result in, or
that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any
compensation for soliciting purchases of, the Securities or (B) pay
or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(xii) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to the
Option Closing Date, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to
be materially affected (regardless of whether such rumor, publication
or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after written notice from you advising
the Company to the effect set forth above, forthwith prepare, consult
with you concerning the substance of, and disseminate a press release
or other public statement, reasonably satisfactory to you, responding
to or commenting on such rumor, publication or event.
6. Expenses. (a) The Company agrees to pay all costs and expenses incident
--------
to the performance of the Company's obligations under this Agreement, whether or
not the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing or other production of documents with respect to
the transactions, including any costs of printing the registration statement
originally filed with respect to the Securities and any amendment thereto, the
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<PAGE>
Notification of Registration, any Preliminary Prospectus (including without
limitation, the expenses of printing the mailing folder for the Preliminary
Prospectus and the expenses of attaching the mailing folder to each Preliminary
Prospectus and of packaging each Preliminary Prospectus for distribution) and
the Prospectus and any amendment or supplement thereto, this Agreement, the
Management and Administration Agreement, the Custody Agreement, the Transfer and
Dividend Disbursing Agreement, and the Shareholder Servicing Agreement and any
blue sky memoranda, (ii) all arrangements relating to the delivery to the
Underwriters of copies of the foregoing documents, (iii) the fees and
disbursements of the Manager, the Custodian and the counsel, the accountants and
any other experts or advisors retained by the Company or the Manager, (iv) the
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and registrar's fees, (v)
the qualification of the Securities under state securities and blue sky laws,
including filing fees and fees and disbursements of counsel for the Underwriters
relating thereto, (vi) the filing fees of the Commission and the National
Association of Securities Dealers, Inc. relating to the Securities, (vii) any
listing of the Securities on the New York Stock Exchange, (viii) any meetings
with prospective investors in the Securities (other than as shall have been
specifically approved by the Representatives to be paid for by the Underwriters)
and (ix) advertising relating to the offering of the Securities (other than
shall have been specifically approved by the Representatives to be paid for by
the Underwriters). If the sale of the Securities provided for herein is not
consummated because any condition to the obligations of the Underwriters set
forth in Section 7 hereof is not satisfied, because this Agreement is terminated
pursuant to Section 11 hereof or because of any failure, refusal or inability on
the part of the Company or the Manager to perform all obligations and satisfy
all conditions on its respective part to be performed or satisfied hereunder
other than by reason of a default by any of the Underwriters, the Company and
the Manager jointly and severally agree to reimburse the Underwriters severally
upon demand for all out-of-pocket expenses (including counsel fees and
disbursements) that shall have been incurred by them in connection with the
proposed purchase and sale of the Securities. Neither the Company nor the
Manager shall in any event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this Agreement.
(b) If the Underwriters purchase the Firm Securities, the Company
will pay up to $250,000 to the Underwriters for out-of-pocket expenses incurred
in connection with the offering (including, but not limited to, advertising
relating to the offering of the Securities and travel expenses and the fees and
disbursements of counsel for the Underwriters). The Company will pay such amount
by permitting the Underwriters to deduct such amount from the proceeds payable
to the Company on the Firm Closing Date pursuant to Section 3(a) hereof.
7. Conditions of the Underwriters' Obligations. The obligations of the
-------------------------------------------
several Underwriters to purchase and pay for the Firm Securities shall be
subject, in the Representatives' sole discretion, to the accuracy of the
representations and warranties of the Company and the Manager contained herein
as of the date hereof and as of the Firm Closing Date, as if made on and as of
the Firm Closing Date, to the accuracy of the statements of the Company's and
the Manager's officers made pursuant to the provisions hereof, to the
performance by the Company and the Manager of its covenants and agreements
hereunder and to the following additional conditions:
15
<PAGE>
(a) If the Registration Statement or any amendment thereto filed prior
to the Firm Closing Date has not been declared effective as of the time of
execution hereof, the Registration Statement or such amendment shall have been
declared effective not later than 11 A.M., New York time, on the date on which
the amendment to the registration statement originally filed with respect to the
Securities or to the Registration Statement, as the case may be, containing
information regarding the initial public offering price of the Securities has
been filed with the Commission, or such later time and date as shall have been
consented to by the Representatives; the Prospectus and any amendment or
supplement thereto shall have been filed with the Commission in the manner and
within the time period required by Rule 497(b), (d) or (h), as the case may be,
under the Act; no stop order suspending the effectiveness of the Registration
Statement or any amendment thereto shall have been issued, and no proceedings
for that purpose shall have been instituted or threatened or, to the knowledge
of the Company or the Representatives, shall be contemplated by the Commission;
and the Company shall have complied with any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise).
(b) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Kirkpatrick & Lockhart LLP, counsel for the Company, to the
effect that:
(i) the Company has been duly organized and is validly
existing as a business trust in good standing under the laws of the
Commonwealth of Massachusetts and is duly qualified to transact
business and is in good standing under the laws of all other
jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified does not amount to a material liability or
disability to the Company;
(ii) the Company has corporate power to own or lease its
properties and conduct its business as described in the Registration
Statement and the Prospectus, and the Company has corporate power to
enter into this Agreement, the Management and Administration
Agreement, the Custody Agreement, the Transfer and Dividend
Disbursing Agreement, and the Shareholder Servicing Agreement and to
carry out all the terms and provisions hereof and thereof to be
carried out by it;
(iii) the Company is duly registered with the Commission
pursuant to Section 8 of the Investment Company Act as a closed-end
non-diversified management investment company; and the Company's
declaration of trust and by-laws comply in all material respects with
the Investment Company Act and the rules and regulations of the
Commission thereunder;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued
Shares have been duly authorized and validly issued and are fully
paid and nonassessable, have been issued in compliance with all
applicable federal and state securities laws and were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities; the Firm Securities have been
duly
16
<PAGE>
authorized by all necessary corporate action of the Company and, when
issued and delivered to and paid for by the Underwriters pursuant to this
Agreement, will be validly issued, fully paid and nonassessable; the
Securities have been duly authorized for listing, subject to official
notice of issuance, on the New York Stock Exchange; no holders of
outstanding Shares are entitled as such to any preemptive or other rights
to subscribe for any of the Securities; and no holders of securities of the
Company are entitled to have such securities registered under the
Registration Statement;
(v) the statements set forth under the heading "Description of
Shares" in the Prospectus, insofar as such statements purport to summarize
certain provisions of the Shares or the Company's Declaration of Trust,
provide a fair summary of such provisions; the statements set forth under
the heading "Taxes" in the Prospectus, insofar as such statements purport
to summarize certain United States federal income tax considerations
relating to the Company and to acquisition, ownership and disposition of
shares, provide a fair summary of such considerations; and the statements
set forth under the headings "Dividends and Other Distributions" (in
respect of the second paragraph thereof) and "Automatic Dividend
Reinvestment Plan" in the Prospectus, insofar as such statements constitute
a summary of the legal matters, documents or proceedings referred to
therein, provide a fair summary of such legal matters, documents and
proceedings;
(vi) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company, and this
Agreement has been duly executed and delivered by the Company;
(vii) the execution and delivery of each of the Management and
Administration Agreement, the Custody Agreement, the Transfer and Dividend
Disbursing Agreement, and the Shareholder Servicing Agreement have been
duly authorized by all necessary corporate action of the Company and the
Management and Administration Agreement, the Custody Agreement, the
Transfer and Dividend Disbursing Agreement, and the Shareholder Servicing
Agreement and the Automatic Dividend Reinvestment Plan comply with all
applicable provisions of the Investment Company Act and the Advisers Act,
and, assuming due authorization, execution and delivery by the other
parties thereto, the Management and Administration Agreement, the Custody
Agreement, the Transfer and Dividend Disbursing Agreement, and the
Shareholder Servicing Agreement are the legal, valid, binding, and
enforceable instruments of the Company and comply in all material respects
with the requirements of the Advisers Act and the Investment Company Act
and the respective rules and regulations of the Commission thereunder;
(viii) To the best knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company is a party or to
which the property of the Company is subject that are required to be
described in the Registration Statement or the Prospectus and are not
described therein, and, to
17
<PAGE>
the best knowledge of such counsel, no such proceedings have been
threatened against the Company or with respect to any of its properties and
(B) no contract or other document is required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to
the Registration Statement that is not described therein or filed as
required;
(ix) the issuance, offering and sale of the Securities to the
Underwriters by the Company pursuant to this Agreement, the compliance by
the Company with the other provisions of this Agreement, the Management and
Administration Agreement, the Custody Agreement, the Transfer and Dividend
Disbursing Agreement, and the Shareholder Servicing Agreement and the
consummation of the other transactions herein contemplated do not (A)
require the consent, approval, authorization, registration or qualification
of or with any governmental authority, except such as have been obtained
and such as may be required under state securities or blue sky laws, or (B)
conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, lease or other agreement or instrument, known to such counsel, to
which the Company is a party or by which the Company or any of its
properties are bound, or the declaration of trust or by-laws of the
Company, or any statute or any judgment, decree, order, rule or regulation
of any court or other governmental authority or any arbitrator known to
such counsel and applicable to the Company;
(x) the Registration Statement is effective under the Act; the
filing of the Prospectus pursuant to Rule 497(b), (d) or (h), as the case
may be, has been made in the manner and within the time period required by
Rule 497(b), (d) or (h), as the case may be; and, to the best knowledge of
such counsel after reasonable inquiry, no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto has
been issued, and no proceedings for that purpose have been instituted or
threatened or, to the best knowledge of such counsel, are contemplated by
the Commission;
(xi) the Registration Statement originally filed with respect to
the Securities and each amendment thereto and the Prospectus (in each case,
other than the financial statements and other financial information
contained therein, as to which such counsel need express no opinion) comply
as to form in all material respects with the applicable requirements of the
Act, the Investment Company Act and the respective rules and regulations of
the Commission thereunder;
(xii) To the best knowledge of such counsel, the Company is not
currently in breach of, or in default under, any written agreement or
instrument to which the Company is a party or by which it or its property
is bound or affected;
(xiii) The Shares have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance, and the Company's
Registration Statement on Form 8-A under the Exchange Act is effective;
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<PAGE>
(xiv) The form of the certificates for the Shares conform to the
requirements of Massachusetts law; and
(xv) The Company does not require any tax or other rulings to
enable it to qualify as a regulated investment company under Subchapter M
of the Code.
Such counsel shall also state that they have no reason to believe that the
Registration Statement, as of its effective date, contained an untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date and the date of such opinion, included or includes an
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such counsel may state
that the limitations inherent in the independent verification of factual matters
and the character of determinations involved in the registration process are
such, however, that they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and Prospectus. Such counsel may also include a statement regarding
the potential for shareholders of the Company being held personally liable for
the obligations of the Company. In addition, such counsel need not express any
opinion or belief as to the financial statements contained in the Registration
Statement or the Prospectus.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company, the Manager and Conseco and public officials.
References to the Registration Statement and the Prospectus in this
paragraph (b) shall include any amendment or supplement thereto at the date of
such opinion.
(c) The Representatives shall have received an opinion, dated the Firm
Closing Date, of John J. Sabl, Esq., general counsel of Conseco, to the effect
that:
(i) the Manager is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of Delaware and is
duly qualified to transact business as a foreign corporation and is in good
standing under the laws of all other jurisdictions where the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified does not amount
to a material liability or disability to the Manager;
(ii) the Manager has corporate power to own or lease its properties
and conduct its business as described in the Registration Statement and the
Prospectus, and the Manager has corporate power to enter into this
Agreement and the Management and Administration Agreement and to carry out
all the terms and provisions hereof and thereof to be carried out by it;
(iii) the Manager is duly registered with the Commission as an
investment adviser under the Advisers Act; and the Manager is not
prohibited by
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<PAGE>
any provision of the Advisers Act or the Investment Company Act, or the
respective rules and regulations of the Commission thereunder, from
performing its obligations under the Advisory Agreement;
(iv) the execution and delivery of this Agreement and the
Management and Administration Agreement have been duly authorized by all
necessary corporate action of the Manager; this Agreement and the
Management and Administration Agreement have been duly executed and
delivered by the Manager; and, assuming due authorization, execution and
delivery by the Company, the Management and Administration Agreement is the
legal, valid, binding and enforceable instrument of the Manager and
complies in all material respects with the Advisers Act and the Investment
Company Act and the respective rules and regulations of the Commission
thereunder;
(v) the compliance by the Manager with the provisions of this
Agreement and the Management and Administration Agreement and the
consummation of the other transactions herein contemplated do not (i)
require the consent, approval, authorization, registration or qualification
of or with any governmental authority, except such as have been obtained,
(ii) result in a material breach or violation of any of the terms and
provisions of, or constitute a material default under, any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which
the Manager is a party or by which the Manager or any of its properties are
bound, or (iii) conflict with the charter documents or by-laws of the
Manager or any statute or any judgment, decree, order, rule or regulation
of any court or other governmental authority or any arbitrator, stock
exchange or securities association known to such counsel and applicable to
the Manager;
(vi) the description of the Manager, Conseco and their respective
businesses contained in the Prospectus complies in all material respects
with the requirements of the Act and the Investment Company Act and the
respective rules and regulations of the Commission thereunder and, to the
best knowledge of such counsel after due inquiry, does not include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(vii) no legal or governmental proceedings are pending to which the
Manager is a party or to which the property of the Manager is subject that
are required to be described in the Registration Statement or the
Prospectus and are not described therein and, to the best knowledge of such
counsel, no such proceedings have been threatened against the Manager or
with respect to any of its properties;
(viii) Conseco is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of Indiana and has
corporate power to enter into this Agreement and to carry out all the terms
and provisions hereof to be carried out by it; and
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<PAGE>
(ix) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of Conseco; this Agreement has
been duly executed and delivered by Conseco.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Manager and Conseco and public officials.
References to the Registration Statement and the Prospectus in this
paragraph (c) shall include any amendment or supplement thereto at the date of
such opinion.
(d) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Cleary, Gottlieb, Steen & Hamilton, counsel for the
Underwriters, with respect to the issuance and sale of the Firm Securities, the
Registration Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall have furnished to
such counsel such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(e) The Representatives shall have received from PricewaterhouseCoopers LLP
a letter or letters dated, respectively, the date hereof and the Firm Closing
Date, in form and substance satisfactory to the Representatives, to the effect
that:
(i) they are independent accountants with respect to the Company
within the meaning of the Act, the Investment Company Act and the
respective rules and regulations thereunder;
(ii) in their opinion, the Statement of Assets, Liabilities and
Capital examined by them and included in the Registration Statement and the
Prospectus complies in form in all material respects with the applicable
accounting requirements of the Act, the Investment Company Act and the
respective rules and regulations of the Commission thereunder;
(iii) on the basis of a reading of the latest available interim
financial statements of the Company, carrying out certain specified
procedures (which do not constitute an examination made in accordance with
generally accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the shareholders, the
board of trustees and any committees thereof of the Company, and inquiries
of certain officials of the Company who have responsibility for financial
and accounting matters, nothing came to their attention that caused them to
believe that at a specific date not more than five business days prior to
the date of such letter, there were any changes in the shares of beneficial
interest or long-term debt of the Company or any decreases in stockholders'
equity of the Company, in each case compared with amounts shown on the
Statement of Assets and Liabilities included in the Registration Statement
and the Prospectus; and
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<PAGE>
(iv) they have recalculated certain data of a statistical or
financial nature identified by the Representatives and appearing in the
Prospectus, including without limitation, under the captions "Fee Table"
and "Other Investment Practices" and agree with the Company's calculation
of such data as set forth in the Prospectus.
In the event that the letters referred to above set forth any such changes
or decreases, it shall be a further condition to the obligations of the
Underwriters that (A) such letters shall be accompanied by a written explanation
of the Company as to the significance thereof, unless the Representatives deem
such explanation unnecessary, and (B) such changes or decreases do not, in the
sole judgment of the Representatives, make it impractical or inadvisable to
proceed with the purchase and delivery of the Securities as contemplated by the
Registration Statement, as amended as of the date hereof.
References to the Registration Statement and the Prospectus in this
paragraph (d) with respect to either letter referred to above shall include any
amendment or supplement thereto at the date of such letter.
(f) The Representatives shall have received a certificate, dated the Firm
Closing Date, of the principal executive officer and the principal financial or
accounting officer of the Company to the effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the Registration Statement, as amended as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein not misleading,
and the Prospectus, as amended or supplemented as of the Firm Closing Date,
does not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
the Company has performed all covenants and agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the Firm
Closing Date;
(ii) no stop order suspending the effectiveness of the Registration
Statement or any amendment thereto has been issued, and no proceedings for
that purpose have been instituted or threatened or, to the best of the
Company's knowledge, are contemplated by the Commission; and
(iii) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not
sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or
any legal or governmental proceeding, and there has not been any material
adverse change, or any development involving a prospective material adverse
change, in the condition (financial or otherwise), management, business
prospects, net worth or results of operations of the
22
<PAGE>
Company, except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto).
(g) The Representatives shall have received a certificate, dated the Firm
Closing Date, of the principal executive officer and the principal financial or
accounting officer of the Manager to the effect that:
(i) the representations and warranties of the Manager in this
Agreement are true and correct as if made on and as of the Firm Closing
Date; the description of the Manager or Conseco and their businesses
contained in the Prospectus, as amended or supplemented as of the Firm
Closing Date, does not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and
(ii) subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Manager has not
sustained any material loss or interference with its business or properties
from fire, flood, hurricane, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or
governmental proceeding, and there has not been any material adverse
change, or any development involving a prospective material adverse change,
in the condition (financial or otherwise), business prospects, net worth or
results of operations of the Manager, except in each case as described in
or contemplated by the Prospectus (exclusive of any amendment or supplement
thereto).
(h) On or before the Firm Closing Date, the Representatives shall have
received from each Trustee and officer of the Company a letter, dated the Firm
Closing Date, containing the agreement of such Trustee and officer not to,
directly or indirectly, without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, offer, sell, offer to
sell, contract to sell, pledge, grant any option to purchase or otherwise sell
or dispose (or announce any offer, sale, offer to sell, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of any
Shares or any securities convertible into, or exchangeable or exercisable for,
Shares for a period of one year after the date hereof.
(i) On or before the Firm Closing Date, the Representatives and counsel for
the Underwriters shall have received such further certificates, documents or
other information as they may have reasonably requested from the Company.
(j) Prior to the commencement of the offering of the Securities, the
Securities shall have been approved for listing on the New York Stock Exchange,
subject to official notice of issuance.
All opinions, certificates, letters and documents delivered pursuant to
this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Representatives and
counsel for the Underwriters. The Company and the Manager shall furnish to the
Representatives such conformed copies of such opinions,
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<PAGE>
certificates, letters and documents in such quantities as the Representatives
and counsel for the Underwriters shall reasonably request.
The respective obligations of the several Underwriters to purchase
and pay for any Option Securities shall be subject, in their discretion, to each
of the foregoing conditions to purchase the Firm Securities, except that all
references to the Firm Securities and the Firm Closing Date shall be deemed to
refer to such Option Securities and the related Option Closing Date,
respectively.
8. Indemnification and Contribution. (a) The Company and the Manager jointly
--------------------------------
and severally (subject to clause (i) below) agree to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against
any losses, claims, damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made by the
Company or the Manager in Section 2 of this Agreement; provided, however,
that under this clause (i) the Company shall be liable solely for untrue
statements or alleged untrue statements made by the Company in Section 2 of
this Agreement,
(ii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto or (B) any application or other document, including the
Notification of Registration, or any amendment or supplement thereto,
executed by the Company or based upon written information furnished by or
on behalf of the Company filed in any jurisdiction in order to qualify the
Securities under the securities or blue sky laws thereof or filed with the
Commission or any securities association or securities exchange (each an
"Application"),
(iii) the omission or alleged omission to state in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application a
material fact required to be stated therein or necessary to make the
statements therein not misleading or
(iv) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in connection
with the marketing of the Securities that have been approved in writing or
provided, prepared or authorized by the Company ("Sales Material"),
including without limitation, slides, videos, films, tape recordings, and
will reimburse, as incurred, each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such
Underwriter or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with
any such loss, claim, damage, liability or action; provided,
24
<PAGE>
however, that neither the Company nor the Manager will be liable in
any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or any amendment thereto, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto,
any Application or any Sales Materials in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter through the Representatives specifically for use therein;
and provided, further, that neither the Company nor the Manager will
-------- -------
be liable to any Underwriter or any person controlling such
Underwriter with respect to any such untrue statement or omission
made in any Preliminary Prospectus that is corrected in the
Prospectus (or any amendment or supplement thereto) if the person
asserting any such loss, claim, damage or liability purchased
Securities from such Underwriter but was not sent or given a copy of
the Prospectus (as amended or supplemented) at or prior to the
written confirmation of the sale of such Securities to such person in
any case where such delivery of the Prospectus (as amended or
supplemented) is required by the Act, unless such failure to deliver
the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5(d) and (e) of this
Agreement. This indemnity agreement will be in addition to any
liability which the Company or the Manager may otherwise have.
Neither the Company or the Manager will, without the prior written
consent of the Underwriter or Underwriters purchasing, in the
aggregate more than fifty percent (50%) of the Securities, settle or
compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any such
Underwriter or any person who controls any such Underwriter within
the meaning of Section 15 of the Act or Section 20 of the Exchange
Act is a party to such claim, action, suit or proceeding), unless
such settlement, compromise or consent includes an unconditional
release of all of the Underwriters and such controlling persons from
all liability arising out of such claim, action, suit or proceeding.
(b) Each Underwriter, severally and not jointly, will indemnify and
hold harmless the Company and the Manager, each of the Company's trustees, each
of the Company's officers who signed the Registration Statement and each person,
if any, who controls the Company or the Manager within the meaning of Section 15
of the Act or Section 20 of the Exchange Act against any losses, claims, damages
or liabilities to which the Company or any such trustee, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment thereto,
any Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, any Application or any Sales Material or (ii) the omission or the
alleged omission to state therein a material fact required to be stated in the
Registration Statement or any amendment thereto any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, any Application or any
Sales Material or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
25
<PAGE>
reliance upon and in conformity with written information furnished to the
Company by such Underwriter through the Representatives specifically for use
therein; and, subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any legal or other expenses reasonably
incurred by the Company or the Manager or any such trustee, officer or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or any action in respect thereof. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
- -------- -------
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be one or more legal defenses available
to it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party, the indemnifying party shall not have
the right to direct the defense of such action on behalf of such indemnified
party or parties and such indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and approval by such
indemnified party of counsel appointed to defend such action, the indemnifying
party will not be liable to such indemnified party under this Section 8 for any
legal or other expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection with the defense
thereof, unless (i) the indemnified party shall have employed separate counsel
in accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Representatives in the case of
paragraph (a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel satisfactory to the
indemnified party or (iii) the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified party, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the consent
of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable
26
<PAGE>
contribution, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect (i) the
relative benefits received by the indemnifying party or parties on the one hand
and the indemnified party on the other from the offering of the Securities or
(ii) if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, not only such relative benefits but also the relative fault of
the indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged statements
or omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof) as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Manager on
the one hand (it being understood that for such purpose, the Company and the
Manager shall be treated as one entity) and the Underwriters on the other shall
be deemed to be in the same proportion as the total proceeds from the offering
(before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters. The
relative fault of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, the Manager or the Underwriters, the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission, and any other equitable considerations appropriate
in the circumstances. The Company, the Manager and the Underwriters agree that
it would not be equitable if the amount of such contribution were determined by
pro rata or per capita allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not take
into account the equitable considerations referred to above in this paragraph
(d). Notwithstanding any other provision of this paragraph (d), no Underwriter
shall be obligated to make contributions hereunder that in the aggregate exceed
the total public offering price of the Securities purchased by such Underwriter
under this Agreement, less the aggregate amount of any damages that such
Underwriter has otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute hereunder are
several in proportion to their respective underwriting obligations and not
joint, and contributions among Underwriters shall be governed by the provisions
of the Prudential Securities Incorporated Master Agreement Among Underwriters.
For purposes of this paragraph (d), each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such Underwriter, and
each trustee of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company or the
Manager within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, shall have the same rights to contribution as the Company or the
Manager, as the case may be.
(e) Conseco agrees with the Underwriters that it shall be jointly and
severally liable with the Manager for the obligations of the Manager under this
Section 8.
9. Default of Underwriters. If one or more Underwriters default in their
-----------------------
obligations to purchase Firm Securities or Option Securities hereunder and the
aggregate number of such Securities that such defaulting Underwriter or
Underwriters agreed but failed to purchase is ten
27
<PAGE>
percent or less of the aggregate number of Firm Securities or Option Securities
to be purchased by all of the Underwriters at such time hereunder, the other
Underwriters may make arrangements satisfactory to the Representatives for the
purchase of such Securities by other persons (who may include one or more of the
non-defaulting Underwriters, including the Representatives), but if no such
arrangements are made by the Firm Closing Date or the related Option Closing
Date, as the case may be, the other Underwriters shall be obligated severally in
proportion to their respective commitments hereunder to purchase the Firm
Securities or Option Securities that such defaulting Underwriter or Underwriters
agreed but failed to purchase. If one or more Underwriters so default with
respect to an aggregate number of Securities that is more than ten percent of
the aggregate number of Firm Securities or Option Securities, as the case may
be, to be purchased by all of the Underwriters at such time hereunder, and if
arrangements satisfactory to the Representatives are not made within 36 hours
after such default for the purchase by other persons (who may include one or
more of the non-defaulting Underwriters, including the Representatives) of the
Securities with respect to which such default occurs, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Manager other than as provided in Section 10 hereof. In the event
of any default by one or more Underwriters as described in this Section 9, the
Representatives shall have the right to postpone the Firm Closing Date or the
Option Closing Date, as the case may be, established as provided in Section 3
hereof for not more than seven business days in order that any necessary changes
may be made in the arrangements or documents for the purchase and delivery of
the Firm Securities or Option Securities, as the case may be. As used in this
Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 9. Nothing herein shall relieve any defaulting
Underwriter from liability for its default.
10. Survival. The respective representations, warranties, agreements,
--------
covenants, indemnities and other statements of the Company, the Manager, the
officers of the Company, the Manager and Conseco and the several Underwriters
set forth in this Agreement or made by or on behalf of them pursuant to this
Agreement shall remain in full force and effect, regardless of (i) any
investigation made by or on behalf of the Company, the Manager, Conseco, any of
their officers or trustees, any Underwriter or any controlling person referred
to in Section 8 hereof and (ii) delivery of and payment for the Securities. The
respective agreements, covenants, indemnities and other statements set forth in
Sections 6 and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated with respect to the
-----------
Firm Securities or any Option Securities in the sole discretion of the
Representatives by notice to the Company given prior to the Firm Closing Date or
the related Option Closing Date, respectively, in the event that the Company or
the Manager shall have failed, refused or been unable to perform all obligations
and satisfy all conditions on its part to be performed or satisfied hereunder at
or prior thereto or, if at or prior to the Firm Closing Date or such Option
Closing Date, respectively,
(i) the Company or the Manager shall have, in the sole
judgment of the Representatives, sustained any material loss or
interference with its business or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding or there shall have been any material adverse change, or
any
28
<PAGE>
development involving a prospective material adverse change
(including without limitation a change in management or control of
the Company or the Manager, as the case may be), in the condition
(financial or otherwise), business prospects, net worth or results of
operations of the Company or the Manager, except in each case as
described in or contemplated by the Prospectus (exclusive of any
amendment or supplement thereto);
(ii) trading in the Shares shall have been suspended by the
Commission or the New York Stock Exchange or trading in securities
generally on the New York Stock Exchange shall have been suspended or
minimum or maximum prices shall have been established;
(iii) a banking moratorium shall have been declared by New
York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political of financial
conditions having an effect on the U. S. financial markets that, in
the sole judgment of the Representatives, makes it impractical or
inadvisable to proceed with the public offering or the delivery of
the Securities as contemplated by the Registration Statement, as
amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by Underwriters. The statements set forth in the last
------------------------------------
paragraph on the front cover page and under the heading "Underwriting" in any
Preliminary Prospectus or the Prospectus (to the extent such statements relate
to the Underwriters) constitute the only information furnished by any
Underwriter through the Representatives to the Company for the purposes of
Sections 2(a)(ii) and 8 hereof. The Underwriters confirm that such statements
(to such extent) are correct.
13. Notices. All communications hereunder shall be in writing and, if sent to
-------
any of the Underwriters, shall be delivered or sent by mail, telex or facsimile
transmission and confirmed in writing to Prudential Securities Incorporated, One
New York Plaza, New York, New York 10292, Attention: Equity Transactions Group;
if sent to the Company, shall be delivered or sent by mail, telex or facsimile
transmission and confirmed in writing to the Company at 11825 N. Pennsylvania
Street, Carmel, Indiana 46032 Attention: William P. Latimer, Esq.; if sent to
the Manager, shall be mailed, delivered or telegraphed and confirmed in writing
to the Manager at 11815 N. Pennsylvania Street, Carmel, Indiana 46032,
Attention: John J. Sabl, Esq.; and if sent to Conseco, shall be mailed,
delivered or telegraphed and confirmed to it in writing to Conseco at 11815 N.
Pennsylvania Street, Carmel, Indiana 46032, Attention: John J. Sabl, Esq.
14. Successors. This Agreement shall inure to the benefit of and shall be
----------
binding upon the several Underwriters, the Company, the Manager, Conseco and
their respective successors and
29
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legal representatives, and nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any other person any legal or equitable
right, remedy or claim under or in respect of this Agreement, or any provisions
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemnities of the
Company, the Manager and Conseco contained in Section 8 of this Agreement shall
also be for the benefit of any person or persons who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
and (ii) the indemnities of the Underwriters contained in Section 8 of this
Agreement shall also be for the benefit of the trustees of the Company, the
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company or the Manager within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of
Securities from any Underwriter shall be deemed a successor because of such
purchase.
30
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[Conseco Strategic Income Fund Underwriting Agreement]
15. Limitation of Liability of Trustees and Shareholders. A copy of the
----------------------------------------------------
Company's Declaration of Trust is on file with the Secretary of the Commonwealth
of Massachusetts, and notice is hereby given that this Agreement is executed on
behalf of the Company's Trustees as Trustees under the Declaration of Trust and
not individually. The Underwriters acknowledge and agree that the obligations of
the Company hereunder are not personally binding upon any of the Trustees or
shareholders of the Company but are binding only upon property of the Company.
16. Applicable Law. The validity and interpretation of this Agreement, and the
--------------
terms and conditions set forth herein, shall be governed by and construed in
accordance with the law of the State of New York, without giving effect to any
provisions relating to conflicts of laws.
17. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. If signed in counterparts, the
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute an agreement binding the Company, the
Manager, Conseco and each of the several Underwriters.
Very truly yours,
CONSECO STRATEGIC INCOME FUND
By
-------------------------
Name:
Title:
CONSECO CAPITAL MANAGEMENT, INC.
By
-------------------------
Name:
Title:
CONSECO, INC.
By
-------------------------
Name:
Title:
31
<PAGE>
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
CROWELL, WEEDON & CO.
LEGG MASON WOOD WALKER INCORPORATED
McDONALD & COMPANY SECURITIES, INC.
MORGAN KEEGAN & COMPANY, INC.
By PRUDENTIAL SECURITIES INCORPORATED
By
------------------------------------
Name: Jean-Claude Canfin
Title: Managing Director
For itself and on behalf of the Representatives.
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<PAGE>
SCHEDULE 1
UNDERWRITERS
Number of Firm
Securities to
Underwriter be Purchased
- ----------- ------------
Prudential Securities Incorporated . . . . .
Crowell, Weedon & Co.
Legg Mason Wood Walker Incorporated
McDonald & Company Securities, Inc.
Morgan Keegan & Company, Inc.
[Insert names of other Underwriters
----------------------------------
______
Total
======
33
<PAGE>
EXHIBIT 99.2(h)(3)
Capital Transactions
Form of Master Selected Dealer Agreement
October 1, 1991
Dear Sirs:
On or after the date hereof we may invite you to participate as a selected
dealer in connection with one or more public offerings of securities in which we
are serving as sole or lead representative of the underwriting syndicates or are
otherwise responsible for the distribution of securities to the public by means
of offerings of securities for sale to selected dealers. This Agreement will
confirm our mutual agreement to the following general terms and conditions
applicable to your participation in any such selected dealer group.
1. Applicability of this Agreement. From time to time on or after the
date hereof we may be responsible (acting for our own account or for the account
of an underwriting or similar group or syndicate) for managing or otherwise
implementing the sale to selected dealers ("Selected Dealer") of securities
offered publicly pursuant to a registration statement filed under the Securities
Act of 1933, as amended (the "Securities Act"), or offered pursuant to an
exemption from registration thereunder. The terms and conditions of this
Agreement shall be applicable to any such offering in which we have invited you
to participate as a Selected Dealer and have expressly informed you that the
terms and conditions of this Agreement apply. This Agreement shall not apply to
any offering of securities effected wholly outside the United States of America.
Any offering to which the terms and conditions of this Agreement apply is herein
referred to as an "Offering", and the securities offered in an Offering are
herein referred to as the "Securities" with respect to such Offering. In the
case of any Offering in which we are acting for the account of an underwriting
or similar group or syndicate ("Underwriters"), the terms and conditions of this
Agreement shall be for the benefit of, and binding upon, such Underwriters,
including, in the case of any Offering in which we are acting with others as
representatives of Underwriters, such other representatives. Some or all of the
Underwriters in any Offering may be included among the Selected Dealers.
The following provisions of this Agreement shall apply separately to each
Offering.
2. Conditions of Offering; Acceptance and Purchase. Any Offering will be
subject to delivery of the Securities and their acceptance by us and any other
Underwriters, will be subject to prior sale, to the approval of all legal
matters by counsel and the satisfaction of other conditions, and may be made on
the basis of a reservation of Securities or an allotment against subscription.
We reserve the right to reject any acceptance in whole or in part, to make
allotments and to close the subscription books at any time without notice. You
agree to act as principal in purchasing any Securities.
We shall invite you to participate in an Offering and in connection
therewith shall advise you of the particular method and supplementary terms and
conditions of the Offering (including the amount of Securities to be alloted to
you, the amount of Securities reserved for purchase by
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the Selected Dealers, the period of such reservation and the information as to
prices and offering date referred to in Section 3(c) hereof). Such invitation
and additional information, to the extent applicable and then determined, shall
be conveyed to you in a telegram, telex, facsimile transmission or other written
form (electronic or otherwise) of communication (any communication in any such
form being herein referred to as a "written communication"). Such written
communication will include instructions for advising us of your acceptance of
such invitation. Any such additional information, to the extent applicable but
not determined at the time such invitation is conveyed to you, will be conveyed
to you in a subsequent written communication. To the extent such supplementary
terms and conditions are inconsistent with any provision herein, such terms and
conditions shall supersede any such provision, and you, by your acceptance,
shall be bound thereby. If we have received your acceptance, a subsequent
written communication from us shall state that you may reject your allotment of
Securities by notifying us prior to the time and in the manner specified in such
written communication. Unless otherwise indicated in any such written
communication, acceptances and other communications by you with respect to an
Offering should be sent to Prudential Securities Incorporated, One Seaport
Plaza, New York, New York 10292, Attention: Capital Transactions Group.
Unless you are notified otherwise by us, Securities purchased by you shall
be paid for on such date as we shall determine, on one day's prior notice to
you, by certified or official bank check or checks drawn on a New York Clearing
House bank and payable in next day funds, in an amount equal to the Public
Offering Price as (hereinafter defined) or, if we shall so advise you, at such
Public Offering Price less the Concession (as hereinafter defined), and payable
to or upon the order of Prudential Securities Incorporated, 100 Gold Street, New
York, New York 10292, against delivery of the Securities. If Securities are
purchased and paid for at such Public Offering Price, such Concession will be
paid after the termination of the provisions of Section 3(c) hereof with respect
to such Securities.
Unless you are notified otherwise by us, payment for and delivery of
Securities purchased by you shall be made through the facilities of The
Depository Trust Company, if you are a member, unless you have otherwise
notified us within two days after the date the Securities are first released for
public offering or, if you are not a member, settlement may be made through a
correspondent who is a member pursuant to instructions you may send to us on or
before the third business day preceding the closing for the sale of the
Securities.
3. Offering Documents.
(a) Registered Offerings. In the case of an Offering of Securities
registered under the Securities Act (a "Registered Offering"), we shall provide
you with such number of copies of any prospectus subject to completion (a
"preliminary prospectus"), the prospectus and any amendment or supplement to any
of the foregoing as you may reasonably request for the purposes contemplated by
the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the applicable rules and regulations of the Securities and
Exchange Commission (the "Commission") thereunder. You shall familiarize
yourself with the terms of the Securities and the other terms of the Offering
reflected in any such preliminary prospectus, prospectus, amendment or
supplement. You agree that in purchasing Securities in a Registered Offering
you will rely upon no statements whatsoever, written or oral, other than the
2
<PAGE>
statements in the prospectus delivered to you by us. You understand that you
will not be authorized by the issuer or any seller other than the issuer, any
guarantor or any insurer of Securities to give any information or to make any
representation not contained in a preliminary prospectus or the prospectus, as
amended or supplemented, in connection with the Offering of such Securities.
You represent and warrant that you are familiar with Securities Act Release No.
4968 and Rule 15c2-8 (or any successor release or provision) under the Exchange
Act and any applicable foreign laws (and any applicable rules and regulations
thereunder) and agree that you will deliver all preliminary prospectuses and
prospectuses required for compliance therewith. You agree to make a record of
your distribution of each preliminary prospectus and prospectus (including
dates, numbers of copies and persons to whom sent) and you shall, if requested
by us, furnish a copy of an amended or supplemented preliminary prospectus or
prospectus to each person to whom you have furnished a previous preliminary
prospectus or prospectus and, if also requested by us, indicate to each such
person the changes reflected in such amended or supplemented preliminary
prospectus or prospectus.
b. Non-Registered Offerings. In the case of an Offering other than a
Registered Offering, we shall provide you with such number of copies of any
preliminary offering circular or other document comparable to a preliminary
prospectus in a Registered Offering (a "preliminary offering circular") relating
to such Offering, a proof of an offering circular or other document comparable
to a prospectus in a Registered Offering (an "offering circular") relating to
such Offering or such offering circular, as you may reasonably request. You
shall familiarize yourself with the terms of the Securities and the other terms
of the Offering reflected in any such preliminary offering circular, proof of an
offering circular, offering circular or any amendment or supplement to any of
the foregoing. You agree that in purchasing Securities pursuant to an offering
circular you will rely upon no statements whatsoever, written or oral, other
than the statements in the offering circular delivered to you by us. You
understand that you will not be authorized by the issuer or any seller other
than the issuer, any guarantor or any insurer of the Securities offered pursuant
to the offering circular to give any information or to make any representation
not contained in a preliminary offering circular, a proof of an offering
circular or the offering circular, as amended or supplemented, in connection
with the sale of such Securities. You agree that you will comply with the
applicable federal, state and foreign laws, and the applicable rules and
regulations of any regulatory body promulgated under such laws, governing the
use and distribution of offering circulars by brokers or dealers and, to the
extent consistent with such laws, rules and regulations, you agree that you will
deliver all preliminary offering circulars and offering circulars that would be
required if the provisions of Rule 15c2-8 (or any successor provision) under the
Exchange Act applied to such Offering. You agree to make a record of your
distribution of each preliminary offering circular, proof of an offering
circular and offering circular (including dates, numbers of copies and persons
to whom sent) and you shall, if requested by us, furnish a copy of an amended or
supplemented preliminary offering circular, proof of an offering circular or
offering circular to each person to whom you have furnished a previous
preliminary offering circular, proof of an offering circular or offering
circular and, if also requested by us, indicate to each such person the changes
reflected in such amended or supplemented preliminary offering circular, proof
of an offering circular or offering circular.
(c) Offer and Sale to the Public. With respect to any offering of
Securities, we shall inform you by a written communication of the initial public
offering price, if any, the selling
3
<PAGE>
concession to Selected Dealers, the reallowance (if any) to other dealers and
the time when you may commence selling Securities to the public. After such
public offering has commenced, we may change the public offering price, the
selling concession and the reallowance. The offering price, selling concession
and reallowance (if any) at any time in effect with respect to an Offering are
hereinafter referred to, respectively, as the "Public Offering Price", the
"Concession" and the "Reallowance". With respect to each Offering of
Securities, until the provisions of this Section 3(c) shall be terminated
pursuant to Section 4 hereof, you agree to offer Securities to the public only
at the Public Offering Price, except that if a Reallowance is in effect, a
reallowance form the Public Offering Price not in excess of such Reallowance may
be allowed. If such Offering is subject to the By-Laws, rules and regulations
of the National Association of Securities Dealers, Inc. (the "NASD"), such
Reallowance may be allowed only as consideration for services rendered in
distribution to dealers who are actually engaged in the investment banking or
securities business, who execute the written agreement prescribed by Section
24(c) of Article III of the Rules of Fair Practice of the NASD and who are
either members in good standing of the NASD or are foreign banks, dealers or
institutions not eligible for membership in the NASD who represent to you that
they will promptly reoffer such Securities at the Public Offering Price and will
abide by the conditions with respect to foreign banks, dealers and institutions
set forth in Section 3(e) hereof. Any dealer who is allowed any Reallowance
hereby agrees that such amount will be retained and not reallowed in whole or in
part. Upon our request, you will advise us of the identity of any dealer to
whom you allowed a Reallowance and any Underwriter or dealer from whom you
received a Reallowance.
In connection with any Offering involving the public distribution of the
Securities through two or more underwriting syndicates, you agree to be bound
by, and all offers to sell and sales by you of Securities shall be subject to,
such limitations on offers to sell and sales of Securities as we may advise you
in a written communication, and you agree that any sales made by you to other
dealers shall be made only to such dealers as agree, in their offers to sell and
sales, to be bound by the same limitations.
(d) Over-allotment; Stabilization; Unsold Allotments. We may, with respect
to any Offering, be authorized (i) to over-allot in arranging for sales of
Securities to Selected Dealer and to institutions and other retail purchasers
and, if necessary, to purchase Securities or other securities of the issuer at
such prices as we may determine for the purpose of covering such over-allotments
and (ii) for the purpose of stabilizing the market in the Securities, to make
purchases and sales of Securities or of any other securities of the issuer or
any guarantor or insurer of the Securities as we may advise you by written
communication or otherwise, in the open market or otherwise, for long or short
account, on a when-issued basis or otherwise, at such prices, in such amounts
and in such manner as we may determine. You agree that upon our request at any
time and from time to time prior to the termination of the provisions of Section
3(c) hereof with respect to any Offering, you will report to us the amount of
Securities purchased by you pursuant to such Offering which then remain unsold
by you and will, upon our request at any such time, sell to us for our account
or the account of one or more Underwriters such amount of such unsold Securities
as we may designate at the Public Offering Price less an amount to be determined
by us not in excess of the Concession. If, prior to the later of (i) the
termination of the provisions of Section 3(c) hereof with respect to any
Offering or (ii) the covering by us of any short position created by us in
connection with such Offering for our account or the account of one or
4
<PAGE>
more Underwriters, we purchase or contract to purchase for our account or the
account of one or more Underwriters in the open market or otherwise any
Securities purchased by you under this Agreement as part of such Offering, you
agree to pay us on demand an amount equal to the Concession with respect to such
Securities (unless you shall have purchased such Securities) pursuant to Section
2 hereof at the Public Offering Price, in which case we shall not be obligated
to pay such Concession to you pursuant to Section 2), plus, in each case,
transfer taxes, broker's commissions or dealer's mark-ups, if any, and accrued
interest, amortization of original issue discount or accumulated dividends, if
any, paid in connection with such purchase or contract to purchase.
(e) NASD. The provisions of this Section 3(e) shall apply to any Offering
subject to the By-Laws, rules and regulations of the NASD.
You represent and warrant that you are a dealer actually engaged in the
investment banking or securities business and you are either a member in good
standing of the NASD or, if you are not such a member, you are a foreign bank,
dealer or institution not eligible for membership in the NASD which agrees to
make no sales within the United States of America, its territories or
possessions or to persons who are citizens thereof or residents therein (other
than through us) and to comply with all applicable rules of the NASD, including
the NASD's Interpretation with Respect to Free-Riding and Withholding, in making
sales outside the United States of America. You agree that, in connection with
any purchase or sale of any of the Securities wherein a selling concession,
discount or other allowance is received or granted, (i) you will comply with the
provisions of Section 24 of Article III of the NASD's Rules of Fair Practice and
(ii) if you are a non-NASD member broker or dealer in a foreign country, you
will also comply, (A) as though you were an NASD member, with the provisions of
Sections 8 and 36 thereof and (B) with Section 25 thereof as that section
applies to a non-NASD member broker or dealer in a foreign country. You
represent that you are fully familiar with the above provisions of the Rules of
Fair Practice of the NASD.
You represent, by your participation in an Offering, that neither you nor
any of your directors, officers, partners or "persons associated with" you (as
defined in the By-Laws of the NASD, which definition includes counsel, financial
consultants and advisors, finders, members of the selling or distribution group,
and any other persons associated with or related to any of the foregoing) or any
broker-dealer (i) within the last eighteen months has purchased in private
transactions, or intends before, at or within six months after the commencement
of the public offering of the Securities, to purchase in private transactions,
any securities (including warrants or options) of the issuer, its parent (if
any), any guarantor or insurer of the Securities or any subsidiary of any of the
foregoing or (ii) within the last twelve months had any dealings with the
issuer, any guarantor or insurer of the Securities, any seller other than the
foregoing or any subsidiary or controlling person of any of the foregoing (other
than in connection with the syndicate agreements relating to such Offering) as
to which documents or information are required to be filed with the NASD
pursuant to its interpretation with Respect to Review of Corporate Financing.
If we inform you that the NASD views the Offering as subject to Schedule E
to the By-Laws of the NASD, you agree that you shall, to the extent required,
offer the Securities in compliance with such Schedule and the NASD's
interpretation thereof.
5
<PAGE>
If we inform you that the NASD views the Securities as interests in a
direct participation program, you agree that you shall, to the extent required,
offer the Securities in compliance with the NASD's interpretation of Appendix F
of its Rules of Fair Practice.
(f) Relationship among Underwriters and Selected Dealers. We shall have
full authority to take such action as we may deem advisable in respect of all
matters pertaining to an Offering. We may buy Securities from or sell
Securities to any Underwriter or Selected Dealer and, with our consent, the
Underwriters (if any) and the Selected Dealers may purchase Securities from and
sell Securities to each other at the Public Offering Price less all or any part
of the Concession. You are not authorized to act as agent for us or any
Underwriter or the issuer, any seller other than the issuer, or any guarantor or
insurer of any Securities in offering Securities to the public or otherwise.
Neither we nor any Underwriter shall be under any obligation to you except
for obligations assumed hereby or in any written communication for us to you in
connection with any Offering. Furthermore, neither we nor any Underwriter shall
be under any liability for or in respect of the validity, value or delivery of
or title to, any Securities or any securities issuable upon exercise, conversion
or exchange of any Securities; the form of, or the statements contained in, or
the validity of, in the case of a Registered Offering, the registration
statement, any preliminary prospectus, the prospectus, any amendment or
supplement to any of the foregoing or any materials incorporated by reference in
any of the foregoing or, in the case of an Offering other than a Registered
Offering, any preliminary offering circular, any proof of an offering circular,
any offering circular, any amendment or supplement to any of the foregoing or
any materials incorporated by reference in any of the foregoing or, in either
case, any letters or instruments executed by or on behalf of the issuer, any
seller other than the issuer, any guarantor or insurer of the Securities or any
other party; the form or validity of any contract or agreement under which any
Securities may be issued or which governs the rights of holders of any
securities; the form or validity of any agreement for the purchase of the
Securities, any agreement among underwriter or any agreements between or among
underwriting syndicates; the performance by the issuer, any seller other than
the issuer. any guarantor or insurer of the Securities and any other parties of
any agreement on its or their parts; the qualification for sale in any
jurisdiction of any Securities or securities issuable upon exercise, conversion
or exchange of any Securities or the legality for investment of the Securities
or such securities under the laws of any jurisdiction; or any matter in
connection will any of the foregoing; provided, however, that nothing in this
paragraph shall be deemed to relieve us or any Underwriter from any liability
imposed by the Securities Act.
Nothing contained here or in any written communication from us shall
constitute the Selected Dealers an association or partners with us or any
Underwriter or with one another or, in the case of an Offering involving the
public distribution of the Securities through two or more underwriting
syndicates, with any underwriter or manager participating in any such syndicate.
If the Selected Dealers, among themselves or with the Underwriters and/or such
other underwriters or managers, should be deemed to constitute a partnership for
federal income tax purposes, then you elect to be excluded from the application
of Subchapter K, Chapter 1, Subtitle A of the Internal Revenue Code of 1986 and
agree not to take any position inconsistent with that election. You authorize
us, in our discretion, to execute and file on your behalf such evidence of that
6
<PAGE>
election as may be required by the Internal Revenue Service. In connection with
any Offering you shall be liable for your proportionate amount of any tax,
claim, demand or liability that may be asserted against you alone or against one
or more Selected Dealers participating in such Offering, or against us or the
Underwriters and/or such other underwriters or managers, if any, based upon the
claim that this Selected Dealers, or any of them, constitute an association, an
unincorporated business or other entity, including, in each case, your
proportionate share of any expense incurred in defending against any such tax,
claim, demand or liability.
(g) Legal Qualifications. It is understood that neither we nor any
Underwriter assumes any responsibility with respect to the right of any Selected
Dealer to offer or to sell Securities in any jurisdiction, notwithstanding any
"Blue Sky" memorandum or survey or any other information that we or any other
Underwriter may furnish as to the jurisdictions under the securities laws of
which it is believed the Securities may be sold. You authorize us to file with
the Department of State of the State of New York a Further State Notice with
respect to the Securities, if necessary.
If you propose to offer Securities outside of the United States of America,
its territories or its possessions, you will take, at your own expense and risk,
such action, if any, as may be necessary to comply with the laws of each foreign
jurisdiction in which you propose to offer Securities.
(h) Compliance with Law. You agree that in selling Securities pursuant to
any Offering (which agreement shall also be for the benefit of the issuer, any
seller other than the issuer and any guarantor or insurer of such Securities)
you will comply with the applicable provisions of the Securities Act and the
Exchange Act, the applicable rules and regulations of the Commission thereunder,
the applicable rules and regulations of the NASD, the applicable rules and
regulations of any securities exchange or other self-regulatory organization
having jurisdiction over the Offering and the applicable federal, state or
foreign laws, rules and regulations specified in Section 3 hereof.
You represent and agree that in connection with each Offering to which this
Agreement applies, you will comply with the provisions of Rule 106-b (or any
successor provision) under the Exchange Act, as amended or interpreted from time
to time by the Commission. You represent that you are fully familiar with the
provisions of said Rule.
4. Termination. This Agreement may be terminated by either party hereto
upon five business days' written notice to the other party; provided, however,
that with respect to any Offering, if we receive any such notice from you after
you have agreed to participate as a Selected Dealer in any Offering, this
Agreement shall remain in full force and effect as to such Offering and shall
terminate with respect to such Offering in accordance with the provisions of the
following paragraph.
Unless this Agreement or any provision hereof is earlier terminated by us,
and except as we may advise you in a written communication, the terms and
conditions of this Agreement will cease to be applicable to your participation
in an Offering at the close of business of the forty-fifth day after the date
the Securities are first released for public offering, but in our discretion
7
<PAGE>
may be extended by us by written communication for a further period or periods
not exceeding an aggregate of forty-five days; provided, however, that the
provisions of this Agreement that contemplate obligations surviving the
termination of its effectiveness shall survive such termination with respect to
any Offering.
5. Amendments. This Agreement may be amended or supplemented by us by
written notice to you and without need for further action on your part and,
except for amendments or supplements set forth in a written communication to you
relating solely to a particular Offering, any such amendment or supplement to
this Agreement shall be effective with respect to any Offering effected after
this Agreement is so amended or supplemented. Each reference herein to "this
Agreement" shall, as appropriate, be to this Master Selected Dealer Agreement as
so amended or supplemented.
6. Successors and Assigns. This Agreement shall be binding on, and inure
to the benefit of, the parties hereto and the other persons specified in
Sections 1 and 3 hereof, and the respective successors and assigns of each of
them.
7. APPLICABLE LAW. THIS AGREEMENT AND THE TERMS AND CONDITIONS SET FORTH
HEREIN WITH RESPECT TO ANY OFFERING, TOGETHER WITH SUCH SUPPLEMENTARY TERMS AND
CONDITIONS WITH RESPECT TO SUCH OFFERING AS MAY BE CONTAINED IN ANY WRITTEN
COMMUNICATION TO YOU IN CONNECTION THEREWITH, SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8. Notices. Any notice from us to you shall be deemed to have been duly
given if conveyed to you by written communication or telephone at the address
set forth at the end of this Agreement, or at such other address as you shall
have advised us in writing. Any notice from you to us shall be deemed to have
been duly given if conveyed to us by written communication or telephone at One
Seaport Plaza, New York, New York 10292, Attention: Capital Transactions Group.
Please confirm, by signing and returning this Agreement to us, your
acceptance of any agreement to the terms and conditions of this Agreement (as
amended and supplemented from time to time pursuant to Section 5 hereof),
together with and subject to any supplementary or alternative terms and
conditions contained in any written communication from us in connection with any
Offering, all of which shall constitute a binding agreement between you and us,
individually or as representative of any Underwriters. Your subscription to, or
your acceptance of any reservation of, any Securities pursuant to an Offering
shall constitute (i) confirmation that your representations and warranties set
forth in this Agreement are true and correct as of the times or for the periods
specified herein, (ii) confirmation that your agreements set forth in this
Agreement have been and will be performed by you to the extent and at the times
required hereby and (iii) acknowledgment that you have requested and received
from us sufficient copies of the prospectus or offering circular, as the case
may be, with respect to such Offering in order to comply with your undertakings
in Section 3(a) or 3(b) hereof.
8
<PAGE>
Very truly yours,
Prudential Securities Incorporated
By:
----------------------------------
David Weild IV, Managing Director
CONFIRMED as of the date first written above:
- --------------------------------------------
(Name of Dealer)
By:
-----------------------------------------
Title*:
-------------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
- -------------------------
*If signer is not an officer or partner, please attach evidence of
authorization.
9
<PAGE>
EXHIBIT 99.2(j)
FORM OF CUSTODIAN SERVICES AGREEMENT
------------------------------------
THIS AGREEMENT is made as of ____, 1998 by and between PNC BANK, NATIONAL
ASSOCIATION, a national banking association ("PNC Bank"), and CONSECO STRATEGIC
INCOME FUND, a Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PNC Bank to provide custodian services,
and PNC Bank wishes to furnish custodian services, either directly or through an
affiliate or affiliates, as more fully described herein.
NOW, THEREFORE, In consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. DEFINITIONS. AS USED IN THIS AGREEMENT:
----------------------------------------
(a) "1933 Act" means the Securities Act of 1933, as amended.
----------
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
----------
(c) "Authorized Person" means any officer of the Fund and any other person
-------------------
duly authorized by the Fund's Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Fund and listed
on the Authorized Persons Appendix attached hereto and made a part
hereof or any amendment thereto as may be received by PNC Bank. An
Authorized Person's scope of authority may be limited by the Fund by
setting forth such limitation in the Authorized Persons Appendix.
(d) "Book-Entry System" means Federal Reserve Treasury book-entry system
-------------------
for
1
<PAGE>
United States and federal agency securities, its successor or
successors, and its nominee or nominees and any book-entry system
maintained by an exchange registered with the SEC under the 1934 Act.
(e) "CEA" means the Commodities Exchange Act, as amended.
-----
(f) "Oral Instructions" mean oral instructions received by PNC Bank from
-------------------
an Authorized Person or from a person reasonably believed by PNC Bank
to be an officer of the Fund or one of the persons listed on the
Authorized Persons Appendix attached hereto (as the same may be
amended).
(g) "PNC Bank" means PNC Bank, National Association or a subsidiary or
----------
affiliate of PNC Bank, National Association.
(h) "SEC" means the Securities and Exchange Commission.
-----
(i) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act and
-----------------
the CEA.
(j) "Shares" mean the shares of beneficial interest in the Fund.
--------
(k) "Property" means:
----------
(i) any and all securities and other investment items which the
Fund may from time to time deposit, or cause to be deposited,
with PNC Bank or which PNC Bank may from time to time hold for
the Fund;
(ii) all income in respect of any of such securities or other
investment items;
(iii) all proceeds of the sale of any of such securities or
investment items; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by PNC Bank from time to time, from or on
behalf of the Fund.
(l) "Written Instructions" mean written instructions signed by two
----------------------
Authorized Persons and received by PNC Bank. The instructions may be
delivered by hand, mail, tested telegram, cable, telex, facsimile
sending device or electronic feed.
2. APPOINTMENT. The Fund hereby appoints PNC Bank to provide custodian
-----------
services to the
2
<PAGE>
Fund, and PNC Bank accepts such appointment and agrees to furnish such
services.
3. DELIVERY OF DOCUMENTS. The Fund has provided or, where applicable, will
---------------------
provide PNC Bank with the following:
(a) certified or authenticated copies of the resolutions of the Fund's
Board of Trustees, approving the appointment of PNC Bank or its
affiliates to provide custodian services to the Fund;
(b) a copy of the Fund's Registration Statement on Form N-2 under the 1933
Act and the 1940 Act filed with the SEC;
(c) a copy of the Fund's investment management and administration
agreement;
(d) a copy of the Fund's underwriting agreement; and
(e) certified or authenticated copies of any and all amendments or
supplements to the foregoing.
4. COMPLIANCE WITH LAWS.
--------------------
PNC Bank undertakes to comply with all applicable requirements of the
Securities Laws and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to the duties to be performed
by PNC Bank hereunder. Except as specifically set forth herein, PNC Bank
assumes no responsibility for such compliance by the Fund.
5. INSTRUCTIONS.
------------
(a) Unless otherwise provided in this Agreement, PNC Bank shall act only
upon Oral Instructions and Written Instructions.
(b) PNC Bank shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a
person reasonably believed by PNC Bank to be an officer of the Fund or
one of the persons listed on the Authorized Persons Appendix attached
hereto (as the same may be amended)) pursuant to this Agreement. PNC
Bank may assume that any Oral Instructions or
3
<PAGE>
Written Instructions received hereunder are not in any way
inconsistent with the provisions of organizational documents of the
Fund or of any vote, resolution or proceeding of the Fund's Board of
Trustees or of the Fund's shareholders, unless and until PNC Bank
receives Written Instructions to the contrary.
(c) The Fund agrees to forward to PNC Bank Written Instructions confirming
Oral Instructions (except where such Oral Instructions are given by
PNC Bank or its affiliates) so that PNC Bank receives the Written
Instructions by the close of business on the same day that such Oral
Instructions are received. The fact that such confirming Written
Instructions are not received by PNC Bank shall in no way invalidate
the transactions or enforceability of the transactions authorized by
the Oral Instructions. Where Oral Instructions or Written
Instructions reasonably appear to have been received from an
Authorized Person, PNC Bank shall incur no liability to the Fund in
acting upon such Oral Instructions or Written Instructions provided
that PNC Bank's actions comply with the other provisions of this
Agreement.
6. RIGHT TO RECEIVE ADVICE.
-----------------------
(a) Advice of the Fund. If PNC Bank is in doubt as to any action it
------------------
should or should not take, PNC Bank may request directions or advice,
including Oral Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC Bank shall be in doubt as to any question
-----------------
of law pertaining to any action it should or should not take, PNC Bank
may request advice at its own cost from such counsel of its own
choosing (who may be counsel for the Fund, the Fund's investment
adviser or PNC Bank, at the option of PNC Bank).
4
<PAGE>
(c) Conflicting Advice. In the event of a conflict between directions,
------------------
advice or Oral Instructions or Written Instructions PNC Bank receives
from the Fund, and the advice it receives from counsel, PNC Bank shall
be entitled to rely upon and follow the advice of counsel. In the
event PNC Bank so relies on the advice of counsel, PNC Bank remains
liable for any action or omission on the part of PNC Bank which
constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PNC Bank of any duties, obligations or
responsibilities set forth in this Agreement.
(d) Protection of PNC Bank. PNC Bank shall be protected in any action it
----------------------
takes or does not take in reliance upon directions, advice or Oral
Instructions or Written Instructions it receives from the Fund or from
counsel and which PNC Bank believes, in good faith, to be consistent
with those directions, advice or Oral Instructions or Written
Instructions. Nothing in this section shall be construed so as to
impose an obligation upon PNC Bank (i) to seek such directions, advice
or Oral Instructions or Written Instructions, or (ii) to act in
accordance with such directions, advice or Oral Instructions or
Written Instructions unless, under the terms of other provisions of
this Agreement, the same is a condition of PNC Bank's properly taking
or not taking such action. Nothing in this subsection shall excuse
PNC Bank when an action or omission on the part of PNC Bank
constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PNC Bank of any duties, obligations or
responsibilities set forth in this Agreement.
5
<PAGE>
7. RECORDS; VISITS. The books and records pertaining to the Fund, which are
---------------
in the possession or under the control of PNC Bank, shall be the property
of the Fund. Such books and records shall be prepared and maintained as
required by the 1940 Act and other applicable securities laws, rules and
regulations. The Fund and Authorized Persons shall have access to such
books and records at all times during PNC Bank's normal business hours.
Upon the reasonable request of the Fund, copies of any such books and
records shall be provided by PNC Bank to the Fund or to an authorized
representative of the Fund, at the Fund's expense.
8. CONFIDENTIALITY. PNC Bank agrees to keep confidential all records of the
---------------
Fund and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in
writing, by the Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PNC Bank may be exposed
to civil or criminal contempt proceedings or when required to divulge such
information or records to duly constituted authorities.
9. COOPERATION WITH ACCOUNTANTS. PNC Bank shall cooperate with the Fund's
----------------------------
independent public accountants and shall take all reasonable action in the
performance of its obligations under this Agreement to ensure that the
necessary information is made available to such accountants for the
expression of their opinion, as required by the Fund.
10. DISASTER RECOVERY. PNC Bank shall enter into and shall maintain in effect
-----------------
with appropriate parties one or more agreements making reasonable
provisions for emergency use of electronic data processing equipment to the
extent appropriate equipment is available. In the event of equipment
failures, PNC Bank shall, at no additional expense to the Fund, take
reasonable steps to minimize service interruptions. PNC Bank shall
6
<PAGE>
have no liability with respect to the loss of data or service interruptions
caused by equipment failure provided such loss or interruption is not
caused by PNC Bank's own willful misfeasance, bad faith, gross negligence
or reckless disregard of its duties or obligations under this Agreement.
11. COMPENSATION. As compensation for custody services rendered by PNC Bank
------------
during the term of this Agreement, the Fund will pay to PNC Bank a fee or
fees as may be agreed to in writing from time to time by the Fund and PNC
Bank.
12. INDEMNIFICATION. (a) The Fund agrees to indemnify and hold harmless PNC
---------------
Bank and its affiliates from all taxes, charges, expenses, assessments,
claims and liabilities (including, without limitation, liabilities arising
under the Securities Laws and any state and foreign securities and blue sky
laws, and amendments thereto, and expenses, including (without limitation)
attorneys' fees and disbursements, arising directly or indirectly from any
action or omission to act which PNC Bank takes (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral
Instructions or Written Instructions. Neither PNC Bank, nor any of its
affiliates, shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PNC Bank's or its affiliates'
own willful misfeasance, bad faith, gross negligence or reckless disregard
of its duties under this Agreement.
(b) In order that the indemnification provisions contained in this Section
12 shall apply, upon the assertion of a claim for which the Fund may be required
to indemnify PNC Bank, PNC Bank shall promptly notify the Fund of such
assertion, and shall keep the Fund advised with respect to all material
developments concerning such claim. The Fund shall have the option to
participate with PNC Bank in the defense of such claim. Neither party shall
confess any claim or
7
<PAGE>
make any compromise in any case to which the indemnification provided for in
this Section 12 attaches except with the other party's prior written consent.
13. RESPONSIBILITY OF PNC BANK.
--------------------------
(a) PNC Bank shall be under no duty to take any action on behalf of the
Fund except as specifically set forth herein or as may be specifically
agreed to by PNC Bank in writing. PNC Bank shall be obligated to
exercise care and diligence in the performance of its duties
hereunder, to act in good faith and to use its best efforts, within
reasonable limits, in performing services provided for under this
Agreement. PNC Bank shall be liable for any damages arising out of
PNC Bank's failure to perform its duties under this Agreement to the
extent such damages arise out of PNC Bank's willful misfeasance, bad
faith, gross negligence or reckless disregard of its duties under this
Agreement.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PNC Bank shall not be under any duty
or obligation to inquire into and shall not be liable for (A) the
validity or invalidity or authority or lack thereof of any Oral
Instruction or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which
PNC Bank reasonably believes to be genuine; or (B) subject to section
10, delays or errors or loss of data occurring by reason of
circumstances beyond PNC Bank's control, including acts of civil or
military authority, national emergencies, fire, flood, catastrophe,
acts of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary, neither
PNC Bank
8
<PAGE>
nor its affiliates shall be liable to the Fund for any consequential,
special or indirect losses or damages which the Fund may incur or
suffer by or as a consequence of PNC Bank's or its affiliates'
performance of the services provided hereunder, whether or not the
likelihood of such losses or damages was known by PNC Bank or its
affiliates.
14. DESCRIPTION OF SERVICES.
-----------------------
(a) Delivery of the Property. The Fund will deliver or arrange for
------------------------
delivery to PNC Bank, all the Property owned by the Fund, including
cash received as a result of the distribution of Shares, during the
period that is set forth in this Agreement. PNC Bank will not be
responsible for such property until actual receipt.
(b) Receipt and Disbursement of Money. PNC Bank, acting upon Written
---------------------------------
Instructions, shall open and maintain separate accounts in the Fund's
name using all cash received from or for the account of the Fund,
subject to the terms of this Agreement. In addition, upon Written
Instructions, PNC Bank shall open separate custodial accounts for each
separate series of the Fund (collectively, the "Accounts") and shall
hold in the Accounts all cash received from or for the Accounts of the
Fund specifically designated to each separate series.
PNC Bank shall make cash payments from or for the Accounts of the Fund only
for:
(i) purchases of securities in the name of the Fund or PNC Bank or
PNC Bank's nominee as provided in sub-section (j) and for which
PNC Bank has received a copy of the broker's or dealer's
confirmation or payee's invoice, as appropriate;
(ii) purchase or redemption of Shares of the Fund delivered to PNC
Bank;
(iii) payment of, subject to Written Instructions, interest, taxes,
administration, accounting, distribution, advisory, management
fees or similar expenses which are to be borne by the Fund;
9
<PAGE>
(iv) payment to, subject to receipt of Written Instructions, the
Fund's transfer agent, as agent for the shareholders, an amount
equal to the amount of dividends and distributions stated in
the Written Instructions to be distributed in cash by the
transfer agent to shareholders, or, in lieu of paying the
Fund's transfer agent, PNC Bank may arrange for the direct
payment of cash dividends and distributions to shareholders in
accordance with procedures mutually agreed upon from time to
time by and among the Fund, PNC Bank and the Fund's transfer
agent.
(v) payments, upon receipt Written Instructions, in connection with
the conversion, exchange or surrender of securities owned or
subscribed to by the Fund and held by or delivered to PNC Bank;
(vi) payments of the amounts of dividends received with respect to
securities sold short;
(vii) payments made to a sub-custodian pursuant to provisions in sub-
section (c) of this Section; and
(viii) payments, upon Written Instructions, made for other proper Fund
purposes.
PNC Bank is hereby authorized to endorse and collect all checks, drafts or
other orders for the payment of money received as custodian for the
Accounts.
(c) Receipt of Securities; Subcustodians.
------------------------------------
(i) PNC Bank shall hold all securities received by it for the
Accounts in a separate account that physically segregates such
securities from those of any other persons, firms or
corporations, except for securities held in a Book-Entry System.
All such securities shall be held or disposed of only upon
Written Instructions of the Fund pursuant to the terms of this
Agreement. PNC Bank shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities
or investment, except upon the express terms of this Agreement
and upon Written Instructions, accompanied by a certified
resolution of the Fund's Board of Trustees, authorizing the
transaction. In no case may any member of the Fund's Board of
Trustees, or any officer, employee or agent of the Fund withdraw
any securities.
At PNC Bank's own expense and for its own convenience, PNC Bank
may enter into sub-custodian agreements with other United States
banks or trust companies to perform duties described in this sub-
section (c). Such bank or trust company shall have an aggregate
capital, surplus and
10
<PAGE>
undivided profits, according to its last published report, of at
least one million dollars ($1,000,000), if it is a subsidiary or
affiliate of PNC Bank, or at least twenty million dollars
($20,000,000) if such bank or trust company is not a subsidiary
or affiliate of PNC Bank. In addition, such bank or trust company
must be qualified to act as custodian and agree to comply with
the relevant provisions of the 1940 Act and other applicable
rules and regulations. Any such arrangement will not be entered
into without prior written notice to the Fund.
PNC Bank shall remain responsible for the performance of all of
its duties as described in this Agreement and shall hold the Fund
harmless from its own acts or omissions, under the standards of
care provided for herein, and the acts and omissions of any sub-
custodian chosen by PNC Bank under the terms of this sub-section
(c).
(d) Transactions Requiring Instructions. Upon receipt of Oral
-----------------------------------
Instructions or Written Instructions and not otherwise, PNC Bank,
directly or through the use of the Book-Entry System, shall:
(i) deliver any securities held for the Fund against the receipt of
payment for the sale of such securities;
(ii) execute and deliver to such persons as may be designated in
such Oral Instructions or Written Instructions, proxies,
consents, authorizations, and any other instruments whereby the
authority of the Fund as owner of any securities may be
exercised;
(iii) deliver any securities to the issuer thereof, or its agent,
when such securities are called, redeemed, retired or otherwise
become payable; provided that, in any such case, the cash or
other consideration is to be delivered to PNC Bank;
(iv) deliver any securities held for the Fund against receipt of
other securities or cash issued or paid in connection with the
liquidation, reorganization, refinancing, tender offer, merger,
consolidation or recapitalization of any corporation, or the
exercise of any conversion privilege;
(v) deliver any securities held for the Fund to any protective
committee, reorganization committee or other person in
connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any
corporation, and receive and hold under the terms of this
Agreement such certificates of deposit, interim receipts or
other instruments or documents as may be issued to it to
evidence such delivery;
11
<PAGE>
(vi) make such transfer or exchanges of the assets of the Fund and
take such other steps as shall be stated in said Oral
Instructions or Written Instructions to be for the purpose of
effectuating a duly authorized plan of liquidation,
reorganization, merger, consolidation or recapitalization of
the Fund;
(vii) release securities belonging to the Fund to any bank or trust
company for the purpose of a pledge or hypothecation to secure
any loan incurred by the Fund; provided, however, that
securities shall be released only upon payment to PNC Bank of
the monies borrowed, except that in cases where additional
collateral is required to secure a borrowing already made
subject to proper prior authorization, further securities may
be released for that purpose; and repay such loan upon
redelivery to it of the securities pledged or hypothecated
therefor and upon surrender of the note or notes evidencing the
loan;
(viii) release and deliver securities owned by the Fund in connection
with any repurchase agreement entered into on behalf of the
Fund, but only on receipt of payment therefor; and pay out
moneys of the Fund in connection with such repurchase
agreements, but only upon the delivery of the securities;
(ix) release and deliver or exchange securities owned by the Fund in
connection with any conversion of such securities, pursuant to
their terms, into other securities;
(x) release and deliver securities owned by the Fund for the
purpose of redeeming in kind shares of the Fund upon delivery
thereof to PNC Bank; and
(xi) release and deliver or exchange securities owned by the Fund
for other corporate purposes.
PNC Bank must also receive a certified resolution describing
the nature of the corporate purpose and the name and address of
the person(s) to whom delivery shall be made when such action
is pursuant to sub-paragraph (xi).
(e) Use of Book-Entry System. The Fund shall deliver to PNC Bank
------------------------
certified resolutions of the Fund's Board of Trustees approving,
authorizing and instructing PNC Bank on a continuous basis, to deposit
in the Book-Entry System all securities belonging to the Fund eligible
for deposit therein and to utilize the Book-Entry System to the extent
possible in connection with settlements of
12
<PAGE>
purchases and sales of securities by the Fund, and deliveries and
returns of securities loaned, subject to repurchase agreements or used
as collateral in connection with borrowings. PNC Bank shall continue
to perform such duties until it receives Written Instructions or Oral
Instructions authorizing contrary actions.
PNC Bank shall administer the Book-Entry System as follows:
(i) With respect to securities of the Fund which are maintained in
the Book-Entry System, the records of PNC Bank shall identify
by Book-Entry or otherwise those securities belonging to the
Fund. PNC Bank shall furnish to the Fund a detailed statement
of the Property held for the Fund under this Agreement at least
monthly and from time to time and upon written request.
(ii) Securities and any cash of the Fund deposited in the Book-Entry
System will at all times be segregated from any assets and cash
controlled by PNC Bank in other than a fiduciary or custodian
capacity but may be commingled with other assets held in such
capacities. PNC Bank and its sub-custodian, if any, will pay
out money only upon receipt of securities and will deliver
securities only upon the receipt of money.
(iii) All books and records maintained by PNC Bank which relate to
the Fund's participation in the Book-Entry System will at all
times during PNC Bank's regular business hours be open to the
inspection of Authorized Persons, and PNC Bank will furnish to
the Fund all information in respect of the services rendered as
it may require.
PNC Bank will also provide the Fund with such reports on its own
system of internal control as the Fund may reasonably request from
time to time.
(f) Registration of Securities. All Securities held for the Fund which
--------------------------
are issued or issuable only in bearer form, except such securities
held in the Book-Entry System, shall be held by PNC Bank in bearer
form; all other securities held for the Fund may be registered in the
name of the Fund, PNC Bank, the Book-Entry System, a sub-custodian, or
any duly appointed nominees of the Fund, PNC
13
<PAGE>
Bank, Book-Entry System or sub-custodian. The Fund reserves the right
to instruct PNC Bank as to the method of registration and safekeeping
of the securities of the Fund. The Fund agrees to furnish to PNC Bank
appropriate instruments to enable PNC Bank to hold or deliver in
proper form for transfer, or to register in the name of its nominee or
in the name of the Book-Entry System, any securities which it may hold
for the Accounts and which may from time to time be registered in the
name of the Fund.
(g) Voting and Other Action. Neither PNC Bank nor its nominee shall vote
-----------------------
any of the securities held pursuant to this Agreement by or for the
account of the Fund, except in accordance with Written Instructions.
PNC Bank, directly or through the use of the Book-Entry System, shall
execute in blank and promptly deliver all notices, proxies and proxy
soliciting materials to the registered holder of such securities. If
the registered holder is not the Fund on behalf of the Fund, then
Written Instructions or Oral Instructions must designate the person
who owns such securities.
(h) Transactions Not Requiring Instructions. In the absence of contrary
---------------------------------------
Written Instructions, PNC Bank is authorized to take the following
actions:
(i) Collection of Income and Other Payments.
----------------------------------------
(A) collect and receive for the account of the Fund, all income,
dividends, distributions, coupons, option premiums, other
payments and similar items, included or to be included in
the Property, and, in addition, promptly advise the Fund of
such receipt and credit such income, as collected, to the
Fund's custodian account;
(B) endorse and deposit for collection, in the name of the Fund,
checks, drafts, or other orders for the payment of money;
14
<PAGE>
(C) receive and hold for the account of the Fund all securities
received as a distribution on the Fund's securities as a
result of a stock dividend, share split-up or
reorganization, recapitalization, readjustment or other
rearrangement or distribution of rights or similar
securities issued with respect to any securities belonging
to the Fund and held by PNC Bank hereunder;
(D) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed, or
retired, or otherwise become payable on the date such
securities become payable; and
(E) take any action which may be necessary and proper in
connection with the collection and receipt of such income
and other payments and the endorsement for collection of
checks, drafts, and other negotiable instruments.
(ii) Miscellaneous Transactions.
--------------------------
(A) deliver or cause to be delivered Property against payment or
other consideration or written receipt therefor in the
following cases:
(1) for examination by a broker or dealer selling for the
account of the Fund in accordance with street delivery
custom;
(2) for the exchange of interim receipts or temporary
securities for definitive securities; and
(3) for transfer of securities into the name of the Fund or
PNC Bank or nominee of either, or for exchange of
securities for a different number of bonds,
certificates, or other evidence, representing the same
aggregate face amount or number of units bearing the
same interest rate, maturity date and call provisions,
if any; provided that, in any such case, the new
securities are to be delivered to PNC Bank.
(B) Unless and until PNC Bank receives Oral Instructions or
Written Instructions to the contrary, PNC Bank shall:
(1) pay all income items held by it which call for payment
upon presentation and hold the cash received by it upon
such payment for the account of the Fund;
(2) collect interest and cash dividends received, with
notice to the Fund, to the account of the Fund;
15
<PAGE>
(3) hold for the account of the Fund all stock dividends,
rights and similar securities issued with respect to
any securities held by PNC Bank; and
(4) execute as agent on behalf of the Fund all necessary
ownership certificates required by the Internal Revenue
Code or the Income Tax Regulations of the United States
Treasury Department or under the laws of any state now
or hereafter in effect, inserting the Fund's name, on
such certificate as the owner of the securities covered
thereby, to the extent it may lawfully do so.
(i) Segregated Accounts.
-------------------
(i) PNC Bank shall upon receipt of Written Instructions or Oral
Instructions establish and maintain a segregated account on its
records for and on behalf of the Fund. Such accounts may be used
to transfer cash and securities, including securities in the
Book-Entry System:
(A) for the purposes of compliance by the Fund with the
procedures required by a securities or option exchange,
providing such procedures comply with the 1940 Act and any
releases of the SEC relating to the maintenance of
segregated accounts by registered investment companies; and
(B) Upon receipt of Written Instructions, for other proper
corporate purposes.
(ii) PNC Bank shall arrange for the establishment of IRA custodian
accounts for such shareholders holding Shares through IRA
accounts, in accordance with the Fund's prospectuses, the
Internal Revenue Code of 1986, as amended (including regulations
promulgated thereunder), and with such other procedures as are
mutually agreed upon from time to time by and among the Fund, PNC
Bank and the Fund's transfer agent.
(j) Purchases of Securities. PNC Bank shall settle purchased securities
-----------------------
upon receipt of Oral Instructions or Written Instructions from the
Fund or its investment advisers that specify:
(i) the name of the issuer and the title of the securities, including
CUSIP number if applicable;
(ii) the number of shares or the principal amount purchased and
accrued interest, if any;
16
<PAGE>
(iii) the date of purchase and settlement;
(iv) the purchase price per unit;
(v) the total amount payable upon such purchase; and
(vi) the name of the person from whom or the broker through whom the
purchase was made. PNC Bank shall upon receipt of securities
purchased by or for the Fund pay out of the moneys held for the
account of the Fund the total amount payable to the person from
whom or the broker through whom the purchase was made, provided
that the same conforms to the total amount payable as set forth
in such Oral Instructions or Written Instructions.
(k) Sales of Securities. PNC Bank shall settle sold securities upon
-------------------
receipt of Oral Instructions or Written Instructions from the Fund
that specify:
(i) the name of the issuer and the title of the security, including
CUSIP number if applicable;
(ii) the number of shares or principal amount sold, and accrued
interest, if any;
(iii) the date of trade and settlement;
(iv) the sale price per unit;
(v) the total amount payable to the Fund upon such sale;
(vi) the name of the broker through whom or the person to whom the
sale was made; and
(vii) the location to which the security must be delivered and
delivery deadline, if any.
PNC Bank shall deliver the securities upon receipt of the total amount
payable to the Fund upon such sale, provided that the total amount payable
is the same as was set forth in the Oral Instructions or Written
Instructions. Subject to the foregoing, PNC Bank may accept payment in
such form as shall be satisfactory to it, and may deliver securities and
arrange for payment in accordance with the customs prevailing among dealers
in securities.
17
<PAGE>
(l) Reports; Proxy Materials.
------------------------
(i) PNC Bank shall furnish to the Fund the following reports:
(A) such periodic and special reports as the Fund may reasonably
request;
(B) a monthly statement summarizing all transactions and entries
for the account of the Fund, listing securities belonging to
the Fund with the adjusted average cost of each issue and
the market value at the end of such month and stating the
cash account of the Fund including disbursements;
(C) the reports required to be furnished to the Fund pursuant to
Rule 17f-4; and
(D) such other information as may be agreed upon from time to
time between the Fund and PNC Bank.
(ii) PNC Bank shall transmit promptly to the Fund any proxy statement,
proxy material, notice of a call or conversion or similar
communication received by it as custodian of the Property. PNC
Bank shall be under no other obligation to inform the Fund as to
such actions or events.
(m) Collections. All collections of monies or other property in respect,
-----------
or which are to become part, of the Property (but not the safekeeping
thereof upon receipt by PNC Bank) shall be at the sole risk of the
Fund. If payment is not received by PNC Bank within a reasonable time
after proper demands have been made, PNC Bank shall notify the Fund in
writing, including copies of all demand letters, any written
responses, memoranda of all oral responses and shall await
instructions from the Fund. PNC Bank shall not be obliged to take
legal action for collection unless and until reasonably indemnified to
its satisfaction. PNC Bank shall also notify the Fund as soon as
reasonably practicable whenever income due on securities is not
collected in due course and shall provide the Fund with periodic
status reports of such income collected after a reasonable time.
18
<PAGE>
15. YEAR 2000. PNC Bank is in the process of undertaking such modifications as
---------
may appear to be reasonably necessary to enable its computer system to
process date-related data on and after January 1, 2000 with respect to the
services provided hereunder. PNC Bank will provide periodic reports to the
Fund regarding the status of its Year 2000 preparedness program.
16. DURATION AND TERMINATION. This Agreement shall be effective on the date
------------------------
first above written and shall continue in effect for an initial period of
two (2) years (the "Initial Term"). Thereafter, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms");
provided, however, that this Agreement may be terminated on (i) its
anniversary date or (ii) on the date that is six (6) months from the
anniversary date by either party without penalty upon prior written notice
given to the other party 90 days in advance of the termination date.
During either the Initial Term or the Renewal Terms, this Agreement may also
be terminated on an earlier date by the Fund or PNC Bank for cause.
With respect to the Fund, cause shall mean PNC Bank's material breach of this
Agreement causing it to fail to substantially perform its duties under this
Agreement. In order for such material breach to constitute "cause" under this
Paragraph, PNC Bank must receive written notice from the Fund specifying the
material breach and PNC Bank shall not have corrected such breach within a 30-
day period.
With respect to PNC Bank, cause includes, but is not limited to, the failure
of the Fund to pay the compensation set forth in writing pursuant to Paragraph
11 of this Agreement after it has received written notice from PNC Bank
specifying the amount due and the Fund shall not have paid that amount within a
30-day period.
19
<PAGE>
Any notice of termination for cause shall be effective sixty (60) days from
the date of any such notice. Upon the termination hereof, the Fund shall pay to
PNC Bank such compensation as may be due for the period prior to the date of
such termination. Any termination effected shall not affect the rights and
obligations of the parties under Paragraphs 12 and 13 hereof.
PNC Bank shall not be required to make any delivery or payment of assets upon
termination until full payment shall have been made to PNC Bank of all of its
fees, compensation, costs and expenses. PNC Bank shall have a security interest
in and shall have a right of setoff against the Property as security for the
payment of such fees, compensation, costs and expenses.
17. NOTICES. All notices and other communications, including Written
-------
Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. Notice shall be addressed (a) if to PNC Bank
at Airport Business Center, International Court 2, 200 Stevens Drive,
Lester, Pennsylvania 19113, marked for the attention of the Custodian
Services Department (or its successor) (b) if to the Fund, at 11825
Pennsylvania Street, Carmel, Indiana 46032, Attn: William P. Latimer or (c)
if to neither of the foregoing, at such other address as shall have been
given by like notice to the sender of any such notice or other
communication by the other party. If notice is sent by confirming
telegram, cable, telex or facsimile sending device, it shall be deemed to
have been given immediately. If notice is sent by first-class mail, it
shall be deemed to have been given five days after it has been mailed. If
notice is sent by messenger, it shall be deemed to have been given on the
day it is delivered.
18. LIMITATION OF LIABILITY OF TRUSTEES AND SHAREHOLDERS. A copy of the Fund's
----------------------------------------------------
20
<PAGE>
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed
on behalf of the Fund's Trustees as Trustees under the Declaration of Trust
and not individually. PNC Bank acknowledges and agrees that the
obligations of the Fund hereunder are not personally binding upon any of
the Trustees or shareholders of the Fund but are binding only upon property
of the Fund.
19. AMENDMENTS. This Agreement, or any term hereof, may be changed or waived
----------
only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
20. DELEGATION; ASSIGNMENT. PNC Bank may assign its rights and delegate its
----------------------
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC
Bank, National Association, PNC Bank Corp., or PFPC Inc. provided that (i)
PNC Bank gives the Fund thirty (30) days' prior written notice; (ii) the
delegate (or assignee) is qualified under Section 17(f) (1) or (2) of the
1940 Act to act as custodian and agrees with PNC Bank and the Fund to
comply with all relevant provisions of the 1940 Act; and (iii) PNC Bank and
such delegate (or assignee) promptly provide such information as the Fund
may request, and respond to such questions as the Fund may ask, relative to
the delegation (or assignment), including (without limitation) the
capabilities of the delegate (or assignee).
21. COUNTERPARTS. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
22. FURTHER ACTIONS. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
21
<PAGE>
23. MISCELLANEOUS.
-------------
(a) Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding between the parties and supersedes all prior agreements
and understandings relating to the subject matter hereof, provided
that the parties may embody in one or more separate documents their
agreement, if any, with respect to delegated duties and Oral
Instructions.
(b) Captions. The captions in this Agreement are included for
--------
convenience of reference only and in no way define or delimit any of
the provisions hereof or otherwise affect their construction or
effect.
(c) Governing Law. This Agreement shall be deemed to be a contract made
-------------
in Pennsylvania and governed by Pennsylvania law, without regard to
principles of conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be held
------------------
or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to this
--------------------
Agreement shall constitute the valid and binding execution hereof by
such party.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
------------------------------------------
Title:
---------------------------------------
CONSECO STRATEGIC INCOME FUND
By:
------------------------------------------
Title:
---------------------------------------
23
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (TYPE) SIGNATURE
- --------------------------------- ------------------------------------------
- --------------------------------- ------------------------------------------
- --------------------------------- ------------------------------------------
- --------------------------------- ------------------------------------------
- --------------------------------- ------------------------------------------
- --------------------------------- ------------------------------------------
- --------------------------------- ------------------------------------------
24
<PAGE>
EXHIBIT 99.2(k)(1)
FORM OF TRANSFER AGENCY SERVICES AGREEMENT
------------------------------------------
THIS AGREEMENT is made as of ________, 1998 by and between PNC BANK,
NATIONAL ASSOCIATION, a national banking association ("PNC"), and CONSECO
STRATEGIC INCOME FUND, a Massachusetts business trust (the "Fund").
W I T N E S S E T H:
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PNC to serve as transfer agent,
registrar and dividend disbursing agent to the Fund and PNC wishes to furnish
such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
1. Definitions. As Used in this Agreement:
---------------------------------------
(a) "1933 Act" means the Securities Act of 1933, as amended.
----------
(b) "1934 Act" means the Securities Exchange Act of 1934, as
----------
amended.
(c) "Authorized Person" means any officer of the Fund and any other
-------------------
person duly authorized by the Fund's Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Fund and listed on the
Authorized Persons Appendix attached hereto and made a part hereof or any
amendment thereto as may be received by PNC. An Authorized Person's scope of
authority may be limited by the Fund by setting forth such limitation in the
Authorized Persons Appendix.
1
<PAGE>
(d) "CEA" means the Commodities Exchange Act, as amended.
-----
(e) "Oral Instructions" mean oral instructions received by PNC from
-------------------
an Authorized Person or from a person reasonably believed by PNC to be an
Authorized Person.
(f) "SEC" means the Securities and Exchange Commission.
-----
(g) "Securities Laws" mean the 1933 Act, the 1934 Act, the 1940 Act
-----------------
and the CEA.
(h) "Shares" mean the shares of beneficial interest in the Fund.
--------
(i) "Written Instructions" mean written instructions signed by an
----------------------
Authorized Person and received by PNC. The instructions may be delivered by
hand, mail, tested telegram, cable, telex or facsimile sending device.
2. Appointment. The Fund hereby appoints PNC to serve as transfer
-----------
agent, registrar and dividend disbursing agent to the Fund in accordance with
the terms set forth in this Agreement. PNC accepts such appointment and agrees
to furnish such services.
3. Delivery of Documents. The Fund has provided or, where applicable,
---------------------
will provide PNC with the following:
(a) Certified or authenticated copies of the resolutions of the
Fund's Board of Trustees, approving the appointment of PNC or
its affiliates to provide services to the Fund and approving
this Agreement;
(b) A copy of the Fund's Registration Statement on Form N-2 under
the 1933 Act and the 1940 Act filed with the SEC;
(c) A copy of the Fund's investment management and administration
agreement;
(d) A copy of the Fund's underwriting agreement; and
(e) Copies (certified or authenticated where applicable) of any and
all amendments or supplements to the foregoing.
2
<PAGE>
4. Compliance with Rules and Regulations. PNC undertakes to comply with
-------------------------------------
all applicable requirements of the Securities Laws and any laws, rules and
regulations of governmental authorities having jurisdiction with respect to the
duties to be performed by PNC hereunder. Except as specifically set forth
herein, PNC assumes no responsibility for such compliance by the Fund.
5. Instructions.
------------
(a) Unless otherwise provided in this Agreement, PNC shall act only
upon Oral Instructions and Written Instructions.
(b) PNC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from a person
reasonably believed by PNC to be an officer of the Fund or one of the persons
listed on the Authorized Persons Appendix attached hereto (as the same may be
amended)) pursuant to this Agreement. PNC may assume that any Oral Instruction
or Written Instruction received hereunder is not in any way inconsistent with
the provisions of organizational documents or this Agreement or of any vote,
resolution or proceeding of the Fund's Board of Trustees or of the Fund's
shareholders, unless and until PNC receives Written Instructions to the
contrary.
(c) The Fund agrees to forward to PNC Written Instructions confirming
Oral Instructions so that PNC receives the Written Instructions by the close of
business on the same day that such Oral Instructions are received. The fact
that such confirming Written Instructions are not received by PNC shall in no
way invalidate the transactions or enforceability of the transactions authorized
by the Oral Instructions. Where Oral Instructions or Written Instructions
3
<PAGE>
reasonably appear to have been received from an Authorized Person, PNC shall
incur no liability to the Fund in acting upon such Oral Instructions or Written
Instructions provided that PNC's actions comply with the other provisions of
this Agreement.
6. Right to Receive Advice.
-----------------------
(a) Advice of the Fund. If PNC is in doubt as to any action it should
------------------
or should not take, PNC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PNC shall be in doubt as to any question of
-----------------
law pertaining to any action it should or should not take, PNC may request
advice at its own cost from such counsel of its own choosing (who may be counsel
for the Fund, the Fund's investment adviser or PNC, at the option of PNC).
(c) Conflicting Advice. In the event of a conflict between
------------------
directions, advice or Oral Instructions or Written Instructions PNC receives
from the Fund, and the advice it receives from counsel, PNC may rely upon and
follow the advice of counsel. In the event PNC so relies on the advice of
counsel, PNC remains liable for any action or omission on the part of PNC which
constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard by PNC of any duties, obligations or responsibilities set forth in
this Agreement.
(d) Protection of PNC. PNC shall be protected in any action it takes
-----------------
or does not take in reliance upon directions, advice or Oral Instructions or
Written Instructions it receives from the Fund or from counsel and which PNC
believes, in good faith, to be consistent with those directions, advice or Oral
Instructions or Written Instructions. Nothing in this section shall be
construed so as to impose an obligation upon PNC (i) to seek such directions,
advice or Oral
4
<PAGE>
Instructions or Written Instructions, or (ii) to act in accordance with such
directions, advice or Oral Instructions or Written Instructions unless, under
the terms of other provisions of this Agreement, the same is a condition of
PNC's properly taking or not taking such action. Nothing in this subsection
shall excuse PNC when an action or omission on the part of PNC constitutes
willful misfeasance, bad faith, gross negligence or reckless disregard by PNC of
any duties, obligations or responsibilities set forth in this Agreement.
7. Records; Visits. The books and records pertaining to the Fund, which
---------------
are in the possession or under the control of PNC, shall be the property of the
Fund. Such books and records shall be prepared and maintained as required by the
1940 Act and other applicable securities laws, rules and regulations. The Fund
and Authorized Persons shall have access to such books and records at all times
during PNC's normal business hours. Upon the reasonable request of the Fund,
copies of any such books and records shall be provided by PNC to the Fund or to
an Authorized Person, at the Fund's expense.
8. Confidentiality. PNC agrees to keep confidential all records of the
---------------
Fund and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in writing, by
the Fund. The Fund agrees that such consent shall not be unreasonably withheld
and may not be withheld where PNC may be exposed to civil or criminal contempt
proceedings or when required to divulge such information or records to duly
constituted authorities.
9. Cooperation with Accountants. PNC shall cooperate with the Fund's
----------------------------
independent public accountants and shall take all reasonable actions in the
performance of its obligations under this Agreement to ensure that the necessary
information is made available to
5
<PAGE>
such accountants for the expression of their opinion, as required by the Fund.
10. Disaster Recovery. PNC shall enter into and shall maintain in effect
-----------------
with appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent appropriate
equipment is available. In the event of equipment failures, PNC shall, at no
additional expense to the Fund, take reasonable steps to minimize service
interruptions. PNC shall have no liability with respect to the loss of data or
service interruptions caused by equipment failure provided such loss or
interruption is not caused by PNC's own willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or obligations under this
Agreement.
11. Compensation. As compensation for services rendered by PNC during the
------------
term of this Agreement, the Fund will pay to PNC a fee or fees as may be agreed
to from time to time in writing by the Fund and PNC.
12. Indemnification. (a) The Fund agrees to indemnify and hold harmless
---------------
PNC and its affiliates from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under the
Securities Laws and any state and foreign securities and blue sky laws, and
amendments thereto), and expenses, including (without limitation) attorneys'
fees and disbursements, arising directly or indirectly from (i) any action or
omission to act which PNC takes (a) at the request or on the direction of or in
reliance on the advice of the Fund or (b) upon Oral Instructions or Written
Instructions or (ii) the acceptance, processing and/or negotiation of checks or
other methods utilized for the purchase of Shares. Neither PNC, nor any of its
affiliates, shall be indemnified against any liability (or any expenses incident
to such liability) arising out of PNC's or its affiliates' own willful
misfeasance, bad faith,
6
<PAGE>
gross negligence or reckless disregard of its duties and obligations under this
Agreement, provided that in the absence of a finding to the contrary the
acceptance, processing and/or negotiation of a fraudulent payment for the
purchase of Shares shall be presumed not to have been the result of PNC's or its
affiliates own willful misfeasance, bad faith, gross negligence or reckless
disregard of such duties and obligations.
(b) In order that the indemnification provisions contained in this Section
12 shall apply, upon the assertion of a claim for which the Fund may be required
to indemnify PNC, PNC shall promptly notify the fund of such assertion, and
shall keep the Fund advised with respect to all material developments concerning
such claim. The Fund shall have the option to participate with PNC in the
defense of such claim. Neither party shall confess any claim or make any
compromise in any case to which the indemnification provided for in this Section
12 attaches except with the other party's prior written consent.
13. Responsibility of PNC.
---------------------
(a) PNC shall be under no duty to take any action on behalf of the
Fund except as specifically set forth herein or as may be specifically agreed to
by PNC in writing. PNC shall be obligated to exercise care and diligence in the
performance of its duties hereunder, to act in good faith and to use its best
efforts, within reasonable limits, in performing services provided for under
this Agreement. PNC shall be liable for any damages arising out of PNC's
failure to perform its duties under this Agreement to the extent such damages
arise out of PNC's willful misfeasance, bad faith, gross negligence or reckless
disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PNC shall not be liable for losses beyond its
control, provided that PNC has
7
<PAGE>
acted in accordance with the standard of care set forth above; and (ii) PNC
shall not be under any duty or obligation to inquire into and shall not be
liable for (A) the validity or invalidity or authority or lack thereof of any
Oral Instruction or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which PNC
reasonably believes to be genuine; or (B) subject to Section 10, delays or
errors or loss of data occurring by reason of circumstances beyond PNC's
control, including acts of civil or military authority, national emergencies,
labor difficulties, fire, flood, catastrophe, acts of God, insurrection, war,
riots or failure of the mails, transportation, communication or power supply.
(c) Notwithstanding anything in this Agreement to the contrary,
neither PNC nor its affiliates shall be liable to the Fund for any
consequential, special or indirect losses or damages which the Fund may incur or
suffer by or as a consequence of PNC's or its affiliates' performance of the
services provided hereunder, whether or not the likelihood of such losses or
damages was known by PNC or its affiliates.
14. Description of Services
-----------------------
(a) Services Provided on an Ongoing Basis by PNC to the Fund.
(i) Maintain proper shareholder registrations;
(ii) Prepare and certify stockholder lists in conjunction with
proxy solicitations;
(iii) Countersign certificates of stock;
(iv) Provide toll-free lines for direct shareholder use, plus
customer liaison staff for on-line inquiry response;
(v) Provide periodic shareholder lists and statistics;
(vi) Mailing of year-end tax information; and
(vii) Periodic mailing of shareholder account information and
Fund financial reports.
(b) Cancellation and Reissuance of Shares. Upon receipt of
-------------------------------------
appropriate
8
<PAGE>
notification of cancellation and reissuance, PNC shall cancel, reissue and
credit the account of the investor or other recordholder with Shares in
accordance with standard industry practice.
(c) Dividends and Distributions. PNC must receive a resolution of the
---------------------------
Fund's Board of Trustees authorizing the declaration and payment of dividends
and distributions. Upon receipt of the resolution, PNC shall issue the
dividends and distributions in cash, or, if the resolution so provides, pay such
dividends and distributions in Shares. Such issuance or payment shall be made
after deduction and payment of the required amount of funds to be withheld in
accordance with any applicable tax laws or other laws, rules or regulations.
The Fund's shareholders shall receive tax forms and other information, or
permissible substitute notice, relating to dividends and distributions, paid by
the Fund as are required to be filed and mailed by applicable law, rule or
regulation.
Pursuant to Written Instructions, PNC may arrange for the direct payment of
cash dividends and distributions to shareholders by the Fund's custodian,
instead of PNC Bank disbursing such funds to the shareholder after receipt from
the Fund's custodian.
PNC shall maintain and file with the United States Internal Revenue Service
and other appropriate taxing authorities reports relating to all dividends above
a stipulated amount (currently $10.00 accumulated yearly dividends) paid by the
Fund to its shareholders as required by tax or other law, rule or regulation.
In accordance with the Prospectus and such procedures and controls as are
mutually agreed upon from time to time by and among the Fund, PNC and the Fund's
Custodian, PNC shall process applications from Shareholders relating to the
Fund's Dividend Reinvestment Plan ("Dividend Reinvestment Plan") and will effect
purchases of Shares in connection with the
9
<PAGE>
Dividend Reinvestment Plan.
(d) Communications to Shareholders. Upon timely written
------------------------------
instructions, PNC shall mail all communications by the Fund to its shareholders,
including:
(i) Reports to shareholders;
(ii) Confirmations of purchases and sales of fund shares;
(iii) Monthly or quarterly statements;
(iv) Dividend and distribution notices;
(v) Proxy material; and
(vi) Tax form information.
PNC will receive and tabulate the proxy cards for the
meetings of the Fund's shareholders.
(e) Records. PNC shall maintain records of the accounts for each
-------
shareholder showing the following information:
(i) Name, address and United States Tax Identification or
Social Security number;
(ii) Number and class of shares held and number and class of
shares for which certificates, if any, have been issued,
including certificate numbers and denominations;
(iii) Historical information regarding the account of each
shareholder, including dividends and distributions paid
and the date and price for all transactions on a
shareholder's account;
(iv) Any stop or restraining order placed against a
shareholder's account;
(v) Any correspondence relating to the current maintenance of
a shareholder's account;
(vi) Information with respect to withholdings; and
(vii) Any information required in order for the transfer agent
to perform any calculations contemplated or required by
this Agreement.
(f) Lost or Stolen Certificates. PNC shall place a stop notice
---------------------------
against any certificate reported to be lost or stolen and comply with all
applicable federal regulatory
10
<PAGE>
requirements for reporting such loss or alleged misappropriation.
A new certificate shall be registered and issued upon:
(i) Shareholder's pledge of a lost instrument bond or such other
appropriate indemnity bond issued by a surety company
approved by PNC Bank; and
(ii) Completion of a release and indemnification agreement signed
by the shareholder to protect the Fund and PNC.
(g) Shareholder Inspection of Stock Records. Upon requests from Fund
---------------------------------------
shareholders to inspect stock records, PNC will notify the Fund and require
instructions granting or denying each such request.
Unless PNC has acted contrary to the Fund's instructions, the Fund agrees
to release PNC from any liability for refusal of permission for a particular
shareholder to inspect the Fund's shareholder records.
(h) (IF APPLICABLE) Withdrawal of Shares and Cancellation of
--------------------------------------------------------
Certificates. Upon receipt of Written Instructions, PNC shall cancel
- ------------
outstanding certificates surrendered by the Fund to reduce the total amount of
outstanding shares by the number of shares surrendered by the Fund.
15. Duration and Termination. This Agreement shall be effective on the
------------------------
date first above written and shall continue in effect for an initial period of
two (2) years (the "Initial Term"). Thereafter, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms");
provided, however, that this Agreement may be terminated (i) on its anniversary
date or (ii) on the date that is six (6) months from the anniversary date by
either party without penalty upon written notice given to the other party 90
days in advance of the
11
<PAGE>
termination date.
During either the Initial Term or the Renewal Terms, this Agreement
may also be terminated on an earlier date by the Fund or PNC for cause.
With respect to the Fund, cause shall mean PNC's material breach of
this Agreement causing it to fail to substantially perform its duties under this
Agreement. In order for such material breach to constitute "cause" under this
Paragraph, PNC must receive written notice from the Fund specifying the material
breach and PNC shall not have corrected such breach within a 30-day period.
With respect to PNC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement after it has received written notice from PNC
specifying the amount due and the Fund shall not have paid that amount within a
30-day period.
Any notice of termination for cause shall be effective sixty (60) days
from the date of any such notice. Upon the termination hereof, the Fund shall
pay to PNC such compensation as may be due for the period prior to the date of
such termination. Any termination effected shall not affect the rights and
obligations of the parties under Paragraphs 12 and 13 hereof.
16. Notices. All notices and other communications, including Written
-------
Instructions, shall be in writing or by confirming telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to PNC, c/o PFPC
Inc. at 400 Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at
11825 N. Pennsylvania Street, Carmel, Indiana 46032 , Attn: William P. Latimer
or (c) if to neither of the foregoing, at such other address as shall have been
12
<PAGE>
given by like notice to the sender of any such notice or other communication by
the other party. If notice is sent by confirming telegram, cable, telex or
facsimile sending device, it shall be deemed to have been given immediately. If
notice is sent by first-class mail, it shall be deemed to have been given three
days after it has been mailed. If notice is sent by messenger, it shall be
deemed to have been given on the day it is delivered.
17. Limitation of Liability of Trustees and Shareholders. A copy of the
----------------------------------------------------
Fund's Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed on
behalf of the Fund's Trustees as Trustees under the Declaration of Trust and not
individually. PNC acknowledges and agrees that the obligations of the Fund
hereunder are not personally binding upon any of the Trustees or shareholders of
the Fund but are binding only upon property of the Fund.
18. Amendments. This Agreement, or any term thereof, may be changed or
----------
waived only by a written amendment, signed by the party against whom enforcement
of such change or waiver is sought.
19. Year 2000. PNC is in the process of undertaking such modifications as
---------
may appear to be reasonably necessary to enable its computer system to process
date-related data on and after January 1, 2000 with respect to the services
provided hereunder. PNC will provide periodic reports to the Fund regarding the
status of its Year 2000 preparedness program.
20. Registration as a Transfer Agent. PNC represents that it is currently
--------------------------------
registered with the appropriate regulatory agency for the registration of
transfer agents, and that it will remain so registered for the duration of this
Agreement. PNC agrees that it will promptly notify the Fund in the event that
it is no longer so registered as a transfer agent.
13
<PAGE>
21. Delegation; Assignment. PNC may assign its rights and delegate its
----------------------
duties hereunder to any wholly-owned direct or indirect subsidiary of PNC Bank,
National Association PNC Bank Corp., or PFPC Inc. provided that (i) PNC gives
the Fund thirty (30) days' prior written notice; (ii) the delegate (or assignee)
is registered under the 1934 Act to act as a transfer agent; (iii) the delegate
(or assignee) agrees with PNC and the Fund to comply with all relevant
provisions of the 1940 Act; and (iv) PNC and such delegate (or assignee)
promptly provide such information as the Fund may request, and respond to such
questions as the Fund may ask, relative to the delegation (or assignment),
including (without limitation) the capabilities of the delegate (or assignee).
22. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
23. Further Actions. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
24. Miscellaneous.
-------------
(a) Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between the parties and supersedes all prior agreements and
understandings relating to the subject matter hereof, provided that the parties
may embody in one or more separate documents their agreement, if any, with
respect to delegated duties and Oral Instructions.
(b) Captions. The captions in this Agreement are included for
--------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect
14
<PAGE>
their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
-------------
made in Delaware and governed by Delaware law, without regard to principles of
conflicts of law.
(d) Partial Invalidity. If any provision of this Agreement shall be
------------------
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to
--------------------
this Agreement shall constitute the valid and binding execution hereof by such
party.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PNC BANK, NATIONAL ASSOCIATION
By:
--------------------------------
Title:
-----------------------------
CONSECO STRATEGIC INCOME FUND
By:
--------------------------------
Title:
-----------------------------
16
<PAGE>
AUTHORIZED PERSONS APPENDIX
Name (Type) Signature
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
- ---------------------------------- -----------------------------------
17
<PAGE>
EXHIBIT 99.2k(2)
FORM OF SHAREHOLDER SERVICING AGREEMENT
SHAREHOLDER SERVICING AGREEMENT (the "Agreement"), dated July __, 1998,
between Conseco Strategic Income Fund (the "Fund") and Conseco Services LLC
("Conseco Services").
WHEREAS, the Fund is a closed-end, non-diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"), and its shares of beneficial interest are registered under the
Securities Act of 1933, as amended; and
WHEREAS, the Fund desires to retain Conseco Services to provide shareholder
servicing and market information with respect to the Fund, and Conseco Services
is willing to render such services;
NOW, THEREFORE, in consideration of the mutual terms and conditions set
forth below, the parties hereto agree as follows:
1. The Fund hereby employs Conseco Services, for the period and on the
terms and conditions set forth herein, to provide the following services:
(a) Undertake to make public information pertaining to the Fund on an
ongoing basis and to communicate to investors and prospective investors the
Fund's features and benefits (including periodic seminars or conference calls,
responses to questions from or current or prospective shareholders and specific
shareholder contact where appropriate);
(b) Make available to investors and prospective investors market price,
net asset value, yield and other information regarding the Fund, if reasonably
obtainable, for the purpose of maintaining the visibility of the Fund in the
investor community;
(c) At the request of the Fund, provide certain economic research and
statistical information and reports, if reasonable obtainable, on behalf of the
Fund and consult with representatives and Trustees of the Fund in connection
therewith, which information and reports shall include: (i) statistical and
financial market information with respect to the Fund's market performance; and
(ii) comparative information regarding the Fund and other closed-end management
investment companies with respect to (x) the net asset value of their respective
shares, (y) the respective market performance of the Fund and such other
companies, and (z) other relevant performance indicators; and
(d) At the request of the Fund, provide information to and consult with
the Board of Trustees of the Fund with respect to applicable strategies designed
to address market value discounts, which may include share repurchases, tender
offers, modifications to dividend policies or capital structure, repositioning
or restructuring of the Fund, conversion of the Fund to an open-end investment
company, liquidation or merger, including providing information concerning the
use and impact of the above strategic alternatives by other market participants.
2. The Fund will pay Conseco Services a fee computed weekly and monthly
quarterly at an annualized rate of 0.10% of the Fund's average weekly value of
the total assets of
<PAGE>
the Fund minus the sum of accrued liabilities (other than the aggregate
indebtedness constituting financial leverage).
3. The Fund acknowledges that the shareholder services of Conseco Services
provided for hereunder do not include any advice as to the value of securities
or regarding the advisability of purchasing or selling any securities for the
Fund's portfolio. No provision of this Agreement shall be considered as
creating, nor shall any provision create, any obligation on the part of Conseco
Services, and Conseco Services is not hereby agreeing, to: (i) furnish any
advice or make any recommendations regarding the purchase or sale of portfolio
securities or (ii) render any opinions, valuations or recommendations of any
kind or to perform any such similar services in connection with providing the
services described in Section 1 hereof.
4. Nothing herein shall be construed as prohibiting Conseco Services or its
affiliates from providing similar or other services to any other clients
(including other registered investment companies or the investment managers
thereof), so long as Conseco Services' services to the Fund is not impaired
thereby.
5. The term of this Agreement shall commence upon the date referred to
above, shall be in effect for a period of two years and shall thereafter
continue for successive one year periods provided that the agreement may be
terminated by either party upon 60 days written notice of the intention to
terminate.
6. The Fund will furnish Conseco Services with such information as Conseco
Services believes appropriate to its assignment hereunder (all such information
so furnished being the "Information"). The Fund recognizes and confirms that
Conseco Services (a) will use and rely primarily on the Information and on
information available from generally recognized public sources in performing the
services contemplated by this Agreement without having independently verified
the same and (b) does not assume responsibility for the accuracy or completeness
of the Information and such other information. To the best of the Fund's
knowledge, the Information to be furnished by the Fund when delivered, will be
true and correct in all material respects and will not contain any material
misstatement of fact or omit to state any material fact necessary to make the
statements contained therein not misleading. The Fund will promptly notify
Conseco Services if it learns of any material inaccuracy or misstatement in, or
material omission from, any Information thereto delivered to Conseco Services.
7. It is understood that Conseco Services is being engaged hereunder solely
to provide the services described above to the Fund and that Conseco Services is
not acting as an agent or fiduciary of, and shall have no duties or liability to
the current or future shareholders of the Fund, the current or future
shareholders of the Fund or any other third party in connection with its
engagement hereunder, all of which are hereby expressly waived.
8. The Fund agrees that Conseco Services shall have no liability to the
Fund of its shareholders for any act or omission to act by Conseco Services in
the course of its performance under this Agreement, in the absence of gross
negligence or willful misconduct on the part of Conseco Services. The Fund
agrees to the indemnification and other agreements set forth in the
Indemnification Agreement attached hereto, the provisions of which are
incorporated herein by reference and shall survive the termination, expiration
or supersession of this Agreement.
2
<PAGE>
9. No provision of this Agreement shall be construed to protect any
Trustee or officer of the Fund, or any director or officer of Conseco Services,
from liability to which such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence on the part of such person,
or reckless disregard by such person of obligations or duties hereunder.
10. This Agreement shall be construed in accordance with the laws of the
State of Indiana for contracts to be performed entirely therein and without
regard to the choice of law principles thereof.
11. This Agreement may not be assigned by either party without the prior
written consent of the other party.
12. This Agreement (including the attached Indemnification Agreement)
embodies the entire agreement and understanding between the parties hereto and
supersedes all prior agreements and understandings relating to the subject
matter hereof. If any provision of this Agreement is determined to be invalid or
unenforceable in any respect, such determination will not affect such provision
in any other respect or any other provision of this Agreement, which will remain
in full force and effect. This Agreement may not be amended or otherwise
modified or waived except by an instrument in writing signed by both Conseco
Services and the Fund.
13. All notices required or permitted to be sent under this Agreement shall
be sent, if to the Fund:
Conseco Strategic Income Fund
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: William P. Latimer, Esq.
or if to Conseco Services:
Conseco Services LLC
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention:
or such other name or address as may be given in writing to the other parties.
Any notice shall be deemed to be given or received on the third day after
deposit in the U.S. mail with certified postage prepaid or when actually
received, whether by hand, express delivery service or facsimile transmission,
whichever is earlier.
14. This Agreement may be exercised on separate counterparts, each of which
is deemed to be an original and all of which taken together constitute one and
the same agreement.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Shareholder
Servicing Agreement as of the date first above written.
CONSECO STRATEGIC INCOME FUND
By:
----------------------------------------
Name:
Title:
CONSECO SERVICES LLC
By:
----------------------------------------
Name:
Title:
4
<PAGE>
EXHIBIT 99.2(k)(3)
FORM OF ACCOUNTING SERVICES AGREEMENT
-------------------------------------
THIS AGREEMENT is made as of _____________, 1998 by and between CONSECO
STRATEGIC INCOME FUND , a Massachusetts business trust (the "Fund"), and PFPC
INC., a Delaware corporation ("PFPC"), which is an indirect wholly owned
subsidiary of PNC Bank Corp.
W I T N E S S E T H :
WHEREAS, the Fund is registered as a closed-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Fund wishes to retain PFPC to provide accounting and certain
other services to the Fund and PFPC wishes to furnish such services.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and intending to be legally bound hereby the parties hereto
agree as follows:
1. Definitions. As Used in this Agreement:
----------------------------------------
(a) "1933 Act" means the Securities Act of 1933, as amended.
----------
(b) "1934 Act" means the Securities Exchange Act of 1934, as amended.
----------
(c) "Authorized Person" means any officer of the Fund and any other
-------------------
person duly authorized by the Fund's Board of Trustees to give Oral
Instructions and Written Instructions on behalf of the Fund and
listed on the Authorized Persons Appendix attached hereto and made a
part hereof or any amendment thereto as may be received by PFPC. An
Authorized Person's scope of authority may be limited by the Fund by
setting forth such limitation in the Authorized Persons Appendix.
(d) "CEA" means the Commodities Exchange Act, as amended.
-----
(e) "Oral Instructions" mean oral instructions received by PFPC from an
-------------------
Authorized Person or from a person reasonably believed by PFPC to be
an Authorized Person.
1
<PAGE>
(f) "SEC" means the Securities and Exchange Commission.
-----
(g) "Securities Laws" means the 1933 Act, the 1934 Act, the 1940 Act
-----------------
and the CEA.
(h) "Shares" mean the shares of beneficial interest in the Fund.
--------
(I) "Written Instructions" mean written instructions signed by an
----------------------
Authorized Person and received by PFPC. The instructions may be
delivered by hand, mail, tested telegram, cable, telex, facsimile
sending device or electronic feed.
2. Appointment. The Fund hereby appoints PFPC to provide accounting and
-----------
certain other services to the Fund, in accordance with the terms set forth
in this Agreement. PFPC accepts such appointment and agrees to furnish such
services.
3. Delivery of Documents. The Fund has provided or, where applicable, will
---------------------
provide PFPC with the following:
(a) certified or authenticated copies of the resolutions of the
Fund's Board of Trustees, approving the appointment of PFPC or its
affiliates to provide services to the Fund and approving this
Agreement;
(b) a copy of Fund's most recent effective registration statement on
Form N-2 under the 1933 Act and 1940 Act filed with the SEC;
(c) a copy of the Fund`s investment management and administration
agreement;
(d) a copy of the Fund's distribution agreement;
(e) a copy of any additional administration agreement with respect to
the Fund;
(f) a copy of any shareholder servicing agreement made in respect of
the Fund; and
(g) copies (certified or authenticated, where applicable) of any and
all amendments or supplements to the foregoing.
4. Compliance with Rules and Regulations.
-------------------------------------
2
<PAGE>
PFPC undertakes to comply with all applicable requirements of the
Securities Laws, and any laws, rules and regulations of governmental
authorities having jurisdiction with respect to the duties to be performed
by PFPC hereunder. Except as specifically set forth herein, PFPC assumes
no responsibility for such compliance by the Fund.
5. Instructions.
------------
(a) Unless otherwise provided in this Agreement, PFPC shall act
only upon Oral Instructions and Written Instructions.
(b) PFPC shall be entitled to rely upon any Oral Instructions and
Written Instructions it receives from an Authorized Person (or from
a person reasonably believed by PFPC to be an officer of the Fund
or one of the persons listed on the Authorized Person Appendix
attached hereto (as the same may be amended)) pursuant to this
Agreement. PFPC may assume that any Oral Instruction or Written
Instruction received hereunder is not in any way inconsistent with
the provisions of organizational documents or this Agreement or of
any vote, resolution or proceeding of the Fund's Board of Trustees
or of the Fund's shareholders, unless and until PFPC receives
Written Instructions to the contrary.
(c) The Fund agrees to forward to PFPC Written Instructions
confirming Oral Instructions (except where such Oral Instructions
are given by PFPC or its affiliates) so that PFPC receives the
Written Instructions by the close of business on the same day that
such Oral Instructions are received. The fact that such confirming
Written Instructions are not received by PFPC shall in no way
invalidate the transactions or enforceability of the transactions
authorized by the Oral Instructions. Where Oral Instructions or
Written Instructions reasonably appear to have been received from
an Authorized Person, PFPC shall incur no liability to the Fund in
acting upon such Oral Instructions or Written Instructions provided
that PFPC's actions comply with the other provisions of this
Agreement.
6. Right to Receive Advice.
-----------------------
3
<PAGE>
(a) Advice of the Fund. If PFPC is in doubt as to any action it should or
------------------
should not take, PFPC may request directions or advice, including Oral
Instructions or Written Instructions, from the Fund.
(b) Advice of Counsel. If PFPC shall be in doubt as to any question of
-----------------
law pertaining to any action it should or should not take, PFPC may request
advice at its own cost from such counsel of its own choosing (who may be
counsel for the Fund, the Fund's investment adviser or PFPC, at the option
of PFPC).
(c) Conflicting Advice. In the event of a conflict between directions,
------------------
advice or Oral Instructions or Written Instructions PFPC receives from the
Fund and the advice PFPC receives from counsel, PFPC may rely upon and
follow the advice of counsel. In the event PFPC so relies on the advice of
counsel, PFPC remains liable for any action or omission on the part of PFPC
which constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard by PFPC of any duties, obligations or responsibilities
set forth in this Agreement.
(d) Protection of PFPC. PFPC shall be protected in any action it takes or
------------------
does not take in reliance upon directions, advice or Oral Instructions or
Written Instructions it receives from the Fund or from counsel and which
PFPC believes, in good faith, to be consistent with those directions,
advice and Oral Instructions or Written Instructions. Nothing in this
section shall be construed so as to impose an obligation upon PFPC (i) to
seek such directions, advice or Oral Instructions or Written Instructions,
or (ii) to act in accordance with such directions, advice or Oral
Instructions or Written Instructions unless, under the terms of other
provisions of this Agreement, the same is a condition of PFPC's properly
taking or not taking such action. Nothing in this subsection shall excuse
PFPC when an action or omission on the part of PFPC constitutes willful
misfeasance, bad faith, gross negligence or reckless disregard by PFPC of
any duties, obligations or responsibilities set forth in this Agreement.
4
<PAGE>
7. Records; Visits.
---------------
(a) The books and records pertaining to the Fund which are in the
possession or under the control of PFPC shall be the property of the Fund.
Such books and records shall be prepared and maintained as required by the
1940 Act and other applicable securities laws, rules and regulations. The
Fund and Authorized Persons shall have access to such books and records at
all times during PFPC's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be provided by PFPC
to the Fund or to an Authorized Person, at the Fund's expense.
(b) PFPC shall keep the following records:
(i) all books and records with respect to the Fund's books of
account;
(ii) records of the Fund's securities transactions; and
(iii) all other books and records as PFPC is required to
maintain pursuant to Rule 31a-1 of the 1940 Act in connection
with the services provided hereunder.
8. Confidentiality. PFPC agrees to keep confidential all records of the Fund
---------------
and information relating to the Fund and its shareholders, unless the
release of such records or information is otherwise consented to, in
writing, by the Fund. The Fund agrees that such consent shall not be
unreasonably withheld and may not be withheld where PFPC may be exposed to
civil or criminal contempt proceedings or when required to divulge such
information or records to duly constituted authorities.
9. Liaison with Accountants. PFPC shall act as liaison with the Fund's
------------------------
independent public accountants and shall provide account analyses, fiscal
year summaries, and other audit-related schedules. PFPC shall take all
reasonable action in the performance of its duties under this Agreement to
assure that the necessary information is made available to such
accountants for the expression of their opinion, as required by the Fund.
5
<PAGE>
10. Disaster Recovery. PFPC shall enter into and shall maintain in effect with
-----------------
appropriate parties one or more agreements making reasonable provisions for
emergency use of electronic data processing equipment to the extent
appropriate equipment is available. In the event of equipment failures,
PFPC shall, at no additional expense to the Fund, take reasonable steps to
minimize service interruptions. PFPC shall have no liability with respect
to the loss of data or service interruptions caused by equipment failure,
provided such loss or interruption is not caused by PFPC's own willful
misfeasance, bad faith, gross negligence or reckless disregard of its
duties or obligations under this Agreement.
11. Compensation. As compensation for services rendered by PFPC during the
------------
term of this Agreement, the Fund, on behalf of each Portfolio, will pay to
PFPC a fee or fees as may be agreed to in writing by the Fund and PFPC.
12. Indemnification. (a) The Fund agrees to indemnify and hold harmless PFPC
---------------
and its affiliates from all taxes, charges, expenses, assessments, claims
and liabilities (including, without limitation, liabilities arising under
the Securities Laws and any state or foreign securities and blue sky laws,
and amendments thereto), and expenses, including (without limitation)
attorneys' fees and disbursements arising directly or indirectly from any
action or omission to act which PFPC takes (i) at the request or on the
direction of or in reliance on the advice of the Fund or (ii) upon Oral
Instructions or Written Instructions. Neither PFPC, nor any of its
affiliates', shall be indemnified against any liability (or any expenses
incident to such liability) arising out of PFPC's or its affiliates' own
willful misfeasance, bad faith, gross negligence or reckless disregard of
its duties and obligations under this Agreement.
(b) In order that the indemnification provisions contained in this Section
12 shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify PFPC, PFPC shall promptly notify the Fund of such
assertion, and shall keep the Fund advised
6
<PAGE>
with respect to all material developments concerning such claim. The Fund
shall have the option to participate with PFPC in the defense of such
claim. Neither party shall confess any claim or make any compromise in any
case to which the indemnification provided for in this Section 12 attaches
except with the other party's prior written consent.
13. Responsibility of PFPC.
----------------------
(a) PFPC shall be under no duty to take any action on behalf of the Fund
except as specifically set forth herein or as may be specifically agreed to
by PFPC in writing. PFPC shall be obligated to exercise care and diligence
in the performance of its duties hereunder, to act in good faith and to use
its best efforts, within reasonable limits, in performing services provided
for under this Agreement. PFPC shall be liable for any damages arising out
of PFPC's failure to perform its duties under this Agreement to the extent
such damages arise out of PFPC's willful misfeasance, bad faith, gross
negligence or reckless disregard of such duties.
(b) Without limiting the generality of the foregoing or of any other
provision of this Agreement, (i) PFPC shall not be liable for losses
beyond its control, provided that PFPC has acted in accordance with the
standard of care set forth above; and (ii) PFPC shall not be liable for
(A) the validity or invalidity or authority or lack thereof of any Oral
Instruction or Written Instruction, notice or other instrument which
conforms to the applicable requirements of this Agreement, and which
PFPC reasonably believes to be genuine; or (B) subject to Section 10,
delays or errors or loss of data occurring by reason of circumstances
beyond PFPC's control, including acts of civil or military authority,
national emergencies, labor difficulties, fire, flood, catastrophe, acts
of God, insurrection, war, riots or failure of the mails,
transportation, communication or power supply.
7
<PAGE>
(c) Notwithstanding anything in this Agreement to the contrary,
neither PFPC nor its affiliates shall be liable to the Fund for any
consequential, special or indirect losses or damages which the Fund
may incur or suffer by or as a consequence of PFPC's or any
affiliates' performance of the services provided hereunder, whether or
not the likelihood of such losses or damages was known by PFPC or its
affiliates.
14. Description of Services on a Continuous Basis.
---------------------------------------------
(a) PFPC will perform the following accounting services:
(i) Journalize investment, capital share and income and expense
activities;
(ii) Verify investment buy/sell trade tickets when received from the
Fund's investment adviser (the "Adviser") and transmit trades to the
Fund's custodian (the "Custodian") for proper settlement;
(iii) Maintain individual ledgers for investment securities;
(iv) Maintain historical tax lots for each security;
(v) Reconcile cash and investment balances of the Fund with the
Custodian, and provide the Adviser with the beginning cash balance
available for investment purposes;
(vi) Update the cash availability throughout the day as required by
the Adviser;
(vii) Post to and prepare the Statement of Assets and Liabilities and
the Statement of Operations;
(viii) Calculate various contractual expenses (e.g., advisory and
----
custody fees);
(ix) Monitor the expense accruals and notify an officer of the Fund
of any proposed adjustments;
(x) Control all disbursements and authorize such disbursements upon
Written Instructions;
(xi) Calculate capital gains and losses;
(xii) Determine net income;
8
<PAGE>
(xiii) Obtain security market quotes from independent pricing services
approved by the Adviser, or if such quotes are unavailable, then
obtain such prices from the Adviser, and in either case calculate the
market value of the Fund's investments on a weekly basis;
(xiv) Transmit or mail a copy of the weekly portfolio valuation to
the Adviser;
(xv) Compute net asset value on a weekly basis;
(xvi) As appropriate, compute yields, total return, expense ratios,
portfolio turnover rate, and, if required, portfolio average dollar-
weighted maturity; and
(xvii) Prepare a monthly financial statement, which will include the
following items:
Schedule of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets.
(b) PFPC will perform the following additional services:
(i) Prepare quarterly broker security transactions summaries;
(ii) Prepare monthly security transaction listings;
(iii) Supply various normal and customary Fund statistical data as
requested on an ongoing basis;
(iv) Prepare for execution and file the Fund's Federal and state tax
returns;
(v) Prepare and file the Fund's Semi-Annual Reports with the SEC on
Form N-SAR;
(vi) Prepare and file with the SEC the Fund's annual and semi-annual
shareholder reports; and
(vii) Monitor the Fund's status as a regulated investment company
under Sub-chapter M of the Internal Revenue Code of 1986, as amended.
15. Duration and Termination. This Agreement shall be effective on the
------------------------
date first above written and shall continue in effect for an initial
period of two (2) years (the "Initial Term"). Thereafter, this
Agreement shall automatically renew for
9
<PAGE>
successive terms of one (1) year ("Renewal Terms"); provided, however,
that this Agreement may be terminated (i) on its anniversary date or
(ii) on the date that is six (6) months from the anniversary date by
either party without penalty upon written notice given to the other
party 90 days in advance of the termination date.
During either the Initial Term or the Renewal Terms, this Agreement may
also be terminated on an earlier date by the Fund or PFPC for cause.
With respect to the Fund, cause shall mean PFPC's material breach of
this Agreement causing it to fail to substantially perform its duties under this
Agreement. In order for such material breach to constitute "cause" under this
Paragraph, PFPC must receive written notice from the Fund specifying the
material breach and PFPC shall not have corrected such breach within a 30-day
period.
With respect to PFPC, cause includes, but is not limited to, the
failure of the Fund to pay the compensation set forth in writing pursuant to
Paragraph 11 of this Agreement after it has received written notice from PFPC
specifying the amount due and the Fund shall not have paid that amount within a
30-day period.
Any notice of termination for cause shall be effective sixty (60) days
from the date of any such notice. Upon the termination hereof, the Fund shall
pay to PFPC such compensation as may be due for the period prior to the date of
such termination. Any termination effected shall not affect the rights and
obligations of the parties under Paragraphs 12 and 13 hereof.
16. Notices. All notices and other communications, including Written
-------
Instructions, shall be in writing or by confirming telegram, cable, telex
or facsimile sending device. If notice is sent by confirming telegram,
cable, telex or facsimile sending device, it shall be deemed
10
<PAGE>
to have been given immediately. If notice is sent by first-class mail, it
shall be deemed to have been given three days after it has been mailed. If
notice is sent by messenger, it shall be deemed to have been given on the
day it is delivered. Notices shall be addressed (a) if to PFPC, at 400
Bellevue Parkway, Wilmington, Delaware 19809; (b) if to the Fund, at11825
N. Pennsylvania Street, Carmel, Indiana 46032, Attn: William P. Latimer; or
(c) if to neither of the foregoing, at such other address as shall have
been provided by like notice to the sender of any such notice or other
communication by the other party.
17. Limitation of Liability of Trustees and Shareholders. A copy of the Fund's
----------------------------------------------------
Declaration of Trust is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed
on behalf of the Fund's Trustees as Trustees under the Declaration of Trust
and not individually. PFPC acknowledges and agrees that the obligations of
the Fund hereunder are not personally binding upon any of the Trustees or
shareholders of the Fund but are binding only upon property of the Fund.
18. Amendments. This Agreement, or any term thereof, may be changed or waived
----------
only by written amendment, signed by the party against whom enforcement of
such change or waiver is sought.
19. Year 2000. PNC is in the process of undertaking such modifications as may
---------
appear to be reasonably necessary to enable its computer system to process
date-related data on and after January 1, 2000 with respect to the services
provided hereunder. PNC will provide periodic reports to the Fund
regarding the status of its Year 2000 preparedness program.
11
<PAGE>
20. Delegation; Assignment. PFPC may assign its rights and delegate its duties
----------------------
hereunder to any wholly-owned direct or indirect subsidiary of PFPC Inc.,
PNC Bank, National Association or PNC Bank Corp., provided that (i) PFPC
gives the Fund thirty (30) days' prior written notice; (ii) the delegate
(or assignee) agrees with PFPC and the Fund to
comply with all relevant provisions of the 1940 Act; and (iii) PFPC and
such delegate (or assignee) promptly provide such information as the Fund
may request, and respond to such questions as the Fund may ask, relative to
the delegation (or assignment), including (without limitation) the
capabilities of the delegate (or assignee).
21. Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
22. Further Actions. Each party agrees to perform such further acts and
---------------
execute such further documents as are necessary to effectuate the purposes
hereof.
23. Miscellaneous.
-------------
(a) Entire Agreement. This Agreement embodies the entire agreement
----------------
and understanding between the parties and supersedes all prior
agreements and understandings relating to the subject matter hereof,
provided that the parties may embody in one or more separate documents
their agreement, if any, with respect to delegated duties and Oral
Instructions.
(b) Captions. The captions in this Agreement are included for
--------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
(c) Governing Law. This Agreement shall be deemed to be a contract
-------------
made in Delaware and governed by Delaware law, without regard to
principles of conflicts of law.
12
<PAGE>
(d) Partial Invalidity. If any provision of this Agreement shall
------------------
be held or made invalid by a court decision, statute, rule or otherwise,
the remainder of this Agreement shall not be affected thereby.
(e) Successors and Assigns. This Agreement shall be binding upon
----------------------
and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
(f) Facsimile Signatures. The facsimile signature of any party to
--------------------
this Agreement shall constitute the valid and binding execution hereof
by such party.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
PFPC INC.
By:
--------------------------------
Title:
-----------------------------
CONSECO STRATEGIC INCOME FUND
By:
--------------------------------
Title:
-----------------------------
14
<PAGE>
AUTHORIZED PERSONS APPENDIX
NAME (Type) SIGNATURE
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
- ----------------------------- -----------------------------
15
<PAGE>
EXHIBIT 99.2(l)
KIRKPATRICK & LOCKHART LLP
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036-1800
TELEPHONE 202-778-9000
July 23, 1998
Conseco Strategic Income Fund
11825 North Pennsylvania St.
Carmel, Indiana 46032
Ladies and Gentlemen:
You have requested our opinion, as counsel to Conseco Strategic Income Fund
("Trust"), as to certain matters regarding the issuance of the Trust's shares of
beneficial interest, par value $.001 per share, that currently are being
registered under the Securities Act of 1933, as amended ("1933 Act") pursuant to
the Trust's registration statement on Form N-2 (File No. 333- 55809)
("Registration Statement") in the amount set forth under "Amount Being
Registered" on the facing page of the Registration Statement ("Shares").
As such counsel, we have examined certified or other copies, believed by us
to be genuine, of the Trust's Declaration of Trust and By-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited to
the laws (other than the conflict of law rules) of the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by business trusts and to the 1933 Act, the Investment Company Act of
1940, as amended ("1940 Act") and the regulations of the Securities and Exchange
Commission ("SEC") thereunder.
Based on the foregoing, we are of the opinion that the issuance of the
Shares has been duly authorized by the Trust and that, when issued and sold in
accordance with the terms contemplated by the Registration Statement, including
receipt by the Trust of full payment for the Shares and compliance with the 1933
Act and the 1940 Act, the Shares will have been validly issued, fully paid and
non-assessable.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Fund. The
Fund's Declaration of Trust states, however, that no shareholder shall be
subject to any personal liability whatsoever to any person in connection with
any and all property of the Fund or the acts, obligations or affairs of the
Fund. It also states that the Trustees shall have no power to bind any
shareholder personally or to call upon any shareholder for the payment of any
sum of money or assessment whatsoever other than such as the shareholder may at
any time personally agree to pay by way of subscription to any shares or
otherwise. The Declaration of Trust further provides that shareholder liability
for the acts and obligations of the Fund is hereby expressly disclaimed and
<PAGE>
requires that every note, bond, contract, or other undertaking issued by or on
behalf of the Fund or the Trustees relating to the Fund shall include a notice
and provision limiting the obligation represented thereby to the Fund and its
assets. In addition, the Declaration of Trust states that if any shareholder of
the Fund is made a party to any suit or proceeding to enforce any such
liability, he or she shall not, on account thereof, be held at any personal
liability. Finally, the Declaration of Trust provides that the Fund shall
indemnify and hold each shareholder harmless from and against all claims and
liabilities, to which such shareholder may become subject by reason of his or
her being or having been a shareholder, other than by reason of his or her own
wrongful act or omission, and shall reimburse such shareholder for all legal and
other expenses reasonably incurred by him or her in connection with any such
claim or liability.
We hereby consent to this opinion being an exhibit to the Registration
Statement when it is filed with the SEC and to the reference to our firm in the
prospectus that is being filed as part of the Registration Statement.
Very truly yours,
Kirkpatrick & Lockhart LLP
By: /s/ R. Darrell Mounts, Esq.
-----------------------------
R. Darrell Mounts, Esq.
<PAGE>
EXHIBIT 99.2(n)
Consent of Independent Accountants
To the Board of Trustees of
The Conseco Strategic Income Fund
We consent to the inclusion in this Registration Statement of
The Conseco Strategic Income Fund (the "Fund"), on Form N2
(Securities Act File No. 333-55809 and Investment Company Act
File No. 811-087950) of our report dated July 20, 1998, on our
audit of the statement of assets and liabilities of the Fund at
July 15, 1998. We also consent to the reference to our firm
under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
Indianapolis, Indiana
July 23, 1998
<PAGE>
EXHIBIT 99.2(p)
July 17, 1998
Conseco Strategic Income Fund
11825 North Pennsylvania Street
Carmel, Indiana 46032
Re: Letter of Investment Intent
---------------------------
Ladies and Gentlemen:
We are writing to confirm the purchase of 6,667 shares of beneficial interest
in Conseco Strategic Income Fund, which we have purchased from you at a price of
$15 per share. This is to advise you that the shares we have purchased were
purchased for investment only with no present intention of selling such shares,
and we do not now have any intention of selling such shares.
Sincerely,
CONSECO, INC.
By: /s/ John J. Sabl
---------------------------------
John J. Sabl
Executive Vice President,
General Counsel, and Secretary
