As filed with the Securities and Exchange Commission on
February 28, 1997
File Nos. 811-4138 and 2-94067
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ X]
Pre-Effective Amendment No. _______
[ ]
Post-Effective Amendment No. 32
[ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF
1940 [ X]
Amendment No. 33
ALLMERICA INVESTMENT TRUST
(Name of Registrant)
440 Lincoln Street
WORCESTER, MASSACHUSETTS 01653
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(508) 855-1000
(Names and Addresses of Agents for Service:)
Gail A. Hanson Peter MacDougall,
Esq.
First Data Investor Services Group, Inc. Ropes
& Gray
One Exchange Place One
International Place
53 State Street Boston,
Massachusetts 02110
Boston, MA 02109
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
____ on (date) pursuant to paragraph (b)
_X_ 60 days after filing pursuant to paragraph
(a)(1)
____ on (date) pursuant to paragraph (a)(1)
____ 75 days after filing pursuant to paragraph (a)(2)
____ on (date) pursuant to paragraph (a)(2) of rule 485.
Pursuant to Reg. Section 270.24f-2 of the Investment Company
Act of 1940, Registrant has registered an indefinite amount
of its securities under the Securities Act of 1933. The Rule
24f-2 Notice for Registrant's fiscal year ended December 31,
1996 was filed on February 27, 1997.
ALLMERICA INVESTMENT TRUST
Cross-Reference Sheet
Item No. of Form N-1A Prospectus Caption
1 Prospectus Cover Page
2 Management Fees and Expenses
3 Financial Highlights
4 (a) Prospectus Cover Page, Organization and
Capitalization of the Trust, What are the Investment
Objectives and Policies?
4(b) and (c) What are the Investment Objectives
and Policies?, Investment Restrictions, Certain Investment
Strategies and Policies
5(a) How are the Funds Managed?
5 (b) How are the Funds Managed?, Management
Fees and Expenses, What are the Investment Objectives and
Policies?
5(c) Fund Manager Information
5(d) and (e) Organization and Capitalization of
the Trust
5(f) Not Applicable
5(g) Management Fees and Expenses
5(h) Not Applicable
6(a) and (b) Organization and Capitalization of
the Trust
6(c) and (d) Not Applicable
6(e) Cover Page, Organization and
Capitalization of the Trust
6(f) and (g) Taxes and Distributions to
Shareholders
7 Sales and Redemption of Shares
7(a) Not Applicable
7(b) How are Shares Valued?
Item No. of Form N-1A Prospectus Caption
7(c)-(f) Not Applicable
8(a) Sales and Redemption of Shares
8(b)-(d) Not Applicable
9 Not Applicable
Item No. of Form N-1A Caption in Statement of
Additional Information
10(a) and (b) Cover Page
11 Table of Contents
12 General Information, Organization of the Trust
13(a) Investment Objectives and Policies
13(b) Investment Restrictions
13(c) Investment Objectives and Policies,
Investment Restrictions
13(d) Portfolio Turnover
14(a) and (b) Management of Allmerica Investment
Trust
14(c) Not Applicable
15(a) and (b) Control Person and Principal Holder
of Securities
15 (c) Not Applicable
16(a) and (b) Investment Management and Other
Services
16(c)-(g) Not Applicable
16(h) Investment Management and Other Services,
Organization of the Trust
16(i) Not Applicable
17(a)-(c) Brokerage Allocation
17(d) Not Applicable
Item No. of Form N-1A Caption in Statement of
Additional Information
17(e) Not Applicable
18 Not Applicable
19(a) and (b) Purchase, Redemption and Pricing of
Securities Being Offered
19(c) Not Applicable
20 and 21 Not Applicable
22 Performance
23 Financial Statements
ALLMERICA INVESTMENT TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a
professionally managed, open-end investment company designed
to provide the underlying investment vehicles for insurance-
related accounts. The eleven separate portfolios of the
Trust (collectively, the "Funds" and individually, the
"Fund") currently offered by this Prospectus are as follows:
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Small-Mid Cap Value Fund
Select International Equity Fund
Select Growth Fund
Growth Fund
Equity Index Fund
Select Growth and Income Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
Currently, shares of each Fund may be purchased only
by the separate accounts ("Separate Accounts") established
by First Allmerica Financial Life Insurance Company ("First
Allmerica") or Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Life"), an indirect, wholly-
owned subsidiary of First Allmerica, for the purpose of
funding variable annuity contracts and variable life
insurance policies. A particular Fund may not be available
under the variable annuity or variable life insurance policy
which you have chosen. The Prospectus of the specific
insurance product you have chosen will indicate which Funds
are available, and should be read in conjunction with this
Prospectus. Inclusion in this Prospectus of a Fund which is
not available under your policy is not to be considered a
solicitation.
This Prospectus sets forth concisely the information
about the Trust that a prospective investor ought to know
before investing. Certain additional information
contained in the Statement of Additional Information dated
April 29, 1997 (the "SAI") , which has been filed with
the Securities and Exchange Commission, is incorporated
herein by reference and is available upon request without
charge from the Trust, 440 Lincoln Street, Worcester, MA
01653, (508) 855-1000.
Investment in the Money Market Fund is neither insured
nor guaranteed by the U.S. Government. There can be no
assurance that the Fund will be able to maintain a stable
net asset value of $1.00 per share.
THIS PROSPECTUS SHOULD BE READ AND RETAINED 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.
DATED APRIL 29, 1997
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS
3
HOW ARE THE FUNDS MANAGED?
5
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
6
Select Aggressive Growth Fund
6
Select Capital Appreciation Fund
7
Small-Mid Cap Value Fund
8
Select International Equity Fund
9
Select Growth Fund
9
Growth Fund
1
0
Equity Index Fund
1
1
Select Growth and Income Fund
1
2
Investment Grade Income Fund
1
3
Government Bond Fund
1
4
Money Market Fund
1
4
MANAGEMENT FEES AND EXPENSES
1
5
FUND MANAGER INFORMATION
1
8
HOW ARE SHARES VALUED?
2
0
TAXES AND DISTRIBUTIONS TO SHAREHOLDER
2
1
SALE AND REDEMPTION OF SHARES
2
1
HOW IS PERFORMANCE DETERMINED?
2
2
ORGANIZATION AND CAPITALIZATION OF THE TRUST
2
2
INVESTMENT RESTRICTIONS
2
2
CERTAIN INVESTMENT STRATEGIES AND POLICIES
2
3
APPENDIX
2
8
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited
by Price Waterhouse LLP, independent accountants of the
Trust. This information should be read in conjunction with
the financial statements and notes thereto which appear in
the Policyowner's annual report for the year ended
December 31, 1996 ("Annual Report") and which are
incorporated by reference in the Trust's SAI. Further
information about the performance of the Funds is contained
in the Annual Report which may be obtained without charge
from the Trust, 440 Lincoln Street, Worcester, MA 01653,
(508) 855-1000.
[FINANCIAL HIGHLIGHTS TO BE FILED BY AMENDMENT]
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the
affairs of the Trust vests in the Board of Trustees of the
Trust which meets on a quarterly basis. Allmerica Investment
Management Company, Inc. (the "Manager") is responsible for
the management of the Trust's day-to-day business affairs
and has general responsibility for the management of the
investments of the Funds. The Manager, at its expense, has
contracted with certain Sub-Advisers to manage the
investments of the Funds, subject to the requirements of the
Investment Company Act of 1940, as amended (the "1940 Act").
The Manager is an indirect, wholly-owned subsidiary
of Allmerica Financial Corporation ("AFC"), a Delaware
holding company for a group of affiliated companies, the
largest of which is First Allmerica, a life insurance
company organized in Massachusetts in 1844. The Manager,
organized August 19, 1985, also serves as manager of the
Allmerica Funds, an open-end investment company. The Manager
and AFC are located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
The Manager has entered into Sub-Adviser Agreements
for the management of the investments of each of the Funds.
Each Sub-Adviser, who has been selected on the basis of
various factors including management experience, investment
techniques, and staffing, is authorized to engage in
portfolio transactions on behalf of the applicable Fund
subject to such general or specific instructions as may be
given by the Trustees and/or the Manager. The terms of a
Sub-Adviser Agreement cannot be changed materially without
the approval of a majority interest of the shareholders of
the affected Fund. The Sub-Advisers have been selected by
the Manager and Trustees in consultation with RogersCasey &
Associates, Inc. ("RogersCasey"), a leading pension
consulting firm. RogersCasey is a wholly-owned subsidiary
of BARRA, Inc. The cost of such consultation is borne by
the Manager.
RogersCasey provides consulting services to pension
plans representing over $300 billion in total assets and, in
its consulting capacity, monitors the investment performance
of over 1,000 investment advisers. From time to time,
specific clients of RogersCasey and the Sub-Advisers will be
named in sales materials. At times, RogersCasey assists in
the development of asset allocation strategies which may be
used by shareholders in the diversification of their
portfolios across different asset classes.
Ongoing performance of the Sub-Advisers is reviewed
and evaluated by a committee which includes members who may
include senior officers of First Allmerica, its affiliates
or the Manager and an independent consultant. Combined, the
committee has over 150 years of investment experience.
Historical performance data for all Funds is set forth under
"Financial Highlights." The Manager is responsible for the
payment of all fees to the Sub-Advisers. The Sub-Advisers
for each of the Funds are as follows:
Select Aggressive
Growth Fund
Nicholas-Applegate
Capital Management
Select Capital
Appreciation Fund
Janus Capital Corporation
Small-Mid Cap Value Fund
CRM Advisors, LLC*
Select International
Equity Fund
Bank of Ireland Asset
Management (U.S.) Limited
Select Growth Fund
Putnam Investment
Management, Inc.**
Growth Fund
Miller Anderson &
Sherrerd, LLP
Equity Index Fund
Allmerica Asset
Management, Inc.
Select Growth and Income
Fund
John A. Levin & Co., Inc.
Investment Grade Income
Fund
Allmerica Asset
Management, Inc.
Government Bond Fund
Allmerica Asset
Management, Inc.
Money Market Fund
Allmerica Asset
Management, Inc.
For a sample listing of certain of the Sub-Advisers'
clients, see "Investment Management and Other Services" in
the SAI. For more information on each of the Sub-Advisers,
see "What Are the Investment Objectives and Policies?" and
"Fund Manager Information."
The Manager also has entered into an Administrative
Services Agreement with First Data Investor Services Group,
Inc. ("FDISG"), a wholly-owned subsidiary of First Data
Corporation, whereby First Data performs administrative
services for each of the Funds and is entitled to receive an
administrative fee and certain out-of-pocket expenses. The
Manager is responsible for the payment of the administrative
fee to FDISG.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and
policies designed to meet different investment and financial
needs, as described below. There is no assurance that a Fund
will achieve its investment objective.
A Fund's investment objective is fundamental and may
not be changed without shareholder approval. Unless
otherwise indicated, a Fund's investment policies are not
fundamental and may be changed without shareholder approval.
Select Aggressive Growth Fund
Investment Objective: The Select Aggressive Growth Fund
seeks above-average capital appreciation by investing
primarily in common stocks of companies which are believed
to have significant potential for capital appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management
("NACM") serves as Sub-Adviser to the Select Aggressive
Growth Fund. NACM is an investment manager supervising
accounts with approximately $32 billion as of
December 31, 1996. NACM's clients are primarily major
corporate employee benefit funds, public employee retirement
plans, foundations and endowment funds, investment companies
and individuals. Founded in 1984, NACM is located at
600 West Broadway, Suite 2900, San Diego, California 92101.
Investment Policies: Under normal circumstances, at least
65% of the assets of the Select Aggressive Growth Fund will
be invested in equity securities consisting of common
stocks, securities convertible into common stocks (including
bonds, notes and preferred stocks), and warrants. The Fund's
assets also may be invested in other debt securities and
preferred stocks when such securities are believed
appropriate in light of the Fund's investment objective and
market conditions.
The selection of securities is made solely on the
basis of potential for capital appreciation. Dividend and
interest income from portfolio securities, if any, is
incidental to the Fund's investment objective. While
investments may be made in well-known and established
companies, a significant portion of the Fund's investments
is expected to be in securities of newer and relatively
unseasoned companies or companies which represent new or
changing industries.
At any given point, a substantial portion of the
Fund's equity investments may be in securities which are not
listed for trading on national securities exchanges and,
although publicly traded, may be less liquid than securities
issued by larger, more seasoned companies which trade on
national securities exchanges. Up to 15% of the Fund's
assets may be invested assets which are illiquid because
they are subject to restricted on resale or for which market
quotations are not readily available.
Securities of newer companies may be closely held with
only a small portion of their outstanding securities owned
by the general public. Newer companies may have relatively
small revenue, lack depth of management, and have a small
share of the market for their products or services; thus,
they may be more vulnerable to changes in economic
conditions, market fluctuations, and other factors affecting
the profitability or marketability of companies. Due to
these and other factors, the price movement of the
securities held by the Fund can be expected to be more
volatile than is the case for the market as a whole, and the
net asset value of a share of the Fund may fluctuate
significantly. Consequently, the Fund should not be
considered suitable for investors who are unable or
unwilling to assume the risk of loss inherent in an
aggressive growth portfolio, nor should investment in the
Fund be considered a balanced or complete investment
program.
When NACM determines that market conditions warrant a
temporary defensive position, the Fund may invest without
limitation in high-grade, fixed-income securities, U.S.
Government securities, or hold assets in cash or cash
equivalents. The Fund may engage, for hedging purposes, in
the options and futures strategies described under "Certain
Investment Strategies and Policies".
The Fund may also invest up to 25% of its assets in
foreign securities (not including its investments)
investments in American Depositary Receipts ("ADRs").
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 113%. The
portfolio turnover rate was the result of the Sub-Adviser's
investment approach which typically results in above-average
portfolio turnover as securities are sold when the
Sub-Adviser believes the reasons for their initial purchase
are no longer valid or when it believes that the sale of a
security owned by the Fund and the purchase of another
security can enhance return. A security may be sold to avoid
a prospective decline in market value or purchased in
anticipation of a market rise. Portfolio turnover rates may
vary greatly from year to year. A high portfolio turnover
rate will likely result in greater brokerage costs to the
Fund.
Select Capital Appreciation Fund
Investment Objective: The Select Capital Appreciation Fund
seeks long-term growth of capital in a manner consistent
with the preservation of capital. Realization of income is
not a significant investment consideration and any income
realized on the Fund's investments will be incidental to its
primary objective.
Sub-Adviser: Janus Capital Corporation ("JCC") serves
as Sub-Adviser to the Select Capital Appreciation Fund. JCC
has served as investment adviser to the Janus Fund since
1969 and currently serves as investment adviser to all of
the Janus retail funds, as well as adviser or sub-adviser to
other mutual funds and individual, corporate, charitable,
and retirement accounts. Kansas City Southern
Industries, Inc., a publicly-traded holding company whose
primary subsidiaries are engaged in transportation and
financial services, owns approximately 83% of the
outstanding stock of JCC. As of December 31, 1996, JCC had
approximately $47 billion in total assets under management.
JCC is located at 100 Fillmore Street, Denver, Colorado
80206-4923.
Investment Policies: The Fund invests in common stocks
when the Sub-Adviser believes that the relevant market
environment favors profitable investing in those securities.
The Fund pursues its objective normally by investing at
least 50% of its equity assets in securities issued by
medium-sized companies. Medium-sized companies are those
whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the "MidCap Index").
Companies whose capitalization falls outside this range
after the Fund's initial purchase continue to be considered
medium-sized companies for the purpose of this policy. As
of December 31, 1996, the MidCap Index included companies
with capitalizations between approximately $500 million to
$10 billion. The range of the MidCap Index is expected
to change on a regular basis. Subject to the above policy,
the Fund may also invest in smaller or large issuers. Common
stock investments are selected in industries and companies
that the Sub-Adviser believes are experiencing favorable
demand for their products and services, and which operate in
a favorable competitive environment and regulatory climate.
The Sub-Adviser's analysis and selection process focuses on
stocks with earnings growth potential that may not be
recognized by the market. Such securities are selected
solely for their capital growth potential; investment income
is not a consideration. Medium-sized companies may suffer
more significant losses as well as realize more substantial
growth than larger issues; thus, investments in such
companies tend to be more volatile and somewhat speculative.
The selection criteria for domestic issuers apply
equally to stocks of foreign issuers. In addition, factors
such as expected levels of inflation, government policies
influencing business conditions, the outlook for currency
relationships, and prospects for relative economic growth
among countries, regions or geographic areas may warrant
greater consideration in selecting foreign stocks. The Fund
may invest without limitation in foreign securities. The
Fund may invest directly in foreign securities denominated
in foreign currency and not publicly traded in the United
States. The Fund also may purchase foreign securities
through American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") and other types of receipts or shares
evidencing ownership of the underlying foreign securities.
In addition, the Fund may invest indirectly in foreign
securities through foreign investment funds or trusts
(including passive foreign investment companies). Certain
state insurance regulations may impose additional
restrictions on the Fund's holdings of foreign securities.
Investments in foreign securities carry additional risks not
present in domestic securities. See "Certain Investment
Strategies and Policies - Foreign Securities."
Although the Fund normally invests primarily in
common stocks, the Fund's cash position may increase when
the Sub-Adviser is unable to locate investment opportunities
with desirable risk/reward characteristics. The Fund also
may invest in preferred stocks, warrants, government
securities, corporate bonds and debentures, high-grade
commercial paper, certificates of deposit, other debt
securities or repurchase agreements or reverse repurchase
agreements when the Sub-Adviser perceives an opportunity for
capital growth from such securities or so that the Fund may
receive a return on its idle cash. The Fund also may invest
up to 35% of its assets in such lower-rated securities
commonly known as "junk bonds." Fixed-income securities
rated in the fourth highest grade by Moody's Investors
Services, Inc. ("Moody's") or Standard & Poor's Ratings
Service, a division of McGraw-Hill Companies, Inc. ("S&P")
(Baa and BBB, respectively) are investment grade but are
considered to have some speculative characteristics. Lower-
rated securities or "junk bonds" (rated BaBB or lower)
involve the risks discussed under "Certain Investment
Strategies and Policies." When the Fund invests in such
securities, investment income will increase and may
constitute a large portion of the return realized by the
Fund and the Fund probably will not participate in market
advances or declines to the extent that it would if it
remained fully invested in common stocks. Up to 15% of the
Fund's assets may be invested in restricted or illiquid
securities.
When the Fund invests in such securities,
investment income will increase and may constitute a large
portion of the return realized by the Fund and the Fund
probably will not participate in market advances or declines
to the extent that it would if it remained fully invested in
common stocks.
The Fund may invest in "special situations" from time
to time. A special situation arises when, in the opinion of
the Sub-Adviser, the securities of a particular issuer
will be recognized and appreciate in value due to a specific
development with respect to that issuer. Developments
creating a special situation might include, among others, a
new product or process, a technological breakthrough, a
management change or other extraordinary corporate event, or
differences in market supply of and demand for the security.
Investment in special situations may carry an additional
risk of loss in the event that the anticipated development
does not occur or does not attract the expected attention.
For hedging purposes, the Fund may engage in options
and futures strategies and may utilize forward contracts,
interest rate swaps, and swap-related products. See "Certain
Investment Strategies and Policies."
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 98%. The
portfolio turnover rate for the Fund may vary from year to
year.
Small-Mid Cap Value Fund
Investment Objective: The Small-Mid Cap Value
Fund seeks long term growth of capital by investing
primarily in a diversified portfolio of common stocks of
small and mid-size companies, whose securities at the time
of purchase are considered by the Sub-Adviser to be
undervalued.
Sub-Adviser: CRM Advisors, LLC ("CRM"), an affiliate
of Cramer Rosenthal McGlynn, Inc. ("Cramer Rosenthal")
serves as Sub-Adviser to the Small-Mid Cap Value Fund.
Founded in 1973, Cramer Rosenthal and its affiliates
currently have over $2.5 billion in assets under management
and provide investment advice to individuals, state and
local government agencies, pension and profit sharing plans,
trusts, estates, endowments and other organizations. The
Sub-Adviser provides advisory and sub-advisory services to
mutual funds with approximately $100 million under
management. Cramer Rosenthal is wholly owned by its active
investment professionals. The Sub-Adviser is located at 707
Westchester Avenue, White Plains, New York 10604.
Investment Policies: A stock will be considered to be
attractively valued and, therefore, eligible for investment
in the Fund, if it is trading at a price which the Sub-
Adviser believes is reasonable relative to its own past
valuation history as well as compared to a large universe of
stocks as selected by the investment Sub-Adviser, based on
one or more of the following comparisons:
1. price relative to cash flow,
2. price relative to earnings,
3. price relative to sales,
4. price relative to assets as measured by book
value.
The Small-Mid Cap Value Fund generally intends to
invest at least 65% of its total assets in stocks of
companies with market capitalization between $200 million
and $5 billion at the time of purchase and which are listed
on a national or regional exchange or over-the-counter with
prices quoted daily in the financial press. The Fund at
times may invest temporarily in preferred stocks, bonds or
other defensive issues. Normally, however, the Fund will
maintain at least 80% of the portfolio in common stocks.
There are no restrictions or guidelines regarding the
investment of Fund assets in shares listed on an exchange or
traded over-the-counter. The Fund may invest up to 25% of
its assets in foreign securities.
The Small-Mid Cap Value Fund seeks investment
opportunities in companies whose stocks are trading at
attractive valuations relative to the market as a whole.
The most attractive of these companies often exist among
those securities which have been out of favor, where Wall
Street coverage is limited, and where there is a degree of
misunderstanding or neglect resulting in low expectations.
The Sub-Adviser seeks companies which are expected to
undergo some significant change that will improve their
market valuations. Value investing may reduce downside risk
while offering potential for capital appreciation as a
company gains favor among other investors and its stock
price rises. The portfolio normally will be diversified
among different industry sectors, but is not an index
approach. Stocks are bought as investments and generally
held for the long term, rather than as active trading
vehicles.
Small-mid cap companies may present greater
opportunities for capital appreciation, but also may involve
greater risk. Smaller cap companies, when compared with
larger cap companies, may be more dependent upon a single
product, have limited financial resources, have fewer
securities outstanding, experience greater price
fluctuations, and be somewhat less liquid than securities of
larger companies.
The Fund may invest up to 15% of its assets in
illiquid securities, including restricted securities (as
defined in its investment restrictions) unless the Board of
Trustees determines, based upon a continuing review of the
trading markets for the specific restricted security, that
such securities are liquid.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 20%. The portfolio
turnover rate for the Fund may vary from year to year.
Select International Equity Fund
Investment Objective: The Select International Equity Fund
seeks maximum long-term total return (capital appreciation
and income) primarily by investing in common stocks of
established non-U.S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.)
Limited ("BIAM") serves as Sub-Adviser for the Select
International Equity Fund. BIAM is an indirect, wholly-owned
subsidiary of Bank of Ireland. Its main offices are at
26 Fitzwilliam Place, Dublin 2, Ireland. Its U.S. offices
are at Two Greenwich Plaza, Greenwich, CT 06830. Bank of
Ireland provides investment management services through a
network of affiliated companies, including BIAM which
represents North American clients. As of December 31, 1996,
Bank of Ireland managed approximately $21 billion in
global securities for Irish, United Kingdom, European,
Australian, South African, Canadian, and U.S. clients.
Investment Policies: To achieve its objective, the Select
International Equity Fund will invest primarily in common
stocks of established non-U.S. companies. Under normal
market conditions, at least 65% of the Fund's total assets
will be invested in the securities of companies domiciled in
at least five foreign countries, not including the United
States. The Fund may also acquire fixed-income debt
securities. It will do so, at the discretion of BIAM,
primarily for defensive purposes.
The Fund's investments may include ADRs which may be
sponsored or unsponsored by the underlying issuer. The Fund
may also utilize EDRs, which are similar to ADRs, in bearer
form, designed for use in the European securities market and
GDRs. Investments in foreign securities carry additional
risks not present in domestic securities. See "Certain
Investment Strategies and Policies - Foreign Securities."
For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment
Strategies and Policies." Certain state insurance
regulations may impose additional restrictions on the Fund's
holdings of foreign securities.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 18%. The portfolio
turnover rate for the Fund may vary greatly from year to
year.
Select Growth Fund
Investment Objective: The Select Growth Fund seeks to
achieve long-term growth of capital by investing in a
diversified portfolio consisting primarily of common stocks
selected on the basis of their long-term growth potential.
Sub-Adviser: Putnam Investment Management, Inc.
("Putnam"), One Post Office Square, Boston, Massachusetts
02109, serves as Sub-Adviser to the Select Growth Fund.
Putnam has been an investment manager since 1937. As of
December 31, 1996, Putnam had assets under management of
approximately $173 billion. Putnam is a wholly-owned
subsidiary of Putnam Investments, Inc., a holding company
which is in turn wholly owned by Marsh & McLennan Companies,
Inc., a publicly-owned holding company whose principal
businesses are international insurance and reinsurance
brokerage, employee benefit consulting, and investment
management.
Investment Policies: The Select Growth Fund seeks to
attain its objective by investing in securities of companies
that appear to have favorable long-term growth
characteristics. Potential for long-term growth is the
determinative factor in the selection of all portfolio
securities. Although the Fund may invest in dividend-paying
stocks, the generation of current income is not an objective
of the Fund. Any income that is received is incidental to
the Fund's objective of long-term growth of capital.
When choosing securities for the portfolio, the
Sub-Adviser for the Select Growth Fund focuses on companies
that display strong financial characteristics and earnings
growth potential.
At least 65% of the Fund's assets under normal
conditions will consist of growth-oriented common stocks.
The Fund may invest in common stocks of large well-known
companies as well as smaller growth companies, which
generally include companies with a market capitalization of
$500 million or less ("smaller growth companies"). The
stocks of smaller growth companies may involve a higher
degree of risk than other types of securities and the price
movement of such securities can be expected to be more
volatile than is the case of the market on the whole. The
Fund may hold stocks traded on one or more of the national
exchanges as well as in the over-the-counter markets.
Because opportunities for capital growth may exist not only
in new and expanding areas of the economy but also in mature
and cyclical industries, the Fund's portfolio investments
are not limited to any particular type of company or
industry. The Fund may also purchase convertible bonds and
preferred stocks, warrants, and debt securities if the
Fund's Sub-Adviser believes they would help achieve the
Fund's objective of long-term growth.
The Fund may invest up to 35% of its assets in both
higher-rated and lower-rated fixed-income securities in
seeking its objective of long-term growth of capital. The
dollar average weighted maturity of the Fund's fixed-income
securities will vary depending on, among other things,
current market conditions. The Fund may invest up to 15% of
its assets in lower-rated securities, commonly known as
"junk bonds," which involve risks discussed under "Certain
Investment Strategies and Policies." For more information
concerning the rating categories of corporate debt
securities, see the Appendix to the Prospectus.
When the Sub-Adviser determines that market conditions
warrant a temporary, defensive position, the Fund may invest
without limitation in high-grade, fixed-income securities;
U.S. Government securities; or hold assets in cash or cash
equivalents. To the extent the Fund is so invested it is not
achieving its objective to the same degree as under normal
conditions. For hedging purposes, the Fund may engage in
the options and futures strategies described under "Certain
Investment Strategies and Policies."
The Select Growth Fund's objective of seeking
long-term growth of capital means that its assets generally
will be subject to greater risk than may be involved in
investing in securities that are not selected for growth
potential. The Fund may invest up to 15% of its assets
in securities which are illiquid because they are subject to
restriction on resale or for which market quotations are not
readily available. The Fund may also invest up to 25% of
its assets in foreign securities.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 159%. The Fund
experienced such a rate of turnover due to a new sub-adviser
assuming responsibility for the Fund on July 1, 1996 and
subsequently repositioning the portfolio. The portfolio
turnover rate for the Fund may vary greatly from year to
year.
Growth Fund
Investment Objective: The Growth Fund seeks to achieve
long-term growth of capital through investments primarily in
common stocks and securities convertible into common stocks
that are believed to represent significant underlying value
in relation to current market prices. Realization of current
income, if any, is incidental to this objective.
Sub-Adviser: Miller Anderson & Sherrerd, LLP ("MAS") is
Sub-Adviser for the Growth Fund. MAS, which is wholly owned
by Morgan Stanley Asset Management Holdings, Inc., is
located at One Tower Bridge, West Conshohocken, Pennsylvania
19428. MAS provides investment counseling services to
employee benefit plans, endowment funds, foundations, and
other institutional investors and had over $41
billion in assets under management as of December 31, 1996.
MAS is the adviser of the MAS Funds, a registered investment
company offering investment alternatives to institutional
clients with a minimum initial investment of $1 million. MAS
also manages certain assets for First Allmerica and its
affiliates.
Investment Policies: The Growth Fund is not limited to
investments in any particular type of company and may invest
in any company which, in the opinion of management, is
likely to further its investment objective. The Growth Fund
will pursue its investment objective by maintaining a
flexible position regarding the type of companies as well as
the types of securities, in which it will invest.
Investments may include, but are not limited to, developing
or well-established companies, whether small or large. It is
anticipated that there will be a mix of assets in the Growth
Fund. For example, portions of the Growth Fund may be
invested in equity securities of good quality or in
well-established companies considered to represent good
value, based on factors including historical investment
standards (such as price/book value ratios and
price/earnings ratios) or in smaller emerging growth
companies which are in the development stage and are
expected to achieve above-average earnings growth because of
special factors (such as changes in the economy, the
relative attractiveness of the various securities markets,
or changes in consumer demand).
The Growth Fund proposes to keep its assets fully
invested, but may maintain reasonable amounts in cash or in
high-grade, short-term debt securities to meet current
expenses and anticipated redemptions, and during temporary
periods pending investment in accordance with its policies.
The term "high-grade, short-term debt securities" means
Items (a), (b), and (c) of money market instruments under
the Investment Grade Income Fund's Investment Policies.
The Growth Fund normally will invest substantially all
of its assets in equity-type securities, including common
stocks, warrants (which are options to purchase common stock
at specified prices during a specified time period with the
investment risk that the market value of the underlying
common stock may not be high enough in relation to the
warrant exercise price to justify purchase pursuant to the
terms of the warrant), preferred stocks and debt securities
convertible into or carrying rights to purchase common stock
or to participate in earnings, and real estate securities to
the extent permitted by paragraph four under "Investment
Restrictions" in the SAI. In periods considered by
management to warrant a more defensive position, the Growth
Fund may place a larger proportion of its portfolio in
high-grade preferred stocks, bonds, or other fixed-income
securities, including U.S. Government securities, whether or
not convertible into stock or with rights attached, or
retain cash. The Fund may engage in the options and futures
strategies described under "Certain Investment Strategies
and Policies." The Fund may also invest up to 25% of its
assets in foreign securities.
The Growth Fund may invest in both listed and unlisted
securities. The Growth Fund also may invest in foreign as
well as domestic securities. The Growth Fund will not
concentrate its foreign investments in any particular
foreign country, or limit its investments to issuers listed
on particular exchanges or traded in particular money market
centers. Investments in foreign securities carry additional
risks not present in domestic securities. See "Certain
Investment Strategies and Policies." The Sub-Adviser will
consider these and other factors before investing and will
not cause the Growth Fund to invest in foreign securities
unless, in its opinion, such investments will meet the
standards and objectives of the Growth Fund.
The investment objective and policies in the first,
third, and fourth paragraphs of this section on the Growth
Fund are fundamental and may not be changed without
shareholder approval.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 72%. The portfolio
turnover rate for the Fund may vary greatly from year to
year.
Equity Index Fund
Investment Objective: The Equity Index Fund seeks to
achieve investment results that correspond to the aggregate
price and yield performance of a representative selection of
common stocks that are publicly traded in the United States.
Sub-Adviser: Allmerica Asset Management, Inc. ("AAM")
serves as Sub-Adviser to the Equity Index Fund as well as
the Investment Grade Income Fund, Government Bond Fund, and
Money Market Fund, other series of the Trust. AAM, an
indirect, wholly-owned subsidiary of AFC, was incorporated
in 1993 and is located at 440 Lincoln Street, Worcester,
Massachusetts 01653. As of December 31, 1996, AAM had
approximately $11 billion in assets under
management. AAM serves as investment adviser to First
Allmerica's General Account and to a number of affiliated
insurance companies and other affiliated accounts, and as
Adviser to Allmerica Securities Trust, a diversified,
closed-end management investment company.
Investment Policies: The Equity Index Fund will seek to
achieve its objective by attempting to replicate the
aggregate price and yield performance of the Standard &
Poor's Composite Index of 500 Stocks ("S&P 500"). The Fund
uses the S&P 500 as the performance standard because it
represents over 70 percent of the total market value of all
publicly-traded common stocks in the U.S., is well-known to
investors, and, in the opinion of the Sub-Adviser, is
representative of the performance of common stocks publicly-
traded in the U.S. Many, but not all, of the stocks in the
S&P 500 are issued by companies that are among the 500
largest as measured by the aggregate market value of their
outstanding stock (market price per share multiplied by
number of shares outstanding). Inclusion of a stock in the
S&P 500 does not imply that S&P has endorsed it as an
investment. With respect to investing in common stocks,
there can be no assurance of capital appreciation and there
is a substantial risk of market decline.
The method used to select investments for the Fund
involves investing in common stocks in approximately the
order of their weightings in the S&P 500 Index. In
addition, the Fund purchases stocks with smaller weightings
in order to represent other sectors of the S&P 500 for
diversification purposes.
The Equity Index Fund will invest only in those
stocks, and in such amounts, as its Sub-Adviser determines
to be necessary or appropriate for the Fund to approximate
the performance of the S&P 500. Under normal circumstances,
it is expected that the Fund will hold between 300 and
500 different stocks included in the S&P 500. The
Fund may compensate for the omission of a stock that is
included in the S&P 500, or for purchasing stocks in other
than the same proportions that they are represented in the
S&P 500, by purchasing stocks that are believed to have
characteristics that correspond to those of the omitted
stocks. The Fund may invest in short-term debt securities to
maintain liquidity or pending investment in stocks. The Fund
also may engage in the options and futures strategies
described under "Certain Investment Strategies and
Policies." The Fund also may invest up to 25% of its
assets in foreign securities.
Because of its policy of tracking the S&P 500, the
Equity Index Fund is not managed according to traditional
methods of active investment management, which involve the
buying and selling of securities based upon investment
analysis of economic, financial, and market factors.
Consequently, the projected adverse financial performance of
a company normally would not result in the sale of the
company's stock and projected superior financial performance
by a company normally would not lead to an increase in the
holdings of the company. From time to time, the Sub-Adviser
may make adjustments in the portfolio because of cash flows,
mergers, changes in the composition of the S&P 500, and
other similar reasons. Portfolio turnover is expected to be
lower than that of most investment funds investing in common
stock. For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 12%.
The Equity Index Fund's ability to duplicate the
performance of the S&P 500 will be influenced by the size
and timing of cash flows into or out of the Fund, the
liquidity of the securities included in the S&P 500,
transaction and operating expenses, and other factors. In
addition, the Fund will incur expenses (including advisory
and administrative fees) that are not reflected in the
performance results of the S&P 500. These factors, among
others, may result in "tracking error," which is a measure
of the degree to which the Fund's results differ from the
results of the S&P 500. Due to such factors, the return of
the Fund may be lower than the return of the S&P 500.
Tracking error is measured by the difference
between total return for the S&P 500 with dividends
reinvested and total return for the Fund with dividends
reinvested after deductions of fees and expenses. For the 12
months ended December 31, 1996, the S&P 500 gained 22.96%
versus a gain of 22.82% for the Equity Index Fund producing
a tracking error of 0.14% before fees. Tracking error
is monitored by the Sub-Adviser on a regular basis. All
tracking error deviations are reviewed to determine the
effectiveness of investment policies and techniques. If the
tracking error deviation exceeds industry standards for the
Fund's asset size, the Sub-Adviser will bring the deviation
to the attention of the Trustees.
While the Board of Trustees of the Trust has selected
the S&P 500 as the index the Fund will attempt to replicate,
the Trustees reserve the right to select another index at
any time without seeking shareholder approval if they
believe that the S&P 500 no longer represents a broad
spectrum of common stocks that are publicly traded in the
United States or if there are legal, economic or other
factors limiting the use of any particular index. If the
Trustees change the index which the Equity Index Fund
attempts to replicate, the Equity Index Fund may incur
significant transaction costs in switching from one index to
another.
S&P is not in any way affiliated with the Equity Index
Fund or the Trust. "Standard & Poor's," "Standard & Poor's
500," and "500" are trademarks of S&P.
Select Growth and Income Fund
Investment Objective: The Select Growth and Income Fund
seeks a combination of long-term growth of capital and
current income. The Fund will invest primarily in
dividend-paying common stocks and securities convertible
into common stocks.
Sub-Adviser: John A. Levin & Co., Inc. ("JAL"), One
Rockefeller Plaza, 25th Floor, New York, New York 10020,
serves as Sub-Adviser to the Select Growth and Income Fund.
JAL was founded as a Delaware corporation in 1982 and is
wholly owned by Baker, Fentress & Company, a non-diversified
closed-end management investment company registered under
the 1940 Act. JAL had approximately $6.5 billion in
assets under management as of December 31, 1996. JAL's
clients include U.S. and foreign individuals and their
related trust and charitable organizations, pooled funds for
individuals and university endowments, and pension and
profit sharing funds.
Investment Policies: To achieve its objective of long-term
growth of capital and current income, the Select Growth and
Income Fund will invest primarily in dividend-paying common
stocks and securities convertible into common stocks. It may
invest in a wide range of equity securities, consisting of
both dividend-paying and non-dividend-paying common stocks,
preferred stocks, securities convertible into common and
preferred stocks, and warrants. These may include securities
of large well-known companies as well as smaller growth
companies. The securities of smaller growth companies
involve certain risks as described above under the "Select
Growth Fund." The Fund may hold securities traded on one or
more of the national exchanges as well as in the
over-the-counter markets. The Fund's portfolio investments
are not limited to any particular type of company or
industry. The Fund may purchase individual stocks not
presently paying dividends which offer opportunities for
capital growth or future income provided that the
Sub-Adviser believes the overall portfolio is appropriately
positioned to achieve its income objective. To achieve
current income, the Fund may invest up to 35% of its assets
in both higher-rated and lower-rated fixed-income
securities, including not more than 15% in lower-rated
securities, commonly known as "junk bonds." In certain
circumstances, fixed-income securities may be purchased by
the Fund for long-term growth potential. (However, the Fund
expects to have substantially less than 35% of its assets
invested in fixed-income securities in most circumstances.)
Lower-rated, fixed-income securities involve risks discussed
under "Certain Investment Strategies and Policies." For more
information concerning the rating categories of corporate
debt securities, see the Appendix to the Prospectus. The
dollar average weighted maturity of the Fund's fixed-income
securities will vary depending on, among other things,
current market conditions. Purchases and sales of portfolio
securities are made at such times and in such amounts as
deemed advisable in light of market, economic and other
conditions.
The Fund may invest up to 15% of its assets in
securities which are illiquid because they are subject to
restrictive or resale or for which market quotations are not
readily available. The Fund may also invest up to 25% of
its assets in foreign securities (not including investment
in ADRs).
When the Sub-Adviser determines that market conditions
warrant a temporary, defensive position, the Fund may invest
without limitation in high-grade, fixed-income, or U.S.
Government securities; or hold assets in cash or cash
equivalents. To the extent the Fund is so invested, it is
not achieving its objective to the same degree as under
normal conditions. For hedging purposes, the Fund may
engage in the options and futures strategies described under
"Certain Investment Strategies and Policies." There can be
no assurance of growth of capital, of course, and because
the Fund invests a substantial portion of its assets in
common stocks and other securities which fluctuate in value,
there is substantial risk of market decline. The Fund's
Sub-Adviser seeks to minimize this risk through detailed
analyses of financial markets and issuers of equity
securities and through investment in a diversified portfolio
of such securities.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 78%. The portfolio
turnover rate for the Fund may vary greatly from year to
year.
Investment Grade Income Fund
Investment Objective: The Investment Grade Income Fund
seeks as high a level of total return, which includes
capital appreciation as well as income, as is consistent
with prudent investment management.
Sub-Adviser: AAM serves as Sub-Adviser to the Investment
Grade Income Fund. See "Equity Index Fund" for more
information about AAM.
Investment Policies: The Fund will invest its assets in
the following money market instruments and debt securities.
Money Market Instruments:
(a) Obligations issued or guaranteed by the United
States Government, its agencies, or instrumentalities;
(b) Commercial paper rated Prime-1 by Moody's; or
A-1 by S&P; or unrated, but determined by the Sub-Adviser
to be of comparable quality;
(c) Bankers acceptances or negotiable certificates
of deposit issued by the 25 largest U.S. banks (in terms of
deposits); and
(d) Cash and cash equivalents.
Debt Securities:
(a) Obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities;
(b) Debt securities which are rated Aaa, Aa, A, or
Baa by Moody's; AAA, AA, A, or BBB by S&P; or unrated but
determined by the Sub-Adviser to be of comparable quality;
(c) Obligations (payable in U.S. dollars) of, or
guaranteed by, the Government of Canada or of a Province of
Canada or any instrumentality or political subdivision
thereof.
The Fund may engage in the options and futures
strategies described under "Certain Investment Strategies
and Policies."
The debt securities in which the Fund may invest are
considered "investment grade" in that they generally are
suitable for purchase by prudent investors. However, the
lowest category of investment grade securities (rated Baa by
Moody's or BBB by S&P) may have speculative characteristics,
such that changes in economic conditions or other
circumstance are more likely to lead to a weakened capacity
to make principal and interest payments than is the case of
debt securities with higher ratings. The portfolio of the
Fund is managed actively by AAM, as Sub-Adviser, in order to
anticipate events leading to price or ratings changes. If
the rating of a security falls below investment grade, or an
unrated security is deemed to have fallen below investment
grade, AAM analyzes relevant economic and market data in
making a determination of whether to retain or dispose of
the investment. The performance of the securities in the
portfolio is monitored continuously, and they are purchased
and sold as conditions warrant and permit.
The Fund may not invest in foreign securities other
than obligations issued by the Government of Canada and
political sub-divisions thereof.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 108%. The portfolio
turnover rate exceeded 100% due to mortgage rolls. The
portfolio turnover rate for the Fund may vary greatly from
year to year. A high portfolio turnover rate may result in
greater brokerage costs to the Fund.
See the Appendix to the Prospectus for an explanation
of the ratings of Moody's and S&P.
Government Bond Fund
Investment Objective: The Government Bond Fund seeks high
income, preservation of capital, and maintenance of
liquidity primarily through investments in debt instruments
issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities") and in
related options, futures, and repurchase agreements. Under
normal conditions, at least 80% of the Fund's assets will be
invested in U.S. Government securities.
Sub-Adviser: AAM serves as Sub-Adviser to the Government
Bond Fund. See "Equity Index Fund" for more information
about AAM.
Investment Policies: Some U.S. Government securities, such
as Treasury bills, notes, and bonds, which differ only in
their interest rates, maturities, and times of issuance, are
supported by the full faith and credit of the United States.
Other U.S. Government securities are supported by (i) the
right of the issuer to borrow from the U.S. Treasury,
(ii) discretionary authority of the U.S. Government to
purchase the obligations of the agency or instrumentality,
or (iii) only the credit of the instrumentality itself. No
assurances can be given that the U.S. Government would
provide financial support to U.S. Government sponsored
instrumentalities if it is not obligated to do so by law.
The Fund may invest in mortgage-backed government
securities, including pass-through securities and
participation certificates of the Government National
Mortgage Association ("Ginnie Mae"), the Federal Home Loan
Mortgage Corporation ("Freddie Mac"), and the Federal
National Mortgage Association ("Fannie Mae").
The Government Bond Fund may invest in any other
security or agreement collateralized or otherwise secured by
U.S. Government securities. The Fund also may invest in
separately-traded principal and interest components of
securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate
Trading of Registered Interest and Principal of Securities
Program. The Fund may enter into repurchase agreements and,
from time to time, may have temporary investments in
short-term debt obligations (including certificates of
deposit, bankers acceptances, and commercial paper) pending
the making of other investments or for liquidity purposes.
The Government Bond Fund may engage in several active
management strategies, including the lending of portfolio
securities, forward commitment purchases of securities,
writing covered call and covered put options on U.S.
Government securities, purchasing such call and put options,
and entering into closing purchase and sale transactions.
The Fund may engage in the options and futures strategies
described under "Certain Investment Strategies and
Policies."
U.S. Government securities may be purchased or sold
without regard to the length of time they have been held to
attempt to take advantage of short-term differentials in
yields, with the objective of seeking income while
conserving capital. While short-term trading increases
portfolio turnover, the Government Bond Fund incurs little
or no brokerage costs for U.S. Government securities. For
the fiscal year ended December 31, 1996, the portfolio
turnover rate for the Fund was 112%.
Money Market Fund
Investment Objective: The Money Market Fund seeks to obtain
maximum current income consistent with preservation of
capital and liquidity.
Sub-Adviser: AAM serves as Sub-Adviser to the Money Market
Fund. See "Equity Index Fund" for more information about
AAM.
Investment Policies: The Fund seeks to achieve its
objective by investing in the following high quality money
market instruments:
(a) Obligations issued or guaranteed by the United
States Government, its agencies, or instrumentalities;
(b) Commercial paper which meets the ratings
requirements as set forth in the paragraph below;
(c) Obligations of banks or savings and loan
associations (such as bankers acceptances and certificates
of deposit, including dollar-denominated obligations of
foreign branches of U.S. banks ("Eurodollars") and U.S.
branches of foreign banks if such U.S. branches are subject
to state banking requirements and Federal Reserve reporting
requirements) which at the date of the investment have
deposits of at least $1 billion as of their most recently
published financial statements;
(d) Repurchase agreements with respect to
obligations described under (a) above (such obligations
subject to repurchase agreement may bear maturities of more
than one year). For more information concerning repurchase
agreements, see "Certain Investment Strategies and
Policies"); and
(e) Cash and cash equivalents.
The Money Market Fund will not purchase any security
unless (i) the security has received the highest quality
rating by at least two nationally recognized statistical
rating organizations ("NRSROs") or by one NRSRO if only one
has rated the security or (ii) the security is unrated and
in the opinion of AAM, as Sub-Adviser, in accordance with
guidelines adopted by the Trustees, is of a quality
comparable to the highest rating of an NRSRO. These
standards must be satisfied at the time an investment is
made. If the quality of the investment later declines, the
Fund may continue to hold the investment, but the Trustees
will evaluate whether the security continues to present
minimal credit risks. See the Appendix for an explanation of
NRSRO ratings.
The Fund will limit its portfolio investments to
securities with a remaining maturity of 397 days or less as
of the time of purchase, in accordance with the Trustees'
guidelines. The portfolio will be managed so as to maintain
a dollar-weighted maturity of 90 days or less. In order to
maximize the yield on its assets, the Fund intends to be as
fully invested at all times as is reasonably practicable.
There is always the risk that the issuer of an instrument
may be unable to make payment upon maturity.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the
Manager is obligated to perform certain administrative and
management services for the Trust; furnishes to the Trust
all necessary office space, facilities, and equipment; and
pays the compensation, if any, of officers and Trustees who
are affiliated with the Manager. Other than the expenses
specifically assumed by the Manager under the Management
Agreement, all expenses incurred in the operation of the
Trust are borne by the Trust, including fees and expenses
associated with the registration and qualification of the
Trust's shares under the Securities Act of 1933 (the "1933
Act"); other fees payable to the Securities and Exchange
Commission; independent accountant, legal, and custodian
fees; association membership dues; taxes; interest;
insurance premiums; brokerage commissions; fees and expenses
of the Trustees who are not affiliated with the Manager;
expenses for proxies, prospectuses, and reports to
shareholders; Fund recordkeeping expenses; and other
expenses. The Manager has agreed voluntarily to absorb any
charges and expenses associated with Fund recordkeeping that
exceed 0.10% of a Fund's average net assets.
For the services to the Funds, the Manager receives
fees computed daily at an annual rate based on the average
daily net asset value of each Fund as set forth below.
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(1) The Manager's fee for the Small-Mid Cap Value
Fund, computed daily at an annual rate based on the average
daily net assets of the Fund, is based on the following
schedule:
Assets
Fee Rate
First $100 Million
1.00%
Next $150 Million
0.85%
Next $250 Million
0.80%
Next $250 Million
0.75%
Over $750 Million
0.70%
The Manager voluntarily has agreed to limit its fees to an
annual rate of 0.90% of average daily net assets.
(2) The Manager's fees for the Growth Fund, Equity Index
Fund, Investment Grade Income Fund, and Money Market Fund,
computed daily at an annual rate based on the average daily
net assets of each Fund, are based on the following
schedule:
Assets
G
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First $50 Million
0
.
6
0
%
0
.
3
5
%
0
.
5
0
%
0
.
3
5
%
Next $200 Million
0
.
5
0
%
0
.
3
0
%
0
.
3
5
%
0
.
2
5
%
Over $250 Million
0
.
3
5
%
0
.
2
5
%
0
.
2
5
%
0
.
2
0
%
The Manager is responsible for the payment of all fees
to the Sub-Advisers. The Manager pays each Sub-Adviser fees
computed daily at an annual rate based on the average daily
net asset value of each Fund as set forth below. In certain
Funds, Sub-Adviser fees vary according to the level of
assets in such Funds, which will reduce the fees paid by the
Manager as Fund assets grow but will not reduce the
operating expenses of such Funds.
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6
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%
(
3
)
(
4
)
(
5
)
(
6
)
(
7
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E
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0
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1
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(
8
)
0
.
2
0
%
0
.
2
0
%
0
.
1
0
%
___________
(3) For its services, JCC will receive a fee computed
daily at an annual rate based on the average daily net
assets of the Select Capital Appreciation Fund, under the
following schedule:
Assets
R
a
t
e
First $100 Million
0
.
6
0
%
Over $100 Million
0
.
5
5
%
(4) For its services, CRM will receive a fee computed
daily at an annual rate based on the aggregate assets of the
Small-Mid Cap Value Fund, under the following schedule:
Assets
R
a
t
e
First $100
Million................................
.......................................
................
0
.
6
0
%
Next $150
Million................................
.......................................
...............
0
.
5
0
%
Next $250
Million................................
.......................................
...............
0
.
4
0
%
Next $250
Million................................
.......................................
...............
0
.
3
7
5
%
Over $750
Million................................
.......................................
...............
0
.
3
5
%
<
/
R
>
(5) For its services, BIAM will receive a fee computed
daily at an annual rate based on the aggregate assets of the
Select International Equity Fund, under the following
schedule:
Assets
R
a
t
e
First $50 Million
0
.
4
5
%
Next $50 Million
0
.
4
0
%
Over $100 Million
0
.
3
0
%
<
/
R
>
(6)
For its services, Putnam will receive a fee
computed daily at an annual rate based on the average daily
net assets of the Select Growth Fund, under the following
schedule:
Assets
R
a
t
e
First $50 Million
0
.
5
0
%
Next $100 Million
0
.
4
5
%
Next $100 Million
0
.
3
5
%
Next $100 Million
0
.
3
0
%
Over $350 Million
0
.
2
5
%
<
/
R
>
(7) For its services, MAS will receive a fee based on the
aggregate assets of the Growth Fund and certain other
accounts of the Manager and its affiliates which are managed
by MAS, under the following schedule:
Assets
R
a
t
e
First $50 Million
0
.
5
0
%
$50 Million to $100 Million
0
.
3
7
5
%
$100 Million to $500 Million
0
.
2
5
%
$500 Million to $850 Million
0
.
2
0
%
Over $850 Million
0
.
1
5
%
(8) For its services, JAL will receive a fee computed
daily at an annual rate based on the average daily net
assets of the Select Growth and Income Fund, under the
following schedule:
Assets
R
a
t
e
First $100 Million
0
.
4
0
%
Next $200 Million
0
.
2
5
%
Over $300 Million
0
.
3
0
%
For the fiscal year ended December 31, 1996, the Funds
paid the Manager gross fees before reimbursement at a rate
based on the Fund's average daily net assets, under the
following schedule:
Fund
<
R
>
R
a
t
e
Select Aggressive Growth Fund
1
.
0
0
%
Select Capital Appreciation Fund
1
.
0
0
%
Small-Mid Cap Value Fund
0
.
8
5
%
Select International Equity Fund
1
.
0
0
%
Select Growth Fund
0
.
8
5
%
Growth Fund
0
.
4
4
%
Equity Index Fund
0
.
3
2
%
Select Growth and Income Fund
0
.
7
5
%
Investment Grade Income Fund
0
.
4
0
%
Government Bond Fund
0
.
5
0
%
Money Market Fund
0
.
2
8
%
<
/
R
>
The following table shows voluntary expense
limitations which the Manager has declared for each Fund and
the operating expenses incurred for the fiscal year ended
December 31, 1996 for each Fund:
Percentage
of Average Daily
Assets
Fund
V
o
l
u
n
t
a
r
y
E
x
p
e
n
s
e
L
i
m
i
t
a
t
i
o
n
s
O
p
e
r
a
t
i
n
g
E
x
p
e
n
s
e
s
+
Select Aggressive
Growth Fund
1
.
3
5
%
1
.
0
8
%
Select Capital
Appreciation Fund
1
.
3
5
%
1
.
1
3
%
Small-Mid Cap
Value Fund
1
.
2
5
%
0
.
9
5
%
Select
International
Equity Fund
1
.
5
0
%
1
.
2
0
%
Select Growth
Fund
1
.
2
0
%
0
.
9
2
%
Growth Fund
1
.
2
0
%
0
.
4
8
%
Equity Index Fund
0
.
6
0
%
0
.
4
6
%
Select Growth and
Income Fund
1
.
1
0
%
0
.
8
0
%
Investment Grade
Income Fund
1
.
0
0
%
0
.
5
2
%
Government Bond
Fund
1
.
0
0
%
0
.
6
6
%
Money Market Fund
0
.
6
0
%
0
.
3
4
%
<
/
R
>
___________
+Including reductions
The Manager will voluntarily reimburse its fees and
any expenses above the expense limitations. The expense
limitations are voluntary and may be removed at any time
after a Fund's first fiscal year of operations without prior
notice to existing shareholders.
The Manager
reserves the right to recover from a Fund any fees, within a
current fiscal year period, which were reimbursed in that
same year to the extent that total annual expenses did not
exceed the applicable expense limitation. Non-recurring and
extraordinary expenses generally are excluded in the
determination of expense ratios of the Funds for purposes of
determining any required expense reimbursement. Quotations
of yield or total return for any period when an expense
limitation is in effect will be greater than if the
limitation had not been in effect.
FUND MANAGER INFORMATION
The following individuals are primarily responsible
for the day-to-day management of the particular Funds as
indicated below:
The following individuals have served as members of a
committee of fund managers for the Select Aggressive Growth
Fund since March 1994, with the exception of Mr. Nicholas
who has served as a fund manager since the Fund's inception
in August 1992:
Lawrence S. Speidell is a Partner and Director of
Global/Systematic Portfolio Management and Research at
NACM. Prior to joining NACM in 1994, Mr. Speidell spent ten
years with Batterymarch Financial Management. He was also
Senior Vice President and Portfolio Manager at Putnam
Management Company from 1971 to 1983.
John J. Kane, Senior Portfolio Manager, Global at
NACM, has twenty-eight years of economic/investment
experience. Prior to joining NACM in 1994, Mr. Kane was
employed by ARCO Investment Management Company and General
Electric Company.
Mark W. Stuckelman, Portfolio Manager U.S. Systematic, joined NACM
in 1995. Prior to joining NACM, he was employed for five years with Wells Fargo
Bank's Investment Management Group, Fidelity Management Trust Co., and
BARRA.
The following individual has served as fund manager
for the Select Capital Appreciation Fund since the Fund's
inception in April 1995:
James P. Goff joined JCC in 1988. He has managed the
Janus Enterprise Fund since 1992 and has co-managed the
Janus Venture Fund from December 1993 to January 1997.
Mr. Goff is a Chartered Financial Analyst.
The following individuals have served as fund
managers for the Small-Mid Cap Value Fund since January 1,
1997:
Ronald H. McGlynn, Chief Executive Officer and
President of Cramer Rosenthal, has been with Cramer
Rosenthal since 1973 and CRM since its founding in 1995.
Jay B. Abramson, who is an Executive Vice President,
Director of Research, and Co-Chief Investment Officer, has
been with Cramer Rosenthal since 1985 and CRM since its
founding in 1995.
The following portfolio managers are involved in the
investment process utilized for the Select International
Equity Fund:
Christopher Reilly, Chief Investment Officer, joined Bank of Ireland in
1980 and has had overall responsibility for asset management since 1985.
Previously,
he worked in the United Kingdom in stockbroking and investment management.
Denis Donovan, Director-Portfolio Management, received
an MBA from University College Dublin. Prior to joining Bank
of Ireland in 1985, he spent more than thirteen years in the
money market and foreign exchange operations of the Central
Bank of Ireland, the Irish equivalent of the U.S. Federal
Reserve. He has overall responsibility for the portfolio
management function for all of BIAM's client base.
John O'Callaghan is a graduate of Trinity College,
Dublin and is a Chartered Financial Analyst. He joined Bank
of Ireland in 1987.
Peter Wood joined Bank of Ireland in 1985 after
spending five years with another leading investment
management firm. He is responsible for portfolio
construction.
The following individuals serve as members of a
committee of fund managers for the Select Growth Fund since
July 1, 1996:
Carol C. McMullen, Managing Director, has been an
investment professional with Putnam since 1995. Prior to
1995, Ms. McMullen was Senior Vice President of Baring Asset
Management.
Beth Cotner, Senior Vice President, has been with
Putnam since 1995. Prior to 1995, Ms. Cotner was Executive
Vice President at Kemper Financial Services.
Manual Weiss, Senior Vice President, has been an
investment professional with Putnam since 1987.
The following individuals have served as members of a
committee of fund managers for the Growth Fund:
Gary G. Schlarbaum, Equity Portfolio Manager, joined MAS in 1987 and has
served on the committee since 1993. Prior to 1987, Mr. Schlarbaum was employed
by
First Chicago Investment Advisors from 1984 to 1987. Prior to First Chicago,
Mr. Schlarbaum held teaching positions at Purdue University and the University
of
Pennsylvania.
Arden C. Armstrong, Partner at MAS, joined the firm in 1985. Prior to
joining MAS, Mr. Armstrong was employed by Evans Economics, Inc. He is a
Chartered Financial Analyst.
Nicholas Kovich, Equity Portfolio Manager, joined MAS in 1988 and has
served on the committee since the Fund's inception in April 1988. Prior to MAS,
Mr. Kovich was employed by Waddell & Reed Asset Management Company from 1982
to 1988 as an Investment Research Analyst and as Assistant Vice President and
Portfolio Manager.
Robert J. Marcin is a partner at MAS. Prior to joining MAS in 1988,
Mr. Marcian was an Account Executive at Smith Barney Harris Upham and Company,
Inc. He is also a Chartered Financial Analyst.
Kurt A. Feuerman, Managing Director, joined MAS in 1994. Prior to joining
MAS, Mr. Feuerman was a Managing Director at Morgan Stanley Asset Management.
Mr. Feuerman was also employed by Morgan Stanley & Company from 1990-1992.
James J. Jolinger, Equity Portfolio Manager, joined MAS in 1994 and has
served on the committee since 1997. Prior to 1994, Mr. Jolinger was employed
by
Openheimer Capital as an Equity Analyst from 1987-1994.
Timothy G. Connors, Equity Portfolio Manager, joined MAS in 1994 and has
served on the committee since 1977. Prior to 1994, Mr. Connors was employed by
Corestates Investment Advisers from 1980 to 1994 as a Senior Vice President and
Managing Director.
The following individuals have served as members of a
committee of fund managers for the Select Growth and Income
Fund since September 1994:
John A. Levin, President, has been with JAL since 1982
and has thirty-two years of investment experience.
Melody L. Prenner Sarnell, Executive Vice President,
has been with JAL since 1984. Prior to joining JAL,
Ms. Sarnell was employed by John M. Blewer, Inc.
Jeffrey A. Kigner, Executive Vice President, has been
with JAL since 1984. Prior to 1984, Mr. Kigner was employed
by Cralin & Co.
The following individuals have served as members of a
committee of fund managers for the Select Income Fund since
the Fund's inception in August 1992:
Edward H. Ladd, Chairman and Managing Director, joined
SAW in 1962 and is the firm's economist. He also assists
clients in establishing investment strategies. Mr. Ladd is a
Director of the Federal Reserve Bank of Boston, New England
Electric System, Greylock Management, and Harvard Management
Corporation and a member of SAW's Executive Committee.
George W. Noyes, President and Managing Director,
joined SAW in 1970 and directs bond policy formulation and
manages institutional bond portfolios at SAW. Mr. Noyes is
Vice Chairman of the ICFA Research Foundation and serves on
SAW's Executive Committee.
Dolores S. Driscoll, Managing Director, joined SAW in
1974 and manages fixed-income portfolios with specific
emphasis on mortgage pass-throughs and original issue
discount bonds. Ms. Driscoll also serves on SAW's Executive
Committee.
Richard C. Doll, Manager, joined SAW in 1984 and is a
portfolio manager with research responsibilities in
convertible bonds. Prior to joining SAW, Mr. Doll was a Vice
President with the Bank of New England.
Maria D. Furman, Vice President and Director, joined
SAW in 1976. She is head of the tax-exempt area and manages
insurance and pension fund accounts. Ms. Furman currently
serves on SAW's Executive Committee.
The following individual has served as fund manager
for the Investment Grade Bond Fund since May 1994:
Lisa M. Coleman, Vice President of AAM, was a Deputy
Manager/Portfolio Manager in the global fixed income area
for Brown Brothers Harriman & Company in New York prior to
joining AAM in May 1994.
The following individual has served as fund manager
for the Government Bond Fund since May 1995:
Richard J. Litchfield, Assistant Vice President of
AAM, was a mortgage-backed securities analyst and trader at
Keystone Investments, Inc. prior to joining AAM in May 1995.
The following individual has served as fund manager
for the Equity Index Fund and Money Market Fund since March
1995:
John C. Donohue, Assistant Vice President of AAM, was a portfolio
manager at CS First Boston Investment Management prior to joining AAM in
1995.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is
determined once daily as of the close of regular trading on
the New York Stock Exchange (the "Exchange") on each day on
which the Exchange is open for trading.
Equity securities are valued on the basis of their
market value if market quotations are readily available. In
other cases, they are valued at their fair value as
determined in good faith by the Trustees, although the
actual calculations may be performed by persons acting
pursuant to the direction of the Trustees. Debt securities
(other than short-term obligations) normally are valued on
the basis of valuations formulated by a pricing service
which utilizes data processing methods to determine
valuations for normal, institutional-size trading units of
such securities. Such methods include the use of market
transactions for comparable securities and various
relationships between securities which generally are
recognized by institutional traders. All securities of the
Money Market Fund are valued at amortized cost. Debt
obligations in the other Funds having a remaining maturity
of 60 days or less are valued at amortized cost when it is
determined that amortized cost approximates fair value.
Short-term obligations of the other Funds having a remaining
maturity of more than 60 days are marked to market based
upon readily available market quotations for such
obligations or similar securities.
Unlike the Money Market Fund which attempts to
maintain a stable net asset value, the net asset value of
the other Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to
regulated investment companies so that the Trust will not be
subject to federal income tax on any net income and any
capital gain to the extent they are distributed or are
deemed to have been distributed to shareholders. Dividends
out of net investment income will be declared and paid
quarterly in the case of the Growth Fund, Equity Index
Fund, Select Growth and Income Fund, Investment Grade Income
Fund, and Government Bond Fund; annually in the case of the
Select Aggressive Growth Fund, Select Capital Appreciation
Fund, Small-Mid Cap Value Fund, Select International Equity,
and Select Growth Fund; and daily in the case of the Money
Market Fund. Distributions of net capital gain for the
year, if any, are made annually. All dividends and capital
gain distributions are applied to purchase additional Fund
shares at net asset value as of the payment date. Fund
shares are held by the Separate Accounts and any
distributions are reinvested automatically by the Separate
Accounts. Tax consequences to investors in the Separate
Accounts which are invested in the Trust are described in
the prospectuses for such Accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering
and currently may be purchased only by Separate Accounts of
First Allmerica or its subsidiaries. The Separate Accounts
are the funding mechanisms for variable annuity contracts.
The Separate Accounts invest in shares of one or more of the
Funds. Shares of each Fund are sold at their net asset value
as next computed after receipt of the purchase order without
the addition of any selling commission or "sales load." The
Distributor, Allmerica Investments, Inc., at its expense,
may provide promotional incentives to dealers that sell
variable annuity contracts for which the Funds serve as
investment vehicles.
Shares of the Trust also are being issued currently
under separate prospectuses to Separate Accounts of
Allmerica Life, First Allmerica, and subsidiaries of First
Allmerica which issue variable or group annuity policies or
variable premium life insurance policies ("mixed funding").
Although neither Allmerica Life nor the Trust currently
foresees any disadvantage, it is conceivable that in the
future such mixed funding may be disadvantageous for
variable or group annuity policyowners or variable premium
life insurance policyowners ("Policyowners"). The Trustees
of the Trust intend to monitor events in order to identify
any conflicts that may arise between such Policyowners and
to determine what action, if any, should be taken in
response thereto. If the Trustees were to conclude that
separate funds should be established for variable annuity
and variable premium life separate accounts, Allmerica Life
would pay the attendant expenses.
The Trust redeems shares of each Fund at its net asset
value as next computed after receipt of the request for
redemption. The redemption price may be more or less than
the shareholder's cost. No fee is charged by the Trust on
redemption. The variable contracts funded through the
Separate Accounts are sold subject to certain fees and
charges which may include sales and redemption charges as
described in the Prospectuses for such Separate Accounts.
Redemption payments will be paid within seven days
after receipt of the written request therefor by the Trust,
except that the right of redemption may be suspended or
payments postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
A Fund's performance may be quoted in advertising. A
Fund's performance may be compared with the performance of
other investments or relevant indices. All performance
information is based on historical results and is not
intended to indicate future performance.
For Funds other than the Money Market Fund, "yield" is
calculated by dividing a Fund's annualized net investment
income per share during a recent 30-day period by the net
asset value per share on the last day of that period. For
the Money Market Fund, "yield" represents an annualization
of the change in value of an investment (excluding any
capital changes) in the Fund for a specific seven-day
period; "effective yield" compounds that yield for a year
and is, for that reason, greater than the Fund's yield.
Total returns are based on the overall dollar or
percentage change in value of a hypothetical investment in a
Fund assuming all dividends and capital gain distributions
are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual
total return reflects the hypothetical, annually-compounded
return that would have produced the same cumulative return
if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out
variations in the Fund's return, they are not the same as
actual year-by-year results.
Yields and total returns quoted for the Funds include
the effect of deducting the Fund's expenses, but may not
include charges and expenses attributable to a particular
insurance product. Since shares of the Funds can be
purchased only through a variable annuity contract or
variable life contract, you should review carefully the
prospectus for the Separate Accounts for information on
relevant charges and expenses. Including these charges in
the quotations of the Funds' yields and total returns would
have the effect of decreasing performance. Performance
information for the Funds must always be accompanied by, and
be reviewed with, performance information for the Separate
Accounts which invest in the Funds.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business
trust under the laws of Massachusetts by an Agreement and
Declaration of Trust dated October 11, 1984 (the "Trust
Declaration"). A copy of the Trust Declaration is on file
with the Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares
of beneficial interest which may be divided into an
unlimited number of series of such shares, and which are
divided presently into twelve series of shares, one series
underlying each Fund. The Trust's shares are entitled to
one vote per share (with proportional voting for fractional
shares). The rights accompanying Fund shares are vested
legally in the Separate Accounts. As a matter of policy,
however, holders of variable premium life insurance or
variable annuity contracts funded through the Separate
Accounts have the right to instruct the Separate Accounts as
to voting Fund shares on all matters to be voted on by Fund
shareholders. Voting rights of the participants in the
Separate Accounts are set forth more fully in the
prospectuses or offering circular relating to those
Accounts. See "Organization of the Trust" in the SAI for the
definition of a "majority vote" of shareholders.
The Trust is not required to hold annual meetings of
shareholders. The Trustees or shareholders holding at least
10% of the outstanding shares may call special meetings of
shareholders.
Fund Recordkeeping Agent
FDISG, a wholly-owned subsidiary of First Data
Corporation, calculates net asset value per share and
maintains general accounting records for each Fund. FDISG
is entitled to receive an annual Fund recordkeeping fee
based on Fund assets and certain out-of-pocket expenses.
Custodian
Bankers Trust Company, 130 Liberty Street, New York,
New York 10006, is the Custodian of the securities and other
assets of the Trust.
INVESTMENT RESTRICTIONS
The following is a description of certain investment
restrictions which are fundamental and may not be changed
with respect to a Fund without shareholder approval. For a
description of certain other investment restrictions,
reference should be made to the SAI.
1. No Fund will concentrate its investments in
particular industries, including debt obligations of foreign
governments, but a Fund may invest up to 25% of the value of
its total assets in a particular industry. The restriction
does not apply to investments in obligations issued or
guaranteed by the United States of America, its agencies or
instrumentalities, or to investments by the Money Market
Fund in securities issued or guaranteed by domestic branches
of U.S. banks.
2. As to 75% of the value of its total assets (100%
for the Money Market Fund), no Fund will invest more than 5%
of the value of its total assets in the securities of any
one issuer (other than securities issued by or guaranteed as
to principal or interest by the United States Government or
any agency or instrumentality thereof) or acquire more than
10% of the voting securities of any issuer. The remaining
25% of assets (other than for the Money Market Fund) may be
invested in the securities of one or more issuers without
regard to such limitations.
These limitations apply as of the time of purchase. If
through market action the percentage limitations are
exceeded, the Fund will not be required to reduce the amount
of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
Repurchase Agreements (applicable to all Funds) and Reverse
Repurchase Agreements (applicable to the Select Capital
Appreciation Fund)
Each Fund may invest in repurchase agreements, under
which the Fund acquires ownership of a security (ordinarily
U.S. Government securities) but the seller agrees at the
time of sale to purchase the security at a mutually agreed
upon time and price. Should any seller of a repurchase
agreement fail to repurchase the underlying security, or
should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur costs and losses.
Repurchase agreements maturing in more than seven days are
subject to the 15% limit (10% for the Money Market Fund) on
illiquid securities.
When the Select Capital Appreciation Fund invests in a
reverse repurchase agreement, it sells a security to another
party such as a banker or broker-dealer in return for cash
and agrees to buy the security back at a future date and
price. Reverse repurchase agreements may be used to provide
cash to satisfy unusually heavy redemption requests or for
other temporary or emergency purposes without the necessity
of selling portfolio securities or to earn additional income
on portfolio securities, such as treasury bills and notes.
"When-Issued" Securities (applicable to all Funds)
Each Fund may purchase securities on a when-issued or
delayed delivery basis. Delivery and payment normally take
place 15 to 45 days after the commitment to purchase. No
income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that
yields available in the market when delivery occurs may be
higher than those available when the when-issued order is
placed resulting in a decline in the market value of the
security. There is also the risk that under some
circumstances the purchase of when-issued securities may act
to leverage the Fund.
Lending of Securities (applicable to all Funds)
For the purpose of realizing additional income, the
Funds may lend portfolio securities to broker-dealers or
financial institutions amounting to not more than 30% of
their respective total assets taken at current value. While
any such loan is outstanding, a Fund will continue to
receive amounts equal to the interest or dividends paid by
the issuer on the securities, as well as interest (less any
rebates to be paid to the borrower) on the investment of the
collateral or a fee from the borrower. Each Fund will have
the right to call each loan and obtain the securities.
Lending portfolio securities involves certain risks,
including possible delays in receiving additional collateral
or in the recovery of the securities or possible loss of
rights in the collateral should the borrower fail
financially. Loans will be made in accordance with
guidelines established by the Board of Trustees.
Foreign securities (applicable to each Fund except the
Investment Grade Income Fund, Government Bond Fund, and
Money Market Fund)
Investments in foreign markets involve substantial
risks typically not associated with investing in the U.S.
which should be considered carefully by the investor. Such
risks may include political and economic instability,
differing accounting and financial reporting standards,
higher commission rates on foreign portfolio transactions,
less readily available public information regarding issuers,
potentially adverse changes in tax and exchange control
regulations, and the potential for restrictions on the flow
of international capital. Foreign securities also involve
currency risks. Accordingly, the relative strength of the
U.S. dollar may be an important factor in the performance of
the Fund, depending on the extent of the Fund's foreign
investments. Some foreign securities exchanges may not be as
developed or efficient as those in the U.S. and securities
traded on foreign securities exchanges generally are subject
to greater price volatility. There is also the possibility
of adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, and
limitations on the removal of funds or other assets.
Investments in emerging countries involve exposure to
economic structures that are generally less diverse and
mature than in the U.S., and to political systems which may
be less stable. In addition, securities of issuers located
in emerging countries may have limited marketability and may
be subject to more abrupt or erratic price fluctuations.
The Funds may buy or sell foreign currencies and
foreign currency forward contracts, options on foreign
currencies, and foreign currency futures contracts and
options thereon. Although such instruments may reduce the
risk of loss due to a decline in the value of the currency
that is sold, they also limit any possible gain which might
result should the value of the currency increase. Such
instruments will be used primarily to protect a Fund from
adverse currency movements; however, they also involve the
risk that anticipated currency movements will not be
accurately predicted, thus adversely affecting a Fund's
total return. See "Options and Futures Transactions."
The Funds' investments may include ADRs. For many
foreign securities, there are U.S. dollar-denominated ADRs
which are traded in the United States on exchanges or over
the counter. ADRs represent the right to receive securities
of foreign issuers deposited in a domestic bank or a
correspondent bank. An ADR may be sponsored by the issuer of
the underlying foreign security, or it may be issued in
unsponsored form. The holder of a sponsored ADR is likely to
receive more frequent and extensive financial disclosure
concerning the foreign issuer than the holder of an
unsponsored ADR and generally will bear lower transaction
charges. Each Fund may invest in both sponsored and
unsponsored ADRs. The Select International Equity Fund and
the Select Capital Appreciation Fund also may utilize EDRs,
which are designed for use in European securities markets,
and also may invest in GDRs.
The Investment Grade Income Fund may not invest in
foreign securities other than obligations issued by the
Government of Canada and political subdivisions thereof.
Options and Futures Transactions (applicable to each Fund
except the Small-Mid Cap Value Fund and Money Market Fund)
and Forward Contracts and Swaps (applicable to the Select
Capital Appreciation Fund)
Through the writing and purchase of put and call
options on its securities, financial indices, and foreign
currencies, and the purchase and sale of futures contracts
and related options with respect to securities, financial
indices, and (in the case of the Select Capital Appreciation
Fund) foreign currencies in which it may invest, each Fund
except the Small-Mid Cap Value Fund and Money Market Fund at
times may seek to hedge against fluctuations in net asset
value. Each Fund's ability to engage in options and futures
strategies will depend on the availability of liquid markets
in such instruments. It is impossible to predict the amount
of trading interest that may exist in various types of
options or futures contracts. Therefore, there is no
assurance that a Fund will be able to utilize these
instruments effectively for the purposes stated above.
Additionally, the Select Capital Appreciation Fund may
invest in forward contracts and swaps which may expose the
Fund to additional investment risks and transaction costs.
Risks inherent in the use of futures, options, forward
contracts, and swaps ("derivative instruments") include (1)
the risk that interest rates, securities prices, and
currency markets will not move in the directions
anticipated; (2) imperfect correlation between the price of
derivative instruments and movements in the prices of the
securities, interest rates, or currencies being hedged;
(3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities;
(4) the possible absence of a liquid secondary market for
any particular instrument at any time; and (5) the possible
need to defer closing out certain hedged positions to avoid
adverse tax consequences.
The Funds will purchase futures and options only on
exchanges or boards of trade when there appears to be an
active secondary market, but there can be no assurance that
a liquid secondary market will exist for any future or
option at any particular time.
In connection with transactions in futures and related
options, the Funds will be required to deposit as "initial
margin" an amount of cash and/or securities. Thereafter,
subsequent payments are made to and from the broker to
reflect changes in the value of the futures contract.
A more detailed explanation of futures, options, and
other derivative instruments, and the risks associated with
them, is included in the SAI.
Restricted Securities (applicable to the Select Aggressive
Growth Fund, Select Capital Appreciation Fund, Small-Mid Cap
Value Fund, Select International Equity Fund, Select Growth
Fund, and Select Growth and Income Fund)
The Funds also may purchase fixed-income securities
that are not registered under the 1933 Act ("restricted
securities"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A of the 1933 Act.
However, each Fund will not invest more than 15% of its
assets in restricted securities (as defined in its
investment restrictions) unless the Board of Trustees
determines, based upon a continuing review of the trading
markets for the specific restricted security, that such
restricted securities are liquid. The Board of Trustees has
adopted guidelines and delegated to the Manager the daily
function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain
sufficient oversight and be responsible ultimately for the
determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities
sold and offered under Rule 144A will develop, the Board
will monitor carefully a Fund's investments in securities,
focusing on such important factors, among others, as
valuation, liquidity, and availability of information. This
investment practice could have the effect of increasing the
level of illiquidity in a Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing these restricted securities. As a result, a Fund
might not be able to sell these securities when its
Sub-Adviser wishes to do so, or might have to sell them at
less than fair value. In addition, market quotations are
less readily available. Therefore, judgment at times may
play a greater role in valuing these securities than in the
case of unrestricted securities.
Investments in Money Market Securities (applicable to all
Funds)
Any Fund may hold at least a portion of its assets in
cash equivalents or money market instruments. There is
always the risk that the issuer of a money market instrument
may be unable to make payment upon maturity.
The Money Market Fund may hold uninvested cash
reserves pending investment during temporary, defensive
periods or if, in the opinion of the Sub-Adviser, suitable
securities are not available for investment. Securities in
which the Money Market Fund may invest may not earn as high
a level of current income as long-term, lower quality
securities which, however, generally have less liquidity,
greater market risk, and more fluctuation in market value.
Pursuant to an exemptive order granted by the
Securities and Exchange Commission, the Select Capital
Appreciation Fund and other funds advised by JCC may
transfer daily uninvested cash balances into one or more
joint trading accounts. Assets in the joint trading accounts
are invested in money market instruments and the proceeds
are allocated to the participating funds on a pro rata
basis.
High Yield Securities (applicable to the Select Capital
Appreciation Fund, Select Growth Fund, and Select Growth and
Income Fund)
Corporate debt securities purchased by the Select
Capital Appreciation Fund, the Select Growth Fund, and the
Select Growth and Income Fund will be rated at the time of
purchase B or better by Moody's or S&P, or equivalently
rated by another NRSRO, or unrated but believed by the
Sub-Adviser to be of comparable quality under the guidelines
established for the Funds. The Select Growth Fund and the
Select Growth and Income Fund may not invest more than 15%
of their assets and the Select Capital Appreciation Fund may
not invest more than 35% of its assets at the time of
investment in securities rated below Baa by Moody's or BBB
by S&P, or equivalently rated by another NRSRO, or unrated
but believed by the Sub-Adviser to be of comparable quality.
Securities rated B by Moody's or S&P (or equivalently by
another NRSRO) are below investment grade and are
considered, on balance, to be predominantly speculative with
respect to capacity to pay interest and repay principal and
will generally involve more credit risk than securities in
the higher rating categories.
Periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices
of lower-rated securities, commonly known as "high yield"
securities or "junk bonds," and of the asset value of the
Select Capital Appreciation Fund, the Select Growth Fund,
and the Select Growth and Income Fund. Many issuers of high
yield corporate debt securities are leveraged substantially
at times, which may impair their ability to meet debt
service obligations. Also, during an economic downturn or
substantial period of rising interest rates, highly
leveraged issuers may experience financial stress.
The lack of a liquid secondary market in certain
lower-rated securities may have an adverse impact on market
price and the ability of a Fund to dispose of particular
issues when necessary to meet its liquidity needs or in
response to a specific economic event such as a
deterioration in the credit-worthiness of the issuer. In
addition, a less liquid market may interfere with the
ability of a Fund to value accurately high yield securities
and, consequently, value a Fund's assets. Furthermore,
adverse publicity and investor perceptions may decrease the
value and liquidity of high yield securities. It is
reasonable to expect any recession to disrupt severely the
market for high yield fixed-income securities, have an
adverse impact on the value of such securities, and
adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon. The
market prices of lower-rated securities are generally less
sensitive to interest rate changes than higher-rated
investments, but more sensitive to adverse economic or
political changes, or individual developments specific to
the issuer. Periods of economic or political uncertainty and
change can be expected to result in volatility of prices of
these securities.
The Funds also may invest in unrated debt securities
of foreign and domestic issuers. Unrated debt, while not
necessarily of lower quality than rated securities, may not
have as broad a market. Sovereign debt of foreign
governments generally is rated by country. Because these
ratings do not take into account individual factors relevant
to each issue and may not be updated regularly, the
Sub-Adviser may treat such securities as unrated debt.
Unrated debt securities and securities with different
ratings from more than one agency will be included in the
15% and 35% limits of the Funds as stated above, unless such
Fund's Sub-Adviser deems such securities to be the
equivalent of investment grade securities. See the Appendix
for a description of the bond ratings.
Asset-Backed Securities and Mortgage-Backed Securities
(applicable to the Investment Grade Income Fund, and
Government Bond Fund)
The Funds may purchase asset-backed securities, which
represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets,
frequently a pool of assets similar to one another. Assets
generating such payments include instruments such as motor
vehicle installment purchase obligations, credit card
receivables, and home equity loans. Payment of principal and
interest may be guaranteed for certain amounts and time
periods by a letter of credit issued by a financial
institution unaffiliated with the issuer of the securities.
The estimated life of an asset-backed security varies with
the prepayment experience of the underlying debt
instruments. The rate of such prepayments, and hence the
life of the asset-backed security, will be primarily a
function of current market rates, although other economic
and demographic factors will be involved. Under certain
interest rate and prepayment rate scenarios, the Funds may
fail to recoup fully their investment in asset-backed
securities. The Investment Grade Income Fund and Government
Bond Fund will not invest more than 20% of its total assets
in asset-backed securities.
The Funds also may invest in mortgage-backed
securities which are debt obligations secured by real estate
loans and pools of loans on single family homes,
multi-family homes, mobile homes, and in some cases,
commercial properties. The Funds may acquire securities
representing an interest in a pool of mortgage loans that
are issued or guaranteed by a U.S. government agency such as
Ginnie Mae, Fannie Mae, and Freddie Mac.
Mortgage-backed securities are in most cases
"pass-through" instruments through which the holder receives
a share of all interest and principal payments from the
mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not
possible to predict accurately the average life or realized
yields of a particular issue of pass-through certificates.
During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be
expected to accelerate. When the mortgage obligations are
prepaid, the Funds reinvests the prepaid amounts in
securities, the yield of which reflects interest rates
prevailing at the time. Moreover, prepayment of mortgages
that underlie securities purchased at a premium could result
in losses.
The Funds also may invest in multiple class securities
issued by U.S. government agencies and instrumentalities
such as Fannie Mae, Freddie Mac, and Ginnie Mae, including
guaranteed collateralized mortgage obligations ("CMOs") and
Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates, when consistent
with the Funds' investment objective, policies, and
limitations. A CMO is a type of bond secured by an
underlying pool of mortgages or mortgage pass-through
certificates that are structured to direct payment on
underlying collateral to different series or classes of
obligations. A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code and invests in
certain mortgages principally secured by interests in real
property and other permitted investments.
CMOs and guaranteed REMIC pass-through certificates
("REMIC Certificates") issued by Fannie Mae, Freddie Mac,
and Ginnie Mae are types of multiple pass-through
securities. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests or "residual"
interests. The Funds currently do not intend to purchase
residual interests in REMICs. The REMIC Certificates
represent beneficial ownership interests in a REMIC trust,
generally consisting of mortgage loans or Fannie Mae,
Freddie Mac, or Ginnie Mae guaranteed mortgage pass-through
certificates. The obligations of Fannie Mae, Freddie Mac, or
Ginnie Mae under their respective guaranty of the REMIC
Certificates are obligations solely of Fannie Mae, Freddie
Mac, or Ginnie Mae, respectively.
Fannie Mae REMIC Certificates are issued and
guaranteed as to timely distribution of principal and
interest by Fannie Mae. In addition, Fannie Mae will be
obligated to distribute the principal balance of each class
of REMIC Certificates in full, whether or not sufficient
funds are available otherwise.
For Freddie Mac REMIC Certificates, Freddie Mac
guarantees the timely payment of interest and also
guarantees the payment of principal as payments are required
to be made on the underlying mortgage participation
certificates ("PCs"). PCs represent undivided interests in
specified residential mortgages or participations therein
purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally
guarantees ultimate collection of all principal of the
related mortgage loans without offset or deduction. Freddie
Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and
timely payment of interest and principal on each class of
securities (in accordance with the terms of those classes).
This Ginnie Mae guarantee is backed by the full faith and
credit of the United States of America.
REMIC Certificates issued by Fannie Mae, Freddie Mac,
and Ginnie Mae are treated as U.S. government securities for
purposes of investment policies. There can be no assurance
that the United States Government will continue to provide
financial support to Fannie Mae, Freddie Mac, or Ginnie Mae
in the future.
Stripped Mortgage-Backed Securities (applicable to the
Investment Grade Income Fund and Government Bond Fund)
The Funds may invest in stripped mortgage-backed
securities ("SMBS"). SMBS are derivative multiclass mortgage
securities. SMBS may be 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, mortgage banks, commercial
banks, investment banks, and special purpose entities of the
foregoing.
SMBS usually are structured with two classes that
receive different proportions of the interest and principal
distributions on a pool of mortgage assets. One type of SMBS
will have one class receiving some of the interest and most
of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of
the principal. In some cases, one class will receive all of
the interest (the interest-only an "IO" class) while the
other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on a IO
class is extremely sensitive to the rate of principal
payments (including prepayment on the related underlying
mortgage assets), and a rapid rate of principal payments may
have a material, adverse effect on a portfolio yield to
maturity from these securities. If the underlying mortgage
assets experience greater than anticipated prepayments of
principal, the Funds may fail to recoup fully their initial
investment in these securities even if the security is in
one of the highest rating categories. Certain SMBS may be
deemed "illiquid" and subject to the Funds' limitations on
investment in illiquid securities. The market value of the
PO class generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest from mortgage
assets generally are higher than prevailing market yields in
other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that
the initial investment will not be recouped fully. The
Sub-Adviser will seek to manage these risks (and potential
benefits) by investing in a variety of such securities and
by using certain hedging techniques.
Hedging Techniques and Investment Practices (applicable to
the Select Capital Appreciation Fund and Select
International Equity Fund)
The Select International Equity Fund and the Select
Capital Appreciation Fund may employ certain strategies in
order to manage exchange rate risks. For example, the Funds
may hedge some or all of their investments denominated in a
foreign currency against a decline in the value of that
currency. The Funds may enter into contracts to sell that
foreign currency for U.S. dollars (not exceeding the value
of a Fund's assets denominated in or exposed to that
currency) or by participating in options on futures
contracts with respect to such currency ("position hedge").
The Funds also could hedge that position by selling a second
currency that is expected to perform similarly to the
currency in which portfolio investments are denominated for
U.S. dollars ("proxy hedge"). The Funds also may enter into
a forward contract to sell the currency in which the
security is denominated for a second currency that is
expected to perform better relative to the U.S. dollar if
their Sub-Adviser believes there is a reasonable degree of
correlation between movements in the two currencies
("cross-hedge"). As an operational policy, the Funds will
not commit more than 10% of their assets to the consummation
of cross-hedge contracts and either will cover currency
hedging transactions with liquid portfolio securities
denominated in or whose value is tied to the applicable
currency or segregate liquid assets in the amount of such
commitments. In addition, when the Funds anticipate
repurchasing securities denominated in a particular
currency, the Funds may enter into a forward contract to
purchase such currency in exchange for the dollar or another
currency ("anticipatory hedge").
These strategies minimize the effect of currency
appreciation as well as depreciation, but do not protect
against a decline in the underlying value of the hedged
security. In addition, such strategies may reduce or
eliminate the opportunity to profit from increases in the
value of the original currency and may have an adverse
impact on a Fund's performance if its Sub-Adviser's
projection of future exchange rates is inaccurate.
APPENDIX
Descriptions of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Service, a
division of McGraw-Hill Companies, Inc. ("S&P") commercial
paper and bond ratings:
Commercial Paper Ratings
Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment
capacity of rated issuers. The two highest designations are
as follows:
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment
capacity normally will be evidenced by the following
characteristics:
- Leading market positions in
well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures
with moderate reliance on debt and ample asset protection.
- Broad margins in earnings coverage of
fixed financial charges and high internal cash generation.
- Well-established access to a range of
financial markets and assured sources of alternate
liquidity.
Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of
short-term promissory obligations. This normally will be
evidenced by many of the characteristics cited above, but to
a lesser degree. Earnings trends and coverage ratios, while
sound, will be subject more to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity
is maintained.
S&P commercial paper ratings are graded into several
categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest. The two highest rating
categories are described as follows:
A-1 - This highest category indicates that the
degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with
this designation is satisfactory. However, the relative
degree of safety is not as high as for issues designated
A-1.
Municipal Obligations
Moody's ratings for state and municipal and other
short-term obligations will be designated Moody's Investment
Grade ("MIG"). This distinction is in recognition of the
differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are
uppermost in importance in the short-term borrowing, while
various factors of the first importance in long-term
borrowing risk are of lesser importance in the long run.
Symbols used will be as follows:
MIG-1 - This designation denotes best quality.
There is present strong protection by established cash
flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing.
MIG-2 - This designation denotes high quality.
Margins of protection are ample although not so large as in
the preceding group.
A short-term rating also may be assigned on an issue
having a demand feature. Such ratings will be designated as
VMIG to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may
be limited to the external liquidity with no or limited
legal recourse to the issuer in the event that demand is not
met. VMIG-1 and VMIG-2 ratings carry the same definitions as
MIG-1 and MIG-2, respectively.
Description of Moody's Bond Ratings
Aaa - Bonds that 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 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 that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group, they
comprise what are known generally as high-grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds that 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 that suggest a susceptibility to impairment
some time in the future.
Baa - Bonds that are rated Baa are considered to be
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 that are rated Ba are judged to have
speculative elements; their future cannot be considered as
well- assured. Often the protection of interest and
principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack
characteristics of a desirable investment. Assurance of
interest and principal payments or maintenance of other
terms of the contract over any long period of time may be
small.
Those bonds within the Aa, A, Baa, Ba, and B
categories that Moody's believes possess the strongest
credit attributes within those categories are designated by
the symbols Aa1, A1, Baa1, Ba1, and B1.
Description of S&P's Debt Ratings
AAA - Debt rated AAA has the highest rating assigned
by S&P. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from AAA issues
only in a small degree.
A - Debt rated A has a strong capacity to pay interest
and repay principal, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Where as it
normally exhibits 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 debt in this category than in higher
rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC, or C is
regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and
C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by
large uncertainties or major exposures to adverse
conditions.
Plus (+) or (-): The ratings from AA to CCC may be
modified by the addition of a plus or minus sign to show
relative standing within the major categories.
ALLMERICA INVESTMENT TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a professionally managed,
open-end investment company designed to provide the underlying investment
vehicles for insurance-related accounts. The investment objectives of the seven
separate portfolios of the Trust (collectively, the "Funds" and individually,
the
"Fund") currently offered by this Prospectus are as follows:
Select Aggressive Growth Fund seeks above-average capital appreciation
by investing primarily in common stocks of companies which are believed to have
significant potential for capital appreciation.
Select Capital Appreciation Fund seeks long-term growth of capital in a
manner consistent with the preservation of capital. Realization of income is
not a
significant investment consideration and any income realized on the Fund's
investments will be incidental to its primary objective.
Select International Equity Fund seeks maximum long-term total return
(capital appreciation and income) primarily by investing in common stocks of
established non-U.S. companies.
Select Growth Fund seeks to achieve long-term growth of capital by
investing in a diversified portfolio consisting primarily of common stocks
selected
on the basis of their long-term growth potential.
Select Growth and Income Fund seeks a combination of long-term growth
of capital and current income. The Fund will invest primarily in dividend-paying
common stocks and securities convertible into common stocks.
Select Income Fund seeks a high level of current income. The Fund will
invest primarily in investment grade, fixed-income securities.
Money Market Fund seeks to obtain maximum current income consistent
with preservation of capital and liquidity.
Currently, shares of each Fund may be purchased only by separate
accounts ("Separate Accounts") established by First Allmerica Financial Life
Insurance Company ("First Allmerica") or Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Life"), an indirect, wholly-owned subsidiary
of First Allmerica, for the purpose of funding variable annuity contracts
and
variable life insurance policies issued by First Allmerica or Allmerica Life.
The
prospectus for the Separate Accounts should be read in conjunction with this
Prospectus.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing. Certain additional
information contained in the Statement of Additional Information dated April
29, 1997 (the "SAI"), which has been filed with the Securities and Exchange
Commission, is incorporated herein by reference and is available upon request
without charge from Allmerica Investments, Inc. ("Distributor"), 440 Lincoln
Street, Worcester, MA 01653, (508) 855-1000.
Investment in the Money Market Fund is neither insured nor guaranteed
by the U.S. Government. There can be no assurance that the Fund will be able to
maintain a stable net asset value of $1.00 per share.
THIS PROSPECTUS SHOULD BE READ AND RETAINED 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.
DATED APRIL 29, 1997
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS
4
HOW ARE THE FUNDS MANAGED?
6
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
7
Select Aggressive Growth Fund
7
Select Capital Appreciation Fund
8
Select International Equity Fund
9
Select Growth Fund
1
0
Select Growth and Income Fund
1
1
Select Income Fund
1
2
Money Market Fund
1
4
MANAGEMENT FEES AND EXPENSES
1
5
FUND MANAGER INFORMATION
1
7
HOW ARE SHARES VALUED?
1
9
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
1
9
SALE AND REDEMPTION OF SHARES
1
9
HOW IS PERFORMANCE DETERMINED?
2
0
ORGANIZATION AND CAPITALIZATION OF THE TRUST
2
0
INVESTMENT RESTRICTIONS
2
1
CERTAIN INVESTMENT STRATEGIES AND POLICIES
2
1
APPENDIX
2
8
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited by Price Waterhouse
LLP, independent accountants of the Trust. This information should be read in
conjunction with the financial statements and notes thereto which appear in the
Policyholder's annual report for the year ended December 31, 1996
("Annual Report") and which are incorporated by reference in the Trust's SAI.
Further information about the performance of the Funds is contained in the
Annual
Report which may be obtained without charge from the Trust, 440 Lincoln Street,
Worcester, MA 01653, (508) 855-1000.
[FINANCIAL HIGHLIGHTS TO BE FILED BY AMENDMENT]
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the affairs of the Trust
vests in the Board of Trustees of the Trust which meets on a quarterly basis.
Allmerica Investment Management Company, Inc. (the "Manager") is responsible
for the management of the Trust's day-to-day business affairs and has general
responsibility for the management of the investments of the Funds. The Manager,
at its expense, has contracted with certain Sub-Advisers to manage the
investments of the Funds subject to the requirements of the Investment Company
Act of 1940, as amended (the "1940").
The Manager is an indirect, wholly-owned subsidiary of Allmerica
Financial Corporation ("AFC"), a Delaware holding company for a group of
affiliated companies, the largest of which is First America, a life insurance
company organized in Massachusetts in 1844. The Manager, organized
August 19, 1985, also serves as manager of the Allmerica Funds, an open-end
investment company. The Manager and AFC are located at 440 Lincoln Street,
Worcester, Massachusetts 01653.
The Manager has entered into Sub-Adviser Agreements for the
management of the investments of each of the Funds. Each Sub-Adviser, who has
been selected on the basis of various factors, including management experience,
investment techniques, and staffing, is authorized to engage in portfolio
transactions on behalf of the applicable Fund subject to such general or
specific
instructions as may be given by the Trustees and/or the Manager. The terms of a
Sub-Adviser Agreement cannot be changed materially without the approval of a
majority interest of the shareholders of the affected Fund. The Sub-Advisers
have
been selected by the Manager and Trustees in consultation with
RogersCasey & Associates, Inc. ("RogersCasey"), a leading pension
consulting firm. RogersCasey is a wholly-owned subsidiary of BARRA, Inc. The
cost of such consultation is borne by the Manager.
RogersCasey provides consulting services to pension plans representing
over $ 300 billion in total assets and, in its consulting capacity,
monitors
the investment performance of over 1,000 investment advisers. From time to time,
specific clients of RogersCasey and the Sub-Advisers will be named in sales
materials. At times, RogersCasey assists in the development of asset allocation
strategies which may be used by shareholders in the diversification of their
portfolios across different asset classes.
Ongoing performance of the independent Sub-Advisers is monitored and
evaluated by a committee whose members may include senior officers of First
Allmerica, its affiliates or the Manager and an independent consultant.
Combined,
the committee has over 150 years of investment experience. Historical
performance data for all Funds is set forth under "Financial Highlights." The
Manager is responsible for the payment of all fees to the Sub-Advisers. The
Sub-Advisers for each of the Funds are as follows:
Select
Aggressive
Growth Fund
Nicholas-Applegate Capital
Management
Select Capital
Appreciation
Fund
Janus Capital Corporation
Select
International
Equity Fund
Bank of Ireland Asset
Management (U.S.) Limited
Select Growth
Fund
Putnam Investment
Management, Inc.*
Select Growth
and Income
Fund
John A. Levin & Co., Inc.
Select Income
Fund
Standish, Ayer & Wood, Inc.
Money Market
Fund
Allmerica Asset Management,
Inc.
For a sample listing of certain of the Sub-Advisers' clients, see
"Investment Management and Other Services" in the SAI. For more information
on each of the Sub-Advisers, see "What Are the Investment Objectives and
Policies?" and "Fund Manager Information."
The Manager also has entered into an Administrative Services Agreement
with First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned
subsidiary of First Data Corporation, whereby FDISG performs administrative
services for each of the Funds and is entitled to receive an administrative
fee and
certain out-of-pocket expenses. The Manager is responsible for the payment
of the
administrative fee to FDISG.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and policies designed to
meet different investment and financial needs, as described below. There is no
assurance that a Fund will achieve its investment objective.
A Fund's investment objective is fundamental and may not be changed
without shareholder approval. Unless otherwise indicated, a Fund's investment
policies are not fundamental and may be changed without shareholder approval.
Select Aggressive Growth Fund
Investment Objective: The Select Aggressive Growth Fund seeks above-average
capital appreciation by investing primarily in common stocks of companies which
are believed to have significant potential for capital appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management ("NACM") serves as
Sub-Adviser to the Select Aggressive Growth Fund. NACM is an investment
manager supervising accounts with assets totaling approximately $ 32 billion
in total assets as of December 31, 1996 . NACM's clients are primarily major
corporate employee benefit funds, public employee retirement plans, foundations
and endowment funds, investment companies, and individuals. Founded in 1984,
NACM is located at 600 West Broadway, Suite 2900, San Diego, California
92101.
Investment Policies: Under normal circumstances, at least 65% of the assets
of
the Select Aggressive Growth Fund will be invested in equity securities
consisting
of common stocks, securities convertible into common stocks (including bonds,
notes and preferred stocks), and warrants. The Fund's assets may also be
invested
in other debt securities and preferred stocks when such securities are believed
appropriate in light of the Fund's investment objective and market conditions.
The selection of securities is made solely on the basis of their potential for
capital appreciation. Dividend and interest income from portfolio securities,
if any,
is incidental to the Fund's investment objective. While investments may be
made in
well-known and established companies, a significant portion of the Fund's
investments is expected to be in securities of newer and relatively unseasoned
companies or companies which represent new or changing industries.
At any given point, a substantial portion of the Fund's equity investments
may be in securities which are not listed for trading on national securities
exchanges and, although publicly traded, may be less liquid than securities
issued
by larger, more seasoned companies which trade on national securities
exchanges.
Up to 15% of the Fund's assets may be invested in assets which are illiquid
because they are subject to restriction on resale or for which market
quotations are
not readily available.
Securities of newer companies may be closely held with only a small
portion of their outstanding securities owned by the general public. Newer
companies may have relatively small revenue, lack depth of management and have
a small share of the market for their products or services; thus, they may be
more
vulnerable to changes in economic conditions, market fluctuations and other
factors affecting the profitability or marketability of companies. Due to these
and
other factors, the price movement of the securities held by the Fund can be
expected to be more volatile than is the case for the market as a whole, and
the net
asset value of a share of the Fund may fluctuate significantly. Consequently,
the
Fund should not be considered suitable for investors who are unable or
unwilling
to assume the risk of loss inherent in an aggressive growth portfolio, nor
should
investment in the Fund be considered a balanced or complete investment program.
The Fund may also invest up to 25% of its assets in foreign securities
(not including its investments in American Depositary Receipts ("ADRs").
When NACM determines that market conditions warrant a temporary,
defensive position, the Fund may invest without limitation in high-grade,
fixed-income securities; U.S. Government securities; or hold assets in cash or
cash
equivalents. For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment Strategies and
Policies."
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for the Fund was 113%. The portfolio turnover rate was the result of the
Sub-Adviser's investment approach which typically results in above-average
portfolio turnover as securities are sold when the Sub-Adviser believes the
reasons
for their initial purchase are no longer valid or when it believes that the
sale of a
security owned by the Fund and the purchase of another security can enhance
return. A security may be sold to avoid a prospective decline in market value
or
purchased in anticipation of a market rise. Portfolio turnover rates may vary
greatly from year to year. A high portfolio turnover rate will likely result
in
greater brokerage costs to the Fund.
Select Capital Appreciation Fund
Investment Objective: The Select Capital Appreciation Fund seeks long-term
growth of capital in a manner consistent with the preservation of capital.
Realization of income is not a significant investment consideration and any
income
realized on the Fund's investments will be incidental to its primary objective.
Sub-Adviser: Janus Capital Corporation ("JCC") serves as Sub-Adviser to the
Select Capital Appreciation Fund. JCC has served as investment adviser to the
Janus Fund since 1969 and currently serves as investment adviser to all of the
Janus retail funds, as well as adviser or sub-adviser to other mutual funds and
individual, corporate, charitable and retirement accounts. Kansas City Southern
Industries, Inc., a publicly traded holding company whose primary subsidiaries
are
engaged in transportation and financial services, owns approximately 83% of the
outstanding stock of JCC. As of December 31, 1996, JCC had approximately
$47 billion in total assets under management. JCC is located at 100
Fillmore
Street, Denver, Colorado 80206-4923.
Investment Policies: The Fund invests in common stocks when the Sub-Adviser
believes that the relevant market environment favors profitable investing in
those
securities. The Fund pursues its objective normally by investing at least 50%
of its
equity assets in securities issued by medium-sized companies. Medium-sized
companies are those whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the "MidCap Index"). Companies
whose capitalization falls outside this range after the Fund's initial purchase
continue to be considered medium-sized companies for the purpose of this
policy.
As of December 31, 1996, the MidCap Index included companies with
capitalizations between approximately $500 million to $10 billion. The
range
of the MidCap Index is expected to change on a regular basis. Subject to the
above policy, the Fund may also invest in smaller or large issuers. Common
stock
investments are selected in industries and companies that the Sub-Adviser
believes
are experiencing favorable demand for their products and services, and which
operate in a favorable competitive environment and regulatory climate. The
Sub-Adviser's analysis and selection process focuses on stocks with earnings
growth potential that may not be recognized by the market. Such securities are
selected solely for their capital growth potential; investment income is not a
consideration. Medium-sized companies may suffer more significant losses as
well
as realize more substantial growth than larger issues; thus, investments in
such
companies tend to be more volatile and somewhat speculative.
The selection criteria for domestic issuers apply equally to stocks of
foreign issuers. In addition, factors such as expected levels of inflation;
government policies influencing business conditions; the outlook for currency
relationships; and prospects for relative economic growth among countries,
regions, or geographic areas may warrant greater consideration in selecting
foreign
stocks. The Fund may invest without limitation in foreign securities. The Fund
may invest directly in foreign securities denominated in foreign currency and
not
publicly traded in the United States. The Fund also may purchase foreign
securities through American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") , and
other types of receipts or shares evidencing ownership of the underlying
foreign
securities. In addition, the Fund may invest indirectly in foreign securities
through
foreign investment funds or trusts (including passive foreign investment
companies). Certain state insurance regulations may impose additional
restrictions
on the Fund's holdings of foreign securities. Investments in foreign
securities carry
additional risks not present in domestic securities. See "Certain Investment
Strategies and Policies - Foreign Securities."
Although the Fund normally invests primarily in common stocks, the
Fund's cash position may increase when the Sub-Adviser is unable to locate
investment opportunities with desirable risk/reward characteristics. The Fund
also
may invest in preferred stocks, warrants, government securities, corporate
bonds
and debentures, high-grade commercial paper, certificates of deposit, other
debt
securities, or repurchase agreement or reverse repurchase agreements when the
Sub-Adviser perceives an opportunity for capital growth from such securities or
so that the Fund may receive a return on its idle cash. The Fund also may
invest
up to 35% of its assets in such lower-rated securities commonly known as "junk
bonds." Fixed-income securities rated in the fourth highest grade by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Service, a
division of McGraw-Hill Companies, Inc. ("S&P"), (Baa and BBB, respectively)
are investment grade but are considered to have some speculative
characteristics.
Lower-rated securities or "junk bonds" (rated Ba/BB or lower) involve the risks
discussed under "Certain Investment Strategies and Policies." When the Fund
invests in such securities, investment income will increase and may constitute
a
large portion of the return realized by the Fund and the Fund probably will not
participate in market advances or declines to the extent that it would if it
remained
fully invested in common stocks. Up to 15% of the Fund's assets may be invested
in restricted or illiquid securities.
The Fund may invest in "special situations" from time to time. A special
situation arises when, in the opinion of the Sub-Adviser, the securities of a
particular issuer will be recognized and appreciate in value due to a specific
development with respect to that issuer. Developments creating a special
situation
might include, among others, a new product or process, a technological
breakthrough, a management change or other extraordinary corporate event, or
differences in market supply of and demand for the security. Investment in
special
situations may carry an additional risk of loss in the event that the
anticipated
development does not occur or does not attract the expected attention.
For hedging purposes, the Fund may engage in options and futures
strategies and may utilize forward contracts, interest rate swaps, and
swap-related
products. See "Certain Investment Strategies and Policies."
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for the Fund was 98%. The portfolio turnover rate for the Fund may
vary from year to year.
Select International Equity Fund
Investment Objective: The Select International Equity Fund seeks maximum
long-term total return (capital appreciation and income) primarily by investing
in
common stocks of established non-U.S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.) Limited ("BIAM")
serves as Sub-Adviser for the Select International Equity Fund. BIAM is an
indirect wholly-owned subsidiary of Bank of Ireland. Its main offices are at
26 Fitzwilliam Place, Dublin 2, Ireland. Its U.S. offices are at Two Greenwich
Plaza, Greenwich, CT 06830. Bank of Ireland provides investment management
services through a network of affiliated companies, including BIAM which
represents North American clients. As of December 31, 1996, Bank of Ireland
managed approximately $21 billion in global securities for Irish,
United Kingdom,
European, Australian, South African, Canadian, and U.S. clients.
Investment Policies: To achieve its objective, the Select International Equity
Fund will invest primarily in common stocks of established non-U.S. companies.
Under normal market conditions, at least 65% of the Fund's total assets will be
invested in the securities of companies domiciled in at least five foreign
countries,
not including the United States. The Fund may also acquire fixed-income debt
securities. It will do so, at the discretion of BIAM, primarily for defensive
purposes. The Fund may invest up to 15% of its assets in securities which are
illiquid because they are subject to restriction on resale or for which market
quotations are not readily available.
The Fund's investments may include ADRs which may be sponsored or
unsponsored by the underlying issuer. The Fund may also utilize European
Depositary Receipts ("EDRs"), which are similar to ADRs, in bearer form,
designed for use in the European securities market and Global Depositary
Receipts
("GDRs"). Investments in foreign securities carry additional risks not present
in
domestic securities. See "Certain Investment Strategies and Policies - Foreign
Securities." For hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment Strategies and
Policies."
Certain state insurance regulations may impose additional restrictions on the
Fund's holdings of foreign securities.
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for the Fund was 18%. The portfolio turnover rate for the Fund may
vary greatly from year to year.
Select Growth Fund
Investment Objective: The Select Growth Fund seeks to achieve long-term
growth of capital by investing in a diversified portfolio consisting primarily
of
common stocks selected on the basis of their long-term growth potential.
Sub-Adviser: Putnam Investment Management, Inc. ("Putnam"), One Post
Office Square, Boston, Massachusetts 02109, serves as Sub-Adviser to the
Select
Growth Fund. Putnam has been an investment manager since 1937. As of
December 31, 1996, Putnam had assets under management of approximately $173
billion. Putnam is a wholly-owned subsidiary of Putnam Investments, Inc., a
holding company which in turn is wholly owned by Marsh & McLennan
Companies, Inc., a publicly-owned holding company whose principal businesses
are international insurance and reinsurance brokerage, employee benefit
consulting, and investment management.
Investment Policies: The Select Growth Fund seeks to attain its objective by
investing in securities of companies that appear to have favorable long-term
growth characteristics. Potential for long-term growth is the determinative
factor
in the selection of portfolio securities. Although the Fund may invest in
dividend-paying stocks, generation of current income is not an objective of the
Fund. Any income that is received is incidental to the Fund's objective of
long-term growth of capital. When choosing securities for the portfolio, the
Sub-Adviser focuses on companies that display strong financial characteristics
and earnings growth potential.
When choosing securities for the portfolio, the sub-adviser for the Select
Growth Fund focuses on companies that display strong financial characteristics
and earnings growth potential.
At least 65% of the Fund's assets under normal conditions will consist of
growth-oriented common stocks. The Fund may invest in common stocks of large
well-known companies as well as smaller growth companies, which generally
include companies with a market capitalization of $500 million or less
("smaller
growth companies"). The stocks of smaller growth companies may involve a
higher degree of risk than other types of securities and the price movement of
such
securities can be expected to be more volatile than is the case of the market
as a
whole. The Fund may hold stocks traded on one or more of the national exchanges
as well as in the over-the-counter markets. Because opportunities for capital
growth may exist not only in new and expanding areas of the economy but also in
mature and cyclical industries, the Fund's portfolio investments are not
limited to
any particular type of company or industry. The Fund may also purchase
convertible bonds and preferred stocks, warrants, and debt securities if the
Fund's
Sub-Adviser believes they would help achieve the Fund's objective of long-term
growth.
The Fund may invest up to 35% of its assets in both higher-rated and
lower-rated fixed-income securities in seeking its objective of long-term
growth of
capital. The dollar average weighted maturity of the Fund's fixed-income
securities
will vary depending on, among other things, current market conditions. The Fund
may invest up to 15% of its assets in lower-rated securities, commonly known as
"junk bonds," which involve risks discussed under "Certain Investment
Strategies
and Policies." For more information concerning the rating categories of
corporate
debt securities, see the Appendix to the Prospectus.
When the Sub-Adviser determines that market conditions warrant a
temporary, defensive position, the Fund may invest without limitation in
high-grade, fixed-income securities, U.S. Government securities, or hold assets
in
cash or cash equivalents. To the extent the Fund is so invested it is not
achieving
its objective to the same degree as under normal conditions. For hedging
purposes, the Fund may engage in the options and futures strategies described
under "Certain Investment Strategies and Policies."
The Select Growth Fund's objective of seeking long-term growth of
capital means that its assets generally will be subject to greater risk than
may be
involved in investing in securities that are not selected for growth potential.
The
Fund may invest up to 15% of its assets in securities which are illiquid because
they are subject to restriction on resale or for which market quotations are not
readily available. The Fund may also invest up to 25% of its assets in foreign
securities.
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for the Fund was 159%. The Fund experienced such a rate of turnover due to
a new sub-adviser assuming responsibility for the Fund on July 1, 1996 and
subsequently repositioning the portfolio. The portfolio turnover for the
Fund
may vary greatly from year to year.
Select Growth and Income Fund
Investment Objective: The Select Growth and Income Fund seeks a combination
of long-term growth of capital and current income. The Fund will invest
primarily
in dividend-paying common stocks and securities convertible into common stocks.
Sub-Adviser: John A. Levin & Co., Inc. ("JAL"), One Rockefeller Place, 25th
Floor, New York, New York 10020, serves as Sub-Adviser to the Select Growth
and Income Fund. JAL was founded as a Delaware corporation in 1982 and is
wholly owned by Baker, Fentress & Company, a non-diversified closed-end
management investment company registered under the 1940 Act. The firm had
approximately $6.5 billion in assets under management as of December
31, 1996. JAL's clients include U.S. and foreign individuals and their related
trust
and charitable organizations, pooled funds for individuals and university
endowments, and pension and profit sharing funds.
Investment Policies: To achieve its objective of long-term growth of capital
and
current income, the Select Growth and Income Fund will invest primarily in
dividend-paying common stocks and securities convertible into common stocks. It
may invest in a wide range of equity securities, consisting of both
dividend-paying
and non-dividend-paying common stocks, preferred stocks, securities convertible
into common and preferred stocks and warrants. These may include securities of
large well-known companies as well as smaller growth companies. The securities
of smaller growth companies involve certain risks as described above under the
"Select Growth Fund." The Fund may hold securities traded on one or more of the
national exchanges as well as in the over-the-counter markets. The Fund's
portfolio investments are not limited to any particular type of company or
industry. The Fund may purchase individual stocks not presently paying dividends
which offer opportunities for capital growth or future income provided that the
Sub-Adviser believes the overall portfolio is positioned appropriately to
achieve its
income objective. To achieve current income, the Fund may invest up to 35% of
its assets in both higher-rated and lower-rated fixed-income securities,
including
not more than 15% in lower-rated securities, commonly known as "junk bonds." In
certain circumstances, fixed-income securities may be purchased by the Fund for
long-term growth potential. (However, the Fund expects to have substantially
less
than 35% of its assets invested in fixed-income securities in most
circumstances.)
Lower-rated fixed-income securities involve risks discussed under "Certain
Investment Strategies and Policies." For more information concerning the
rating
categories of corporate debt securities, see the Appendix to the Prospectus.
The
dollar average weighted maturity of the Fund's fixed-income securities will
vary
depending on, among other things, current market conditions. Purchases and sales
of portfolio securities are made at such times and in such amounts as deemed
advisable in light of market, economic, and other conditions.
The Fund may invest up to 15% of its assets in securities which are
illiquid because they are subject to restriction on resale or for which market
quotations are not readily available. The Fund may also invest up to 25% of its
assets in foreign securities.
When the Sub-Adviser determines that market conditions warrant a
temporary, defensive position, the Fund may invest without limitation in
high-grade or U.S. Government securities, or hold assets in cash or cash
equivalents. To the extent the Fund is so invested, it is not achieving its
objective
to the same degree as under normal conditions. For hedging purposes, the Fund
may engage in the options and futures strategies described under "Certain
Investment Strategies and Policies." There can be no assurance of growth of
capital, of course, and, because the Fund invests a substantial portion of its
assets
in common stocks and other securities which fluctuate in value, there is
substantial
risk of market decline. The Fund's Sub-Adviser seeks to minimize this risk
through
detailed analyses of financial markets and issuers of equity securities and
through
investment in a diversified portfolio of such securities.
For the fiscal year ended December 31, 1996, the portfolio turnover
for the Fund was 78%. The portfolio turnover rate for the Fund may vary greatly
from year to year. A high portfolio turnover rate will likely result in greater
brokerage costs to the Fund.
Select Income Fund
Investment Objective: The Select Income Fund seeks a high level of current
income. The Fund will invest primarily in investment grade, fixed-income
securities.
Sub-Adviser: Standish, Ayer & Wood, Inc. ("SAW") serves as Sub-Adviser to
the Select Income Fund. SAW was founded in 1933 to provide investment
management services to high net worth individuals and institutions. As of
December 31, 1996, total client assets exceeded $30 billion. SAW
manages fixed-income portfolios for major corporate and governmental pension
plans, financial institutions, and endowment and foundation funds. Through its
affiliate, Standish International Investment Management Company, L.P., SAW
offers international investment services. SAW is an independent investment
counseling firm owned by its twenty-two directors who are active with the firm.
SAW is located at One Financial Center, Boston, Massachusetts 02111.
Investment Policies: Under normal circumstances, at least 65% of the Select
Income Fund's assets, at the time of investment, will be invested in investment
grade corporate debt securities and securities issued or guaranteed as to
principal
or interest by the U.S. Government or its agencies or instrumentalities.
Investment
grade corporate debt securities are (a) assigned a rating within the four
highest
grades (Baa/BBB or higher) by either Moody's or S&P, (b) equivalently rated by
another nationally recognized statistical rating organization ("NRSRO"), or
(c) unrated securities but determined by the Sub-Adviser to be of comparable
quality. Securities rated in the fourth highest grade (rated Baa and BBB by
Moody's and S&P, respectively) are considered to have some speculative
characteristics. The Fund will not invest in debt securities rated below
investment
grade (Ba/BB or lower) by both Moody's and S&P. For more information
concerning the rating categories of corporate debt securities and commercial
paper, see the Appendix to the Prospectus. The types of securities in which the
Fund invests are corporate debt obligations such as bonds, notes and debentures,
and obligations convertible into common stock; "money market" instruments, such
as bankers acceptances, or negotiable certificates of deposit issued by the 25
largest U.S. banks (in terms of deposits); commercial paper rated Prime-1 by
Moody's or A-1 by S&P; obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; asset-backed securities;
mortgage-backed securities; and stripped mortgage-backed securities. The Fund
may also invest in U.S. dollar obligations of, or guaranteed by, the government
of
Canada or a province of Canada or any instrumentality or political subdivision
thereof, and U.S. dollar obligations of supranational entities such as the World
Bank, European Investment Bank, and African Development Bank. For more
information about asset-backed securities and mortgage-backed securities and
stripped mortgage-backed securities, see "Certain Investment Strategies and
Policies."
The Fund's investments in corporate debt securities are not limited to any
particular type of company or industry. The Fund will invest in corporate debt
obligations primarily of companies having a market capitalization of more than
$500 million at the time of investment.
The Fund's dollar average weighted maturity and the mix of permitted
portfolio securities as described above will vary from time to time depending,
among other things, on current market and economic conditions and the
comparative yields on instruments in different sectors, such as corporate and
Treasuries, and with different maturities. The dollar average weighted maturity
of
the portfolio, excluding money market instruments, is expected to range
between 5
and 20 years under normal market conditions. The Fund may invest up to 35% of
its assets in money market instruments under normal conditions. Although the
Fund does not invest for short-term trading purposes, portfolio
securities may be
sold from time to time without regard to the length of time they have been held.
The value of the Fund's portfolio securities generally will vary inversely with
changes in prevailing interest rates, declining as interest rates rise and
increasing
as rates decline. The value will also be affected by other market and economic
factors. There is the risk with corporate debt securities that the issuers may
not be
able to meet their obligations on interest and principal payments.
Obligations in which the Select Income Fund may invest include
debt obligations of supranational entities. 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. Obligations of supranational
entities may be supported by appropriated but unpaid commitments of their
member countries, and there is no assurance that these commitments will be
undertaken or met in the future. The Fund may not invest more than 25% of
its assets in debt obligations of supranational entities.
The Fund also may invest up to 15% of its assets in securities which are
illiquid because they are subject to restriction on resale or for which market
quotations are not readily available. The Fund may also invest up to 25% of its
assets in foreign securities.
For hedging purposes, the Fund may engage in the options and futures
strategies described under "Certain Investment Strategies and Policies."
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for the Fund was 108%. The portfolio turnover rate exceeded 100% due to the
need to make significant changes in the structure of the portfolio's mortgage
and
corporate bond holdings. The portfolio turnover rate for the Fund may vary
from year to year. A high portfolio turnover rate may result in greater
brokerage
costs to the Fund.
Money Market Fund
Investment Objective: The Money Market Fund seeks to obtain maximum
current income consistent with preservation of capital and liquidity.
Sub-Adviser: Allmerica Asset Management, Inc. ("AAM") serves as
Sub-Adviser to the Money Market Fund. AAM, a wholly-owned subsidiary of
First Allmerica, was incorporated in 1993 and is located at 440 Lincoln Street,
Worcester, Massachusetts 01653. As of December 31, 1996, AAM had
approximately $11 billion in assets under management. AAM serves as
investment adviser to First Allmerica's General Account and to a number of
affiliated insurance companies and other affiliated accounts, as Sub-Adviser to
three other series of the Trust, and as Adviser for Allmerica Securities Trust,
a
closed-end diversified company.
Investment Policies: The Money Market Fund seeks to achieve its objective by
investing in the following high quality money market instruments:
(a) Obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities;
(b) Commercial paper which meets the ratings requirements as set
forth in the paragraph below;
(c) Obligations of banks or savings and loan associations (such as
bankers acceptances and certificates of deposit, including dollar-denominated
obligations of foreign branches of U.S. banks ("Eurodollars") and U.S. branches
of foreign banks if such U.S. branches are subject to state banking
requirements
and Federal Reserve reporting requirements) which at the date of the investment
have deposits of at least $1 billion as of their most recently published
financial
statements;
(d) Repurchase agreements with respect to obligations described
under (a) above (such obligations subject to repurchase agreement may bear
maturities of more than one year); and
(e) Cash and cash equivalents.
The Money Market Fund will not purchase any security unless (i) the
security has received the highest or second highest quality rating by at least
two
NRSROs or by one NRSRO if only one has rated the security, or (ii) the security
is unrated and in the opinion of AAM as Sub-Adviser, in accordance with
guidelines adopted by the Trustees, is of a quality comparable to one of the
two
highest ratings of an NRSRO. These standards must be satisfied at the time an
investment is made. If the quality of the investment later declines, the Fund
may
continue to hold the investment, but the Trustees will evaluate whether the
security
continues to present minimal credit risks. See the Appendix for an explanation
of
NRSRO ratings.
The Fund will limit its portfolio investments to securities with a remaining
maturity of 397 days or less as of the time of purchase, in accordance with the
Trustees' guidelines. The portfolio will be managed so as to maintain a
dollar-weighted maturity of 90 days or less. In order to maximize the yield on
its
assets, the Money Market Fund intends to be as fully invested at all times as
is
reasonably practicable. There is always the risk that the issuer of an
instrument
may be unable to make payment upon maturity.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the Manager is
obligated to perform certain administrative and management services for the
Trust; furnishes to the Trust all necessary office space, facilities, and
equipment;
and pays the compensation, if any, of officers and Trustees who are affiliated
with
the Manager. Other than the expenses specifically assumed by the Manager under
the Management Agreement, all expenses incurred in the operation of the Trust
are
borne by the Trust, including fees and expenses associated with the
registration
and qualification of the Trust's shares under the Securities Act of 1933
(the "1933
Act"); other fees payable to the Securities and Exchange Commission;
independent
accountant, legal, and custodian fees; association membership dues; taxes;
interest, insurance premiums, brokerage commissions, fees and expenses of the
Trustees who are not affiliated with the Manager; expenses for proxies,
prospectuses, and reports to shareholders; Fund recordkeeping expenses; and
other
expenses. The Manager has agreed voluntarily to absorb any charges and
expenses associated with Fund recordkeeping that exceed 0.10% of a Fund's
average net assets.
For the services to the Funds, the Manager receives fees computed daily at
an annual rate based on the average daily net asset value of each Fund as set
forth
below:
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7
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(
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(1) The Manager's fee for the Money Market Fund is computed daily at an
annual rate based on the average daily net asset value as set forth below:
Assets
R
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First $50 Million
0
.
3
5
%
Next $200 Million
0
.
2
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Over $250 Million
0
.
2
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The Manager is responsible for the payment of all fees to the
Sub-Advisers. The Manager pays each Sub-Adviser fees computed daily at an
annual rate based on the average daily net asset value of each Fund as set forth
below. In certain Funds, Sub-Adviser fees vary according to the level of assets
in
such Funds, which will reduce the fees paid by the Manager as Fund assets grow
but will not reduce the operating expenses of such Funds.
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(
3
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0
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6
0
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(
2
)
(
4
)
(
5
)
0
.
2
0
%
0
.
1
0
%
(2) For its services, JCC will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Capital Appreciation Fund,
under the following schedule:
Assets
R
a
t
e
First $100 Million
0
.
6
0
%
Over $100 Million
0
.
5
5
%
(3) For its services, BIAM will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select International Equity Fund,
under the following schedule:
Assets
R
a
t
e
First $50 Million
0
.
4
5
%
Next $50 Million
0
.
4
0
%
Over $100 Million
0
.
3
0
%
(4) For its services, Putnam will receive a fee computed daily at an annual
rate based on the average daily net assets of the Select Growth Fund, under the
following schedule:
Assets
R
a
t
e
First $50 Million
0
.
5
0
%
Next $100 Million
0
.
4
5
%
Next $100 Million
0
.
3
5
%
Next $100 Million
0
.
3
0
%
Over $350 Million
0
.
2
5
%
(5) For its services, JAL will receive a fee computed daily at an annual rate
based on the average daily net assets of the Select Growth Fund, under the
following schedule:
Assets
R
a
t
e
First $100 Million
0
.
4
0
%
Next $200 Million
0
.
2
5
%
Over $300 Million
0
.
3
0
%
For the fiscal year ended December 31, 1996, the Funds paid the Manager
gross fees before reimbursement at a rate based on the Funds' average daily net
assets, under the following schedule:
Fund
R
a
t
e
Select Aggressive Growth Fund
1
.
0
0
%
Select Capital Appreciation Fund
1
.
0
0
%
Select International Equity Fund
1
.
0
0
%
Select Growth Fund
0
.
4
4
%
Select Growth and Income Fund
0
.
7
5
%
Select Income Fund
0
.
6
0
%
Money Market Fund
0
.
2
8
%
The following table shows voluntary expense limitations which the
Manager has declared for each Fund and the operating expenses incurred for the
fiscal year ended December 31, 1996 for each Fund:
Percentage of
Average Daily Net
Assets
Fund
V
o
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u
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t
a
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y
E
x
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O
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x
p
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s
e
s
+
Select Aggressive
Growth Fund
1
.
3
5
%
1
.
0
8
%
Select Capital
Appreciation Fund
1
.
3
5
%
1
.
1
3
%
Select International
Equity Fund
1
.
5
0
%
1
.
2
0
%
Select Growth Fund
1
.
2
0
%
0
.
9
2
%
Select Growth and
Income Fund
1
.
1
0
%
0
.
8
0
%
Select Income Fund
1
.
0
0
%
0
.
7
4
%
Money Market Fund
0
.
6
0
%
0
.
3
4
%
+ Including reductions
The Manager will voluntarily reimburse its fees and any expenses above
the expense limitations. The expense limitations are voluntary but will remain
in
effect through the end of the first full fiscal year that a Fund has been in
operation.
The expense limitations may be removed at any time thereafter, without prior
notice to existing shareholders (although the Prospectus will be revised
accordingly). The Manager reserves the right to recover from a Fund
any fees, within a current fiscal year period, which were reimbursed in that
same
year to the extent that total annual expenses did not exceed the applicable
expense
limitation. Non-recurring and extraordinary expenses generally are excluded in
the
determination of expense ratios of the Funds for purposes of determining any
required expense reimbursement. Quotations of yield or total return for any
period
when an expense limitation is in effect will be greater than if the limitation
had not
been in effect.
FUND MANAGER INFORMATION
The following individuals are responsible primarily for the day-to-day
management of the particular Funds as indicated below:
The following individuals have served as members of a committee of fund
managers for the Select Aggressive Growth Fund since March 1994, with the
exception of Mr. Nicholas who has served as a fund manager since the Fund's
inception in August 1992:
Lawrence S. Speidell is a Partner and Director of Global/Systematic
Portfolio Management and Research at NACM. Prior to joining NACM in 1994,
Mr. Speidell spent ten years with Batterymarch Financial Management. He was
also Senior Vice President and Portfolio Manager at Putnam Management
Company from 1971 to 1983.
John J. Kane, Senior Portfolio Manager, U.S. Systematic at NACM, has
twenty-eight years of economic/investment experience. Prior to joining NACM in
1994, Mr. Kane was employed by ARCO Investment Management Company and
General Electric Company.
Mark W. Stuckelman, Portfolio Manager U.S. Systematic, joined
NACM in 1995. Prior to joining NACM, he was employed for five years with
Wells Fargo Bank's Investment Management Group, Fidelity Management Trust
Co., and BARRA.
The following individual has served as fund manager for the Select
Capital Appreciation Fund since the Fund's inception in April 1995:
James P. Goff joined JCC in 1988. He has managed the Janus Enterprise
Fund since 1992 and has co-managed the Janus Venture Fund since
December 1993. Mr. Goff is a Chartered Financial Analyst.
The following portfolio managers are involved in the investment process
utilized for the Select International Equity Fund:
Christopher Reilly, Chief Investment Officer, joined Bank of Ireland
in 1980 and has had overall responsibility for asset management since 1985.
Previously, he worked in the United Kingdom in stockbroking and investment
management.
Denis Donovan, Director Portfolio Management, received an MBA from
University College Dublin. Prior to joining Bank of Ireland in 1985, he spent
more
than thirteen years in the money market and foreign exchange operations of the
Central Bank of Ireland, the Irish equivalent of the U.S. Federal Reserve. He
has
overall responsibility for the portfolio management function for all of BIAM's
client base.
John O'Callaghan is a graduate of Trinity College, Dublin and is a
Chartered Financial Analyst. He joined Bank of Ireland in 1987.
Peter Wood joined Bank of Ireland in 1985 after spending five years with
another leading investment management firm. He is responsible for portfolio
construction.
The following individuals have served as members of a committee of
fund managers for the Select Growth Fund since July 1, 1996:
Carol C. McMullen, Managing Director, has been an investment
professional with Putnam since 1995. Prior to 1995, Ms. McMullen was Senior
Vice President of Baring Asset Management.
Beth Cotner, Senior Vice President, has been with Putnam since 1995.
Prior to 1995, Ms. Cotner was Executive Vice President at Kemper Financial
Services.
Manual Weiss, Senior Vice President, has been an investment
professional with Putnam since 1987.
The following individuals have served as members of a committee of fund
managers of the Select Growth and Income Fund since September 1994:
John A. Levin, President, has been with JAL since 1982 and has
thirty-two years investment experience.
Melody L. Prenner Sarnell, Securities Analyst, has been with JAL since
1984. Prior to joining JAL, Ms. Sarnell was employed by John M. Blewer, Inc.
Jeffrey A. Kigner, Securities Analyst, has been with JAL since 1984.
Prior to 1984, Mr. Kigner was employed by Carlin & Co.
The following individuals have served as members of a committee of fund
managers for the Select Income Fund since the Fund's inception in August 1992:
Edward H. Ladd, Chairman and Managing Director, joined SAW in 1962
and is the firm's economist. He also assists clients in establishing investment
strategies. Mr. Ladd is a Director of the Federal Reserve Bank of Boston, New
England Electric System, Greylock Management, and Harvard Management
Corporation and a member of SAW's Executive Committee.
George W. Noyes, President and Managing Director, joined SAW in 1970
and directs bond policy formulation and manages institutional bond portfolios at
SAW. Mr. Noyes is Vice Chairman of the ICFA Research Foundation and serves
on SAW's Executive Committee.
Dolores S. Driscoll, Managing Director, joined SAW in 1974 and
manages fixed-income portfolios with specific emphasis on mortgage
pass-throughs and original issue discount bonds. Ms. Driscoll also serves on
SAW's Executive Committee.
Richard C. Doll, Manager, joined SAW in 1984 and is a portfolio
manager with research responsibilities in convertible bonds. Prior to joining
SAW,
Mr. Doll was a Vice President with the Bank of New England.
Maria D. Furman, Vice President and Director, joined SAW in 1976.
She is head of the tax-exempt area and manages insurance and pension fund
accounts. Ms. Furman currently serves on SAW's Executive Committee.
The following individual has served as fund manager for the Money
Market Fund since March, 1995:
John C. Donohue, Assistant Vice President of AAM, was a portfolio
manager at CS First Boston Investment Management prior to joining AAM in
1995.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is determined once daily as
of the close of regular trading on the New York Stock Exchange (the "Exchange")
on each day on which the Exchange is open for trading.
Equity securities are valued on the basis of their market value if market
quotations are readily available. In other cases, they are valued at their fair
value
as determined in good faith by the Trustees, although the actual calculations
may
be performed by persons acting pursuant to the direction of the Trustees. Debt
securities (other than short-term obligations) normally are valued on the basis
of
valuations formulated by a pricing service which utilizes data processing
methods
to determine valuations for normal, institutional-size trading units of such
securities. Such methods include the use of market transactions for comparable
securities and various relationships between securities which generally are
recognized by institutional traders. All securities of the Money Market Fund are
valued at amortized cost. Debt obligations in the other Funds having a remaining
maturity of 60 days or less are valued at amortized cost when it is determined
that
amortized cost approximates fair value. Short-term obligations of the other
Funds
having a remaining maturity of more than 60 days are marked to market based
upon readily available market quotations for such obligations or similar
securities.
Unlike the Money Market Fund which attempts to maintain a stable net
asset value, the net asset value of the other Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies, so that the Trust
will
not be subject to federal income tax on any net income and any capital gain to
the
extent they are distributed or are deemed to have been distributed to
shareholders.
Dividends out of net investment income will be declared and paid quarterly
in
the case of the Select Growth and Income Fund and Select Income Fund; annually
in the case of the Select Aggressive Growth Fund, Select Capital Appreciation
Fund, Select International Equity Fund, and Select Growth Fund; and daily in
the
case of the Money Market Fund. Distributions of net capital gains for the
year, if any, are made annually. All dividends and capital gain distributions
are
applied to purchase additional Fund shares at net asset value as of the payment
date. Fund shares are held by the Separate Accounts and any distributions are
reinvested automatically by the Separate Account. Tax consequences to investors
in the Separate Accounts which are invested in the Trust are described in the
prospectuses for such Accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering and currently may
be purchased only by Allmerica Select Separate Accounts. The Separate Accounts
are the funding mechanisms for variable annuity contracts. The Separate
Accounts
invest in shares of one or more of the Funds. Shares of each Fund are sold at
its
net asset value as next computed after receipt of the purchase order without
the
addition of any selling commission or "sales load." The Distributor, Allmerica
Investments, Inc., at its expense, may provide promotional incentives to
dealers
that sell variable annuity contracts for which the Funds serve as investment
vehicles.
Shares of the Trust currently are being issued also to Separate Accounts
of Allmerica Life, First Allmerica, and subsidiaries of First Allmerica which
issue
variable or group annuity policies or variable premium life insurance policies
("mixed funding"). Although neither Allmerica Life nor the Trust currently
foresees any disadvantage, it is conceivable that in the future such mixed
funding
may be disadvantageous for variable or group annuity policyowners or variable
premium life insurance policyowners ("Policyowners"). The Trustees of the Trust
intend to monitor events in order to identify any conflicts that may arise
between
such Policyowners and to determine what action, if any, should be taken in
response thereto. If the Trustees were to conclude that separate funds should
be
established for variable annuity and variable premium life separate accounts,
Allmerica Life would pay the attendant expenses.
The Trust redeems shares of each Fund at its net asset value as next
computed after receipt of the request for redemption. The redemption price may
be
more or less than the shareholder's cost. No fee is charged by the Trust on
redemption. The variable contracts funded through the Separate Accounts are sold
subject to certain fees and charges, which may include sales and redemption
charges as described in the prospectuses for such Separate Accounts.
Redemption payments will be paid within seven days after receipt of the
written request therefor by the Trust, except that the right of redemption may
be
suspended or payments postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
Each Fund's performance may be quoted in advertising. A Fund's
performance may be compared with the performance of other investments or
relevant indices. All performance information is based on historical results
and is
not intended to indicate future performance.
For Funds other than the Money Market Fund, "yield" is calculated by
dividing a Fund's annualized net investment income per share during a recent
30-day period by the net asset value per share on the last day of that period.
For
the Money Market Fund, "yield" represents an annualization of the change in
value of an investment (excluding any capital changes) in the Fund for a
specific
seven-day period; "effective yield" compounds that yield for a year and is, for
that
reason, greater than the Fund's yield.
Total returns are based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming all dividends and capital gain
distributions are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual total return reflects
the
hypothetical, annually-compounded return that would have produced the same
cumulative return if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in the
Fund's
return, they are not the same as actual year-by-year results.
Yields and total returns quoted for the Funds include the effect of
deducting the Funds' expenses, but may not include charges and expenses
attributable to a particular insurance product. Since shares of the Funds can
be
purchased only through a variable annuity or variable life contract, you should
review carefully the prospectus for the Separate Accounts for information on
relevant charges and expenses. Including these charges in the quotations of the
Funds' yields and total returns would have the effect of decreasing
performance.
Performance information for the Funds must always be accompanied by, and be
reviewed with, performance information for the Separate Accounts which invest in
the Funds.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business trust under the
laws of Massachusetts by an Agreement and Declaration of Trust dated
October 11, 1984 (the "Trust Declaration"). A copy of the Trust Declaration is
on
file with the Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial
interest which may be divided into an unlimited number of series of such
shares,
and which are divided presently into twelve series of shares, one series
underlying
each Fund. Five of the series are not available under Allmerica Select and are
not
included in this Prospectus. The Trust's shares are entitled to one vote per
share
(with proportional voting for fractional shares). The rights accompanying Fund
shares are vested legally in the Separate Accounts. As a matter of policy,
however,
holders of variable annuity contracts funded through the Separate Accounts have
the right to instruct the Separate Accounts as to voting Fund shares on all
matters
to be voted on by Fund shareholders. Voting rights of the participants in the
Separate Accounts are set forth more fully in the prospectuses relating to
those
Accounts. See "Organization of the Trust" in the SAI for a definition of a
"majority vote" of shareholders.
The Trust is not required to hold annual meetings of shareholders. The
Trustees or shareholders holding at least 10% of the outstanding shares may call
special meetings of shareholders.
Fund Recordkeeping Agent
FDISG, a wholly-owned subsidiary of First Data Corporation, calculates
net asset value per share and maintains general accounting records for each
Fund.
FDISG is entitled to receive an annual Fund recordkeeping fee based on Fund
assets and certain out-of-pocket expenses.
Custodian
Bankers Trust Company, 130 Liberty Street, New York, New York
10006, is the Custodian of the investment securities and other assets of the
Trust.
INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions which are
fundamental and may not be changed with respect to a Fund without shareholder
approval. For a description of certain other investment restrictions, reference
should be made to the SAI.
1. No Fund will concentrate its investments in particular industries,
including debt obligations of supranational entities and foreign governments,
but a
Fund may invest up to 25% of the value of its total assets in a particular
industry.
The restriction does not apply to investments in obligations issued or
guaranteed
by the United States of America, its agencies or instrumentalities, or to
investments by the Money Market Fund in securities issued or guaranteed by
domestic branches of U.S. banks.
2. As to 75% of the value of its total assets (100% for the Money Market
Fund), no Fund will invest more than 5% of the value of its total assets in the
securities of any one issuer (other than securities issued by or guaranteed as
to
principal or interest by the United States Government or any agency or
instrumentality thereof) or acquire more than 10% of the voting securities of
any
issuer. The remaining 25% of assets (other than for the Money Market Fund) may
be invested in the securities of one or more issuers without regard to such
limitations.
These limitations apply as of the time of purchase. If through market
action the percentage limitations are exceeded, the Fund will not be required
to
reduce the amount of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
Repurchase Agreements (applicable to all Funds) and Reverse Repurchase
Agreements (applicable to the Select Capital Appreciation Fund)
Each Fund may invest in repurchase agreements, under which the Fund
acquires ownership of a security (ordinarily U.S. Government securities) but the
seller agrees, at the time of sale to purchase the security at a mutually
agreed upon
time and price. Should any seller of a repurchase agreement fail to repurchase
the
underlying security, or should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur disposition costs and losses.
Repurchase agreements maturing in more than seventy days are subject to the 15%
(10% for the Money Market Fund) limit on illiquid securities.
When the Select Capital Appreciation Fund invests in a reverse
repurchase agreement, it sells a security to another party such as a banker or
broker-dealer in return for cash and agrees to buy the security back at a
future
date and price. Reverse repurchase agreements may be used to provide cash to
satisfy unusually heavy redemption requests or for other temporary or emergency
purposes without the necessity of selling portfolio securities or to earn
additional
income on portfolio securities, such as treasury bills and notes.
"When-Issued" Securities (applicable to all Funds)
Each Fund may purchase securities on a when-issued or delayed delivery
basis. Delivery and payment normally take place 15 to 45 days after the
commitment to purchase. No income accrues on when-issued securities prior to
delivery. Purchase of when-issued securities involves the risk that yields
available
in the market when delivery occurs may be higher than those available when the
when-issued order is placed resulting in a decline in the market value of the
security. There is also the risk that under some circumstances the purchase of
when-issued securities may act to leverage the Fund.
Lending of Securities (applicable to all Funds)
For the purpose of realizing additional income, the Funds may lend
portfolio securities to broker-dealers or financial institutions amounting to
not
more than 30% of their respective total assets taken at current value. While
any
such loan is outstanding, a Fund will continue to receive amounts equal to the
interest or dividends paid by the issuer on the securities, as well as interest
(less
any rebates to be paid to the borrower) on the investment of the collateral or
a fee
from the borrower. Each Fund will have the right to call each loan and obtain
the
securities. Lending portfolio securities involves certain risks, including
possible
delays in receiving additional collateral or in the recovery of the securities
or
possible loss of rights in the collateral should the borrower fail financially.
Loans
will be made in accordance with guidelines established by the Board of Trustees.
Foreign securities (applicable to each Fund except the Money Market Fund)
Investments in foreign markets involve substantial risks typically not
associated with investing in the U.S. which should be considered carefully
by the
investor. Such risks may include political and economic instability, differing
accounting and financial reporting standards, higher commission rates on
foreign
portfolio transactions, less readily available public information regarding
issuers,
potentially adverse changes in tax and exchange control regulations, and the
potentially for restrictions on the flow of international capital. Foreign
securities
also involve currency risks. Accordingly, the relative strength of the U.S.
dollar
may be an important factor in the performance of the Fund, depending on the
extent of the Fund's foreign investments. Some foreign securities exchanges may
not be as developed or efficient as those in the U.S. and securities traded on
foreign securities exchanges generally are subject to greater price volatility.
There
is also the possibility of adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, and limitations on the
removal
of funds or other assets. Investments in emerging countries involve exposure to
economic structures that are generally less diverse and mature than in the
U.S.,
and to political systems which may be less stable. In addition, securities of
issuers
located in emerging countries may have limited marketability and may be subject
to more abrupt or erratic price fluctuations.
The Funds may buy or sell foreign currencies and foreign currency
forward contracts, options on foreign currencies, and foreign currency futures
contracts and options thereon. Although such instruments may reduce the risk of
loss due to a decline in the value of the currency that is sold, they also
limit any
possible gain which might result should the value of the currency increase.
Such
instruments will be used primarily to protect a Fund from adverse currency
movements; however, they also involve the risk that anticipated currency
movements will not be accurately predicted, thus adversely affecting a Fund's
total
return. See "Options and Futures Transactions."
The Funds' investments may include ADRs. For many foreign securities,
there are U.S. dollar-denominated ADRs which are traded in the United States on
exchanges or over the counter. ADRs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank. An ADR
may be sponsored by the issuer of the underlying foreign security, or it may be
issued in unsponsored form. The holder of a sponsored ADR is likely to receive
more frequent and extensive financial disclosure concerning the foreign issuer
than
the holder of an unsponsored ADR and generally will bear lower transaction
charges. Each Fund may invest in both sponsored and unsponsored ADRs. The
Select International Equity Fund and the Select Capital Appreciation Fund also
may utilize EDRs, which are designed for use in European securities markets,
and
also may invest in GDRs.
Obligations in which the Select Income Fund may invest include debt
obligations of supranational entities. 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. Obligations of supranational entities may be
supported by appropriated but unpaid commitments of their member countries,
and there is no assurance that these commitments will be undertaken or met in
the
future. The Fund may not invest more than 25% of its assets in debt obligations
of
supranational entities.
Restricted Securities (applicable to each Fund except the Money Market Fund)
The Funds also may purchase fixed-income securities that are not
registered under the 1933 Act ("restricted securities"), but can be offered and
sold
to "qualified institutional buyers" under Rule 144A of the 1933 Act. However,
each Fund will not invest more than 15% of its assets in restricted securities
(as
defined in its investment restrictions) unless the Board of Trustees determines,
based upon a continuing review of the trading markets for the specific
restricted
security, that such restricted securities are liquid. The Board of Trustees has
adopted guidelines and delegated to the Manager the daily function of
determining
and monitoring liquidity of restricted securities. The Board, however, will
retain
sufficient oversight and be responsible ultimately for the determinations.
Since it is
not possible to predict with assurance exactly how this market for restricted
securities sold and offered under Rule 144A will develop, the Board will
monitor
carefully a Fund's investments in securities, focusing on such important
factors,
among others, as valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the level of
illiquidity in a
Fund to the extent that qualified institutional buyers become for a time
uninterested in purchasing these restricted securities. As a result, a Fund
might not
be able to sell these securities when its Sub-Adviser wishes to do so, or might
have
to sell them at less than fair value. In addition, market quotations are less
readily
available. Therefore, judgment at times may play a greater role in valuing
these
securities than in the case of unrestricted securities.
Options and Futures Transactions (applicable to each Fund except the Money
Market Fund) and Forward Contracts and Swaps (applicable to the Select Capital
Appreciation Fund)
Through the writing and purchase of put and call options on its securities,
financial indices, and foreign currencies, and the purchase and sale of futures
contracts and related options with respect to securities, financial indices and
(in
the case of the Select Capital Appreciation Fund) foreign currencies in which
it
may invest, each Fund except the Money Market Fund at times may seek to hedge
against fluctuations in net asset value. Each Fund's ability to engage in
options
and futures strategies will depend on the availability of liquid markets in
such
instruments. It is impossible to predict the amount of trading interest that
may
exist in various types of options or futures contracts. Therefore, there is no
assurance that the Funds will be able to utilize these instruments effectively
for the
purposes stated above.
Additionally, the Select Capital Appreciation Fund may invest in forward
contracts and swaps which may expose the Fund to additional investment risks
and transaction costs.
Risks inherent in the use of futures, options, forward contracts, and swaps
("derivative instruments") include (1) the risk that interest rates, securities
prices,
and currency markets will not move in the directions anticipated; (2) imperfect
correlation between the price of derivative instruments and movements in the
prices of the securities, interest rates, or currencies being hedged; (3) the
fact that
skills needed to use these strategies are different from those needed to select
portfolio securities; (4) the possible absence of a liquid secondary market for
any
particular instrument at any time; and (5) the possible need to defer closing
out
certain hedged positions to avoid adverse tax consequences.
The Fund will purchase futures and options only on exchanges or boards
of trade when there appears to be an active secondary market, but there can be
no
assurance that a liquid secondary market will exist for any future or option at
any
particular time.
In connection with transactions in futures and related options, the Funds
will be required to deposit as "initial margin" an amount of cash and/or
securities.
Thereafter, subsequent payments are made to and from the broker to reflect
changes in the value of the future contract.
A more detailed explanation of futures, options, and other derivative
instruments, and the risks associated with them, is included in the SAI.
Investment in Money Market Securities (applicable to all Funds)
Any Fund may hold at least a portion of its assets in cash equivalents or
money market instruments. There is always the risk that the issuer of a money
market instrument may be unable to make payment upon maturity.
The Money Market Fund may hold uninvested cash reserves pending
investment during temporary, defensive periods or if, in the opinion of the
Sub-Adviser, suitable securities are not available for investment. Securities
in
which the Money Market Fund may invest may not earn as high a level of current
income as long term, lower quality securities which, however, generally have
less
liquidity, greater market risk, and more fluctuation in market value.
Pursuant to an exemptive order granted by the Securities and Exchange
Commission, the Select Capital Appreciation Fund and other funds advised by
Janus Capital may transfer daily uninvested cash balances into one or more
joint
trading accounts. Assets in the joint trading accounts are invested in money
market
instruments and the proceeds are allocated to the participating funds on a pro
rata
basis.
High Yield Securities (applicable to the Select Capital Appreciation Fund,
Select
Growth Fund, and Select Growth and Income Fund)
Corporate debt securities purchased by the Select Capital Appreciation,
the Select Growth Fund, and the Select Growth and Income Fund will be rated at
the time of purchase B or better by Moody's or S&P, or equivalently rated by
another NRSRO, or unrated but believed by the Sub-Adviser to be of comparable
quality under guidelines established for the Funds. The Select Growth Fund and
the Select Growth and Income Fund may not invest more than 15% of their assets
and the Select Capital Appreciation Fund may not invest more than 35% of its
assets at the time of investment in securities rated below Baa by Moody's or
BBB
by S&P, or equivalently rated by another NRSRO, or unrated but believed by the
Sub-Adviser to be of comparable quality. Securities rated B by Moody's or S&P
(or equivalently by another NRSRO) are below investment grade and are
considered, on balance, to be predominantly speculative with respect to capacity
to
pay interest and repay principal and generally will involve more credit risk
than
securities in the higher rating categories.
Periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices of lower-rated securities, commonly known
as
"high yield" securities or "junk bonds," and the asset value of the Select
Capital
Appreciation Fund, the Select Growth Fund, and Select Growth and Income Fund.
Many issuers of high yield corporate debt securities are leveraged
substantially,
which may impair their ability to meet debt service obligations. Also,
during an
economic downturn or substantial period of rising interest rates, highly
leveraged
issuers may experience financial stress.
The lack of a liquid secondary market in certain lower-rated securities
may have an adverse impact on their market price and the ability of a Fund to
dispose of particular issues when necessary to meet its liquidity needs or in
response to a specific economic event such as a deterioration in the
credit-worthiness of the issuer. In addition, a less liquid market may interfere
with
the ability of a Fund to value accurately high yield securities and,
consequently,
value a Fund's assets. Furthermore, adverse publicity and investor perceptions
may decrease the value and liquidity of high yield securities. It is reasonable
to
expect any recession to disrupt severely the market for high yield fixed-income
securities, have an adverse impact on the value of such securities, and
adversely
affect the ability of the issuers of such securities to repay principal and pay
interest thereon. The market prices of lower-rated securities are generally
less
sensitive to interest rate changes than higher-rated investments, but more
sensitive
to adverse economic or political changes, or individual developments specific
to
the issuer. Periods of economic or political uncertainty and change can be
expected to result in volatility of price of these securities.
The Funds also may invest in unrated debt securities of foreign and
domestic issuers. Unrated debt, while not necessarily of lower quality than
rated
securities, may not have as broad a market. Sovereign debt of foreign
governments
generally is rated by country. Because these ratings do not take into account
individual factors relevant to each issue and may not be updated regularly, the
Sub-Adviser may treat such securities as unrated debt. Unrated debt securities
and
securities with different ratings from more than one agency will be included in
the
15% and 35% limits of the Funds as stated above, unless such Fund's Sub-Adviser
deems such securities to be the equivalent of investment grade securities. See
the
Appendix for a description of the bond ratings.
Asset-Backed Securities and Mortgage-Backed Securities (applicable to the
Select
Income Fund)
The Fund may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by particular assets, frequently a pool of assets similar to one
another.
Assets generating such payments include instruments such as motor vehicle
installment purchase obligations, credit card receivables, and home equity
loans.
Payment of principal and interest may be guaranteed for certain amounts and time
periods by a letter of credit issued by a financial institution unaffiliated
with the
issuer of the securities. The estimated life of an asset-backed security varies
with
the prepayment experience of the underlying debt instruments. The rate of such
prepayments, and hence the life of the asset-backed security, will be primarily
a
function of current market rates, although other economic and demographic
factors will be involved. Under certain interest rate and prepayment rate
scenarios,
the Fund may fail to recoup fully their investment in asset-backed securities.
The
Fund will not invest more than 10% of its total assets in asset-backed
securities.
The Fund also may invest in mortgage-backed securities which are debt
obligations secured by real estate loans and pools of loans on single family
homes,
multi-family homes, mobile homes, and in some cases, commercial properties. The
Fund may acquire securities representing an interest in a pool of mortgage loans
that are issued or guaranteed by a U.S. government agency such as the
Government National Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae"), and the Federal Home Loan Mortgage
Corporation ("Freddie Mac").
Mortgage-backed securities are in most cases "pass-through" instruments
through which the holder receives a share of all interest and principal payments
from the mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to predict
accurately the average life or realized yields of a particular issue of
pass-through
certificates. During periods of declining interest rates, prepayment of
mortgages
underlying mortgage-backed securities can be expected to accelerate. When the
mortgage obligations are prepaid, the Fund reinvests the prepaid amounts in
securities, the yield of which reflects interest rates prevailing at the time.
Moreover, prepayment of mortgages that underlie securities purchased at a
premium could result in losses.
The Fund also may invest in multiple class securities issued by U.S.
government agencies and instrumentalities such as Fannie Mae, Freddie Mac, and
Ginnie Mae, including guaranteed collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates, when consistent with the Fund's investment
objective,
policies, and limitations. A CMO is a type of bond secured by an underlying
pool
of mortgages or mortgage pass-through certificates that are structured to
direct
payment on underlying collateral to different series or classes of obligations.
A
REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code and invests in certain mortgages principally secured by interests
in
real property and other permitted investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC
Certificates") issued by Fannie Mae, Freddie Mac, and Ginnie Mae are types of
multiple pass-through securities. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests or "residual" interests. The Fund
currently does not intend to purchase residual interests in REMICs. The REMIC
Certificates represent beneficial ownership interests in a REMIC trust,
generally
consisting of mortgage loans or Fannie Mae, Freddie Mac, or Ginnie Mae
guaranteed mortgage pass-through certificates. The obligations of Fannie Mae,
Freddie Mac, or Ginnie Mae under their respective guaranty of the REMIC
Certificates are obligations solely of Fannie Mae, Freddie Mac, or Ginnie Mae,
respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will
be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are available otherwise.
For Freddie Mac REMIC Certificates, Freddie Mac guarantees the timely
payment of interest and also guarantees the payment of principal as payments
are
required to be made on the underlying mortgage participation certificates
("PCs").
PCs represent undivided interests in specified residential mortgages or
participations therein purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or
deduction. Freddie Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and timely payment of
interest and principal on each class of securities (in accordance with the
terms of
those classes). This Ginnie Mae guarantee is backed by the full faith and
credit of
the United States of America.
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae
are treated as U.S. government securities for purposes of investment policies.
There can be no assurance that the United States Government will continue to
provide financial support to Fannie Mae, Freddie Mac, or Ginnie Mae in the
future.
Stripped Mortgage-Backed Securities (applicable to the Select Income Fund)
The Fund may invest in stripped mortgage-backed securities ("SMBS").
SMBS are derivative multiclass mortgage securities. SMBS may be 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,
mortgage
banks, commercial banks, investment banks, and special purpose entities of the
foregoing.
SMBS usually are structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets.
One type of SMBS will have one class receiving some of the interest and most of
the principal from the mortgage assets, while the other class will receive most
of
the interest and the remainder of the principal. In some cases, one class will
receive all of the interest (the interest-only or "IO" class) while the other
class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity
on an IO class is extremely sensitive to the rate of principal payments
(including
prepayment on the related underlying mortgage assets), and a rapid rate of
principal payments may have a material, adverse effect on a portfolio yield to
maturity from these securities. If the underlying mortgage assets experience
greater than anticipated prepayments of principal, the Fund may fail to fully
recoup fully their initial investment in these securities even if the security
is in one
of the highest rating categories. Certain SMBS may be deemed "illiquid" and
subject to the Fund's limitations on investment in illiquid securities. The
market
value of the PO class generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from mortgage assets are generally higher than prevailing market
yields in
other mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
recouped
fully. The Sub-Adviser will seek to manage these risks (and potential benefits)
by
investing in a variety of such securities and by using certain hedging
techniques.
Hedging Techniques and Investment Practices (applicable to the Select Capital
Appreciation Fund and Select International Equity Fund)
The Select International Equity Fund and the Select Capital Appreciation
Fund may employ certain strategies in order to manage exchange rate risks. For
example, the Funds may hedge some or all of their investments denominated in a
foreign currency against a decline in the value of that currency. The Funds may
enter into contracts to sell that foreign currency for U.S. dollars (not
exceeding the
value of a Fund's assets denominated in or exposed to that currency) or
by participating in options on futures contracts with respect to such currency
("position hedge"). The Funds also could hedge that position by selling a
second
currency, that is expected to perform similarly to the currency in which
portfolio
investments are denominated for U.S. dollars ("proxy hedge"). The Funds also
may enter into a forward contract to sell the currency in which the security is
denominated for a second currency that is expected to perform better relative
to
the U.S. dollar if their Sub-Adviser believes there is a reasonable degree of
correlation between movements in the two currencies ("cross-hedge"). As an
operational policy, the Funds will not commit more than 10% of their assets to
the
consummation of cross-hedge contracts and either will cover currency hedging
transactions with liquid portfolio securities denominated in or whose value
is
tied to the applicable currency or segregate liquid assets in the amount of
such commitments. In addition, when the Funds anticipate repurchasing securities
denominated in a particular currency, the Funds may enter into a forward
contract
to purchase such currency in exchange for the dollar or another currency
("anticipatory hedge").
These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the
hedged security. In addition, such strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may
have an adverse impact on a Fund's performance if their Sub-Adviser's
projection
of future exchange rates is inaccurate.
APPENDIX
Descriptions of Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Ratings Service, a division of McGraw-Hill Companies, Inc.
("S&P") commercial paper and bond ratings:
Commercial Paper Ratings
Moody's employs three designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers. The two highest
designations are as follows:
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity normally will be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earning coverage of fixed financial
charges and high internal cash generation.
- Well-established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This normally will
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be subject more to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
S&P commercial paper ratings are graded into several categories, ranging
from "A-1" for the highest quality obligations to "D" for the lowest. The two
highest rating categories are described as follows:
A-1 - This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues
designated A-1.
Municipal Obligations
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk.
Factors affecting the liquidity of the borrower are uppermost in importance in
the
short-term borrowing, while various factors of the first importance in long-term
borrowing risk are of lesser importance in the long run. Symbols used will be as
follows:
MIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated
broad-based access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
A short-term rating also may be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG to reflect such
characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that
the source of payment may be limited to the external liquidity with no or
limited
legal recourse to the issuer in the event that demand is not met. VMIG-1 and
VMIG-2 ratings carry the same definitions as MIG-1 and MIG-2, respectively.
Description of Moody's Bond Ratings
Aaa - Bonds that 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 that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds that 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 that suggest a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered to be 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 that are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any long period of time may be small.
Those bonds within the Aa, A, Baa, Ba and B categories that Moody's
believes possess the strongest credit attributes within those categories are
designated by the symbols Aa1, A1, Baa1, Ba1, and B1.
Description of S&P's Debt Ratings
AAA - Debt rated AAA has the highest rating assigned by S&P. Capacity
to pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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
debt in
this category than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC, C is regarded as
having predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
C the
highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to
adverse conditions.
Plus (+) or (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
ALLMERICA INVESTMENT TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a
professionally managed, open-end investment company designed
to provide the underlying investment vehicles for insurance-
related accounts. The ten separate portfolios of the
Trust (collectively, the "Funds" and individually, the
"Fund") currently offered by this Prospectus are as follows:
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Select International Equity Fund
Select Growth Fund
Growth Fund
Equity Index Fund
Select Income Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
Currently, shares of each Fund may be purchased only
by the separate accounts ("Separate Accounts") established
by First Allmerica Financial Life Insurance Company ("First
Allmerica") or Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Life"), an indirect, wholly-
owned subsidiary of First Allmerica, for the purpose of
funding variable annuity or variable life insurance
policies. A particular Fund may not be available under the
variable annuity or variable life insurance policy which you
have chosen. The Prospectus of the specific insurance
product you have chosen will indicate which Funds are
available, and should be read in conjunction with this
Prospectus. Inclusion in this Prospectus of a Fund which is
not available under your policy is not to be considered a
solicitation.
This Prospectus sets forth concisely the information
about the Trust that a prospective investor ought to know
before investing. Certain additional information contained
in the Statement of Additional Information dated April
29, 1997 (the "SAI"), which has been filed with the
Securities and Exchange Commission, is incorporated herein
by reference and is available upon request without charge
from the Trust, 440 Lincoln Street, Worcester, MA 01653,
(508) 855-1000.
Investment in the Money Market Fund is neither insured
nor guaranteed by the U.S. Government. There can be no
assurance that the Fund will be able to maintain a stable
net asset value of $1.00 per share.
THIS PROSPECTUS SHOULD BE READ AND RETAINED 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.
DATED APRIL 29, 1997
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS
3
HOW ARE THE FUNDS MANAGED?
5
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
5
Select Aggressive Growth Fund
6
Select Capital Appreciation Fund
6
Select International Equity Fund
8
Select Growth Fund
8
Growth Fund
9
Equity Index Fund
1
0
Select Income Fund
1
1
Investment Grade Income Fund
1
2
Government Bond Fund
1
3
Money Market Fund
1
4
MANAGEMENT FEES AND EXPENSES
1
4
FUND MANAGER INFORMATION
1
7
HOW ARE SHARES VALUED?
1
9
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
1
9
SALE AND REDEMPTION OF SHARES
1
9
HOW IS PERFORMANCE DETERMINED?
2
0
ORGANIZATION AND CAPITALIZATION OF THE TRUST
2
0
INVESTMENT RESTRICTIONS
2
1
CERTAIN INVESTMENT STRATEGIES AND POLICIES
2
1
APPENDIX
2
6
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited
by Price Waterhouse LLP, the independent accountants of the
Trust. This information should be read in conjunction with
the financial statements and notes thereto which appear in
the Policyowner's annual report for the year ended
December 31, 1996 ("Annual Report"), and which are
incorporated by reference in the Trust's SAI. Further
information about the performance of the Funds is contained
in the Annual Report which may be obtained without charge
from the Trust, 440 Lincoln Street, Worcester, MA 01653,
(508) 855-1000.
[FINANCIAL HIGHLIGHTS TO BE FILED BY AMENDMENT]
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the
affairs of the Trust vests in the Board of Trustees of the
Trust which meets on a quarterly basis. Allmerica Investment
Management Company, Inc. (the "Manager") is responsible for
the management of the Trust's day-to-day business affairs
and has general responsibility for the management of the
investments of the Funds. The Manager, at its expense, has
contracted with certain Sub-Advisers to manage the
investments of the Funds, subject to the requirements of the
Investment Company Act of 1940, as amended (the "1940 Act").
The Manager is an indirect, wholly-owned subsidiary
of Allmerica Financial Company ("AFC"), a Delaware holding
company for a group of affiliated companies, the largest of
which is First Allmerica, a life insurance company organized
in Massachusetts in 1844. The Manager, organized August 19,
1985, also serves as manager of the Allmerica Funds, an
open-end investment company. The Manager and AFC are located
at 440 Lincoln Street, Worcester, Massachusetts 01653.
The Manager has entered into Sub-Adviser Agreements
for the management of the investments of each of the Funds.
Each Sub-Adviser, who has been selected on the basis of
various factors including management experience, investment
techniques, and staffing, is authorized to engage in
portfolio transactions on behalf of the applicable Fund
subject to such general or specific instructions as may be
given by the Trustees and/or the Manager. The terms of a
Sub-Adviser Agreement cannot be changed materially without
the approval of a majority interest of the Shareholders of
the affected Fund. The Sub-Advisers have been selected by
the Manager and the Trustees in consultation with
RogersCasey & Associates, Inc. ("RogersCasey"), a leading
pension consulting firm. The cost of such consultation is
borne by the Manager.
RogersCasey provides consulting services to pension
plans representing over $300 billion in total assets
and, in its consulting capacity, monitors the investment
performance of over 1,000 investment advisers. From time to
time, specific clients of RogersCasey and the Sub-Advisers
will be named in sales materials. At times, RogersCasey
assists in the development of asset allocation strategies
which may be used by shareholders in the diversification of
their portfolios across different asset classes.
Ongoing performance of the independent Sub-Adviser is
reviewed and evaluated by a committee whose members may
include senior officers of First Allmerica, its affiliates
or the Manager and an independent consultant. Combined, the
committee has over 150 years of investment experience.
Historical performance data for the Funds is set forth under
"Financial Highlights." The Manager is responsible for the
payment of all fees to the Sub-Advisers. The Sub-Advisers
for each of the Funds are as follows:
Select
Aggressive
Growth Fund
Nicholas-Applegate Capital
Management
Select
Capital
Appreciation
Fund
Janus Capital Corporation
Select
Internationa
l Equity
Fund
Bank of Ireland Asset
Management (U.S.) Limited
Select
Growth Fund
Putnam Investment
Management, Inc.*
Growth Fund
Miller Anderson & Sherrerd,
LLP
Equity Index
Fund
Allmerica Asset
Management, Inc.
Select
Income Fund
Standish, Ayer & Wood, Inc.
Investment
Grade Income
Fund
Allmerica Asset
Management, Inc.
Government
Bond Fund
Allmerica Asset
Management, Inc.
Money Market
Fund
Allmerica Asset
Management, Inc.
For a sample listing of the independent Sub-Adviser's
clients, see "Investment Management and Other Services" in
the SAI. For more information on the Sub-Advisers, see "What
Are The Investment Objectives and Policies?" and "Fund
Manager Information."
The Manager also has entered into an Administrative
Services Agreement with First Data Investor Services Group,
Inc. ("FDISG"), a wholly-owned subsidiary of First Data
Corporation, whereby FDISG performs administrative services
for each of the Funds and is entitled to receive an
administrative fee and certain out-of-pocket expenses. The
Manager is responsible for the payment of the administrative
fee to FDISG.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and
policies designed to meet different investment and financial
needs, as described below. There is no assurance that a Fund
will achieve its investment objective.
A Fund's investment objective is fundamental and may
not be changed without shareholder approval. Unless
otherwise indicated, a Fund's investment policies are not
fundamental and may be changed without shareholder approval.
Select Aggressive Growth Fund
Investment Objective: The Select Aggressive Growth Fund
seeks above-average capital appreciation by investing
primarily in common stocks of companies which are believed
to have significant potential for capital appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management
("NACM") serves as Sub-Adviser to the Select Aggressive
Growth Fund. NACM is an investment manager supervising
accounts with assets totaling approximately $32 billion
in total assets as of December 31, 1996 . NACM's clients
are primarily major corporate employee benefit funds, public
employee retirement plans, foundations and endowment funds,
investment companies and individuals. Founded in 1984, NACM
is located at 600 West Broadway, Suite 2900, San Diego,
California 92101.
Investment Policies: Under normal circumstances, at least
65% of the assets of the Select Aggressive Growth Fund will
be invested in equity securities consisting of common
stocks, securities convertible into common stocks (including
bonds, notes and preferred stocks), and warrants. The Fund's
assets also may be invested in other debt securities and
preferred stocks when such securities are believed
appropriate in light of the Fund's investment objective and
market conditions.
The selection of securities is made solely on the
basis of their potential for capital appreciation. Dividend
and interest income from portfolio securities, if any, is
incidental to the Fund's investment objective. While
investments may be made in well-known and established
companies, a significant portion of the Fund's investments
is expected to be in securities of newer and relatively
unseasoned companies or companies which represent new or
changing industries.
At any given point, a substantial portion of the
Fund's equity investments may be in securities which are not
listed for trading on national securities exchanges and,
although publicly traded, may be less liquid than securities
issued by larger, more seasoned companies which trade on
national securities exchanges. Up to 15% of the Fund's
assets may be invested in assets which are illiquid
because they are subject to restriction on resale or for
which market quotations are not readily available.
Securities of newer companies may be closely held with
only a small portion of their outstanding securities owned
by the general public. Newer companies may have relatively
small revenue, lack depth of management, and have a small
share of the market for their products or services; thus,
they may be more vulnerable to changes in economic
conditions, market fluctuations, and other factors affecting
the profitability or marketability of companies. Due to
these and other factors, the price movement of the
securities held by the Fund can be expected to be more
volatile than is the case for the market as a whole, and the
net asset value of a share of the Fund may fluctuate
significantly. Consequently, the Fund should not be
considered suitable for investors who are unable or
unwilling to assume the risk of loss inherent in an
aggressive growth portfolio, nor should investment in the
Fund be considered a balanced or complete investment
program.
When NACM determines that market conditions warrant a
temporary defensive position, the Fund may invest without
limitation in high-grade, fixed-income securities, U.S.
Government securities, or hold assets in cash or cash
equivalents. For hedging purposes, the Fund may engage in
the options and futures strategies described under "Certain
Investment Strategies and Policies."
The Fund may also invest up to 25% of its assets in
foreign securities (not including its investments in
American Depositary Receipts ("ADRs").
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 113% . The
portfolio turnover rate was the result of the Sub-Adviser's
investment approach which typically results in above-average
portfolio turnover as securities are sold when the
Sub-Adviser believes the reasons for their initial purchase
are no longer valid or when it believes that the sale of a
security owned by the Fund and the purchase of another
security can enhance return. A security may be sold to avoid
a prospective decline in market value or purchased in
anticipation of a market rise. Portfolio turnover rates may
vary greatly from year to year. A high portfolio turnover
rate will likely result in greater brokerage costs to the
Fund.
Select Capital Appreciation Fund
Investment Objective: The Select Capital Appreciation Fund
seeks long-term growth of capital in a manner consistent
with the preservation of capital. Realization of income is
not a significant investment consideration and any income
realized on the Fund's investments will be incidental to its
primary objective.
Sub-Adviser: Janus Capital Corporation ("JCC") serves as
Sub-Adviser to the Select Capital Appreciation Fund. JCC has
served as investment adviser to the Janus Fund since 1969
and currently serves as investment adviser to all of the
Janus retail funds, as well as adviser or sub-adviser to
other mutual funds and individual, corporate, charitable,
and retirement accounts. Kansas City Southern
Industries, Inc., a publicly-traded holding company whose
primary subsidiaries are engaged in transportation and
financial services, owns approximately 83% of the
outstanding stock of JCC. As of December 31, 1996, JCC had
approximately $47 billion in total assets under management.
JCC is located at 100 Fillmore Street, Denver, Colorado
80206-4923.
Investment Policies: The Fund invests in common stocks
when the Sub-Adviser believes that the relevant market
environment favors profitable investing in those securities.
The Fund pursues its objective normally by investing at
least 50% of its equity assets in securities issued by
medium-sized companies. Medium-sized companies are those
whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the "MidCap Index").
Companies whose capitalization falls outside this range
after the Fund's initial purchase continue to be considered
medium-sized companies for the purpose of this policy. As of
December 31, 1996, the MidCap Index included companies with
capitalizations between approximately $500 million to
$10 billion. The range of the MidCap Index is expected to
change on a regular basis. Subject to the above policy, the
Fund may also invest in smaller or large issuers. Common
stock investments are selected in industries and companies
that the Sub-Adviser believes are experiencing favorable
demand for their products and services, and which operate in
a favorable competitive environment and regulatory climate.
The Sub-Adviser's analysis and selection process focuses on
stocks with earnings growth potential that may not be
recognized by the market. Such securities are selected
solely for their capital growth potential; investment income
is not a consideration. Medium-sized companies may suffer
more significant losses as well as realize more substantial
growth than larger issues; thus, investments in such
companies tend to be more volatile and somewhat speculative.
The selection criteria for domestic issuers apply
equally to stocks of foreign issuers. In addition, factors
such as expected levels of inflation, government policies
influencing business conditions, the outlook for currency
relationships, and prospects for relative economic growth
among countries, regions or geographic areas may warrant
greater consideration in selecting foreign stocks. The Fund
may invest without limitation in foreign securities. The
Fund may invest directly in foreign securities denominated
in foreign currency and not publicly traded in the United
States. The Fund also may purchase foreign securities
through American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") and other types of receipts or shares evidencing
ownership of the underlying foreign securities. In addition,
the Fund may invest indirectly in foreign securities through
foreign investment funds or trusts (including passive
foreign investment companies). Certain state insurance
regulations may impose additional restrictions on the Fund's
holdings of foreign securities. Investments in foreign
securities carry additional risks not present in domestic
securities. See "Certain Investment Strategies and
Policies - Foreign Securities."
Although the Fund normally invests primarily in common
stocks, the Fund's cash position may increase when the
Sub-Adviser is unable to locate investment opportunities
with desirable risk/reward characteristics. The Fund also
may invest in preferred stocks, warrants, government
securities, corporate bonds and debentures, high-grade
commercial paper, certificates of deposit, other debt
securities or repurchase agreements or reverse repurchase
agreements when the Sub-Adviser perceives an opportunity for
capital growth from such securities or so that the Fund may
receive a return on its idle cash. The Fund also may invest
up to 35% of its assets in such lower-rated securities
commonly known as "junk bonds." Fixed-income securities
rated in the fourth highest grade by Moody's Investors
Service, Inc. ("Moody's") or Standard & Poor's Ratings
Service, a division of McGraw-Hill Companies, Inc. ("S&P")
(Baa and BBB, respectively) are investment grade but are
considered to have some speculative characteristics.
Lower-rated securities or "junk bonds" (rated Ba/BB or
lower) involve the risks discussed under "Certain Investment
Strategies and Policies." When the Fund invests in such
securities, investment income will increase and may
constitute a large portion of the return realized by the
Fund and the Fund probably will not participate in market
advances or declines to the extent that it would if it
remained fully invested in common stocks. Up to 15% of the
Fund's assets may be invested in restricted or illiquid
securities.
The Fund may invest in "special situations" from time
to time. A special situation arises when, in the opinion of
the Sub-Adviser, the securities of a particular issuer will
be recognized and appreciate in value due to a specific
development with respect to that issuer. Developments
creating a special situation might include, among others, a
new product or process, a technological breakthrough, a
management change or other extraordinary corporate event, or
differences in market supply of and demand for the security.
Investment in special situations may carry an additional
risk of loss in the event that the anticipated development
does not occur or does not attract the expected attention.
For hedging purposes, the Fund may engage in options
and futures strategies and may utilize forward contracts,
interest rate swaps, and swap-related products. See "Certain
Investment Strategies and Policies."
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 98%. The portfolio
turnover rate for the Fund may vary from year to year.
Select International Equity Fund
Investment Objective: The Select International Equity Fund
seeks maximum long-term total return (capital appreciation
and income) primarily by investing in common stocks of
established non-U.S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.)
Limited ("BIAM") serves as Sub-Adviser for the Select
International Equity Fund. BIAM is an indirect, wholly-owned
subsidiary of Bank of Ireland. Its main offices are at
26 Fitzwilliam Place, Dublin 2, Ireland. Its U.S. offices
are at Two Greenwich Plaza, Greenwich, CT 06830. Bank of
Ireland provides investment management services through a
network of sister companies, including BIAM which represents
North American clients. As of December 31, 1996, Bank of
Ireland managed approximately $21 billion in global
securities for Irish, United Kingdom, Australian, South
African, Canadian, and U.S. clients.
Investment Policies: To achieve its objective, the Select
International Equity Fund will invest primarily in common
stocks of established non-U.S. companies. Under normal
market conditions, at least 65% of the Fund's total assets
will be invested in the securities of companies domiciled in
at least five foreign countries, not including the United
States. The Fund may also acquire fixed-income debt
securities. It will do so, at the discretion of BIAM,
primarily for defensive purposes. The Fund may invest up
to 15% of its assets on securities which are illiquid
because they are subject to restrictions on resale or for
which market quotations are not readily available.
The Fund's investments may include ADRs which may be
sponsored or unsponsored by the underlying issuer. The Fund
may also utilize EDRs, which are similar to ADRs, in bearer
form, designed for use in the European securities market and
GDRs. Investments in foreign securities carry additional
risks not present in domestic securities. See "Certain
Investment Strategies and Policies - Foreign Securities."
The For hedging purposes, the Fund may engage in the options
and futures strategies described under "Certain Investment
Strategies and Policies." Certain state insurance
regulations may impose additional restrictions on the Fund's
holdings of foreign securities.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 18% . The
portfolio turnover rate for the Fund may vary greatly from
year to year.
Select Growth Fund
Investment Objective: The Select Growth Fund seeks to
achieve long-term growth of capital by investing in a
diversified portfolio consisting primarily of common stocks
selected on the basis of their long-term growth potential.
Sub-Adviser: Putnam Investment Management, Inc.
("Putnam"), One Post Office Square, Boston, Massachusetts
02109, serves as Sub-Adviser to the Select Growth Fund.
Putnam has been an investment manager since 1937. As of
December 31, 1996, Putnam had assets under management of
approximately $173 billion. Putnam is a wholly-owned
subsidiary of Putnam Investments, Inc., a holding company
which is in turn wholly owned by Marsh & McLennan Companies,
Inc., a publicly-owned holding company whose principal
businesses are international insurance and reinsurance
brokerage, employee benefit consulting, and investment
management.
Investment Policies: The Select Growth Fund seeks to
attain its objective by investing in securities of companies
that appear to have favorable long-term growth
characteristics. Potential for long-term growth is the
determinative factor in the selection of all portfolio
securities. Although the Fund may invest in dividend-paying
stocks, the generation of current income is not an objective
of the Fund. Any income that is received is incidental to
the Fund's objective of long-term growth of capital.
When choosing securities for the portfolio, the
Sub-Adviser for the Select Growth Fund focuses on companies
that display strong financial characteristics and earnings
growth potential.
At least 65% of the Fund's assets under normal
conditions will consist of growth-oriented common stocks.
The Fund may invest in common stocks of large well-known
companies as well as smaller growth companies, which
generally include companies with a market capitalization of
$500 million or less ("smaller growth companies"). The
stocks of smaller growth companies may involve a higher
degree of risk than other types of securities and the price
movement of such securities can be expected to be more
volatile than is the case of the market on the whole. The
Fund may hold stocks traded on one or more of the national
exchanges as well as in the over-the-counter markets.
Because opportunities for capital growth may exist not only
in new and expanding areas of the economy but also in mature
and cyclical industries, the Fund's portfolio investments
are not limited to any particular type of company or
industry. The Fund may also purchase convertible bonds and
preferred stocks, warrants, and debt securities if the
Fund's Sub-Adviser believes they would help achieve the
Fund's objective of long-term growth.
The Fund may invest up to 35% of its assets in both
higher-rated and lower-rated fixed-income securities in
seeking its objective of long-term growth of capital. The
dollar average weighted maturity of the Fund's fixed-income
securities will vary depending on, among other things,
current market conditions. The Fund may invest up to 15% of
its assets in lower-rated securities, commonly known as
"junk bonds," which involve risks discussed under "Certain
Investment Strategies and Policies." For more information
concerning the rating categories of corporate debt
securities, see the Appendix to the Prospectus.
When the Sub-Adviser determines that market conditions
warrant a temporary, defensive position, the Fund may invest
without limitation in high-grade, fixed-income securities;
U.S. Government securities; or hold assets in cash or cash
equivalents. To the extent the Fund is so invested it is not
achieving its objective to the same degree as under normal
conditions. For hedging purposes, the Fund may engage in
the options and futures strategies described under "Certain
Investment Strategies and Policies."
The Select Growth Fund's objective of seeking
long-term growth of capital means that its assets generally
will be subject to greater risk than may be involved in
investing in securities that are not selected for growth
potential.
The Fund may invest up to 15% of its assets in
securities which are illiquid because they are subject to
restriction on resale or for which market quotations are not
readily available. The Fund also may invest up to 25% of
its assets in foreign securities.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 159%. The Fund
experienced such a rate of turnover due to a new sub-adviser
assuming responsibility for the Fund on July 1, 1996 and
subsequently repositioning the portfolio. The portfolio
turnover rate for the Fund may vary greatly from year to
year.
Growth Fund
Investment Objective: The Growth Fund seeks to achieve
long-term growth of capital through investments primarily in
common stocks and securities convertible into common stocks
that are believed to represent significant underlying value
in relation to current market prices. Realization of current
income, if any, is incidental to this objective.
Sub-Adviser: Miller Anderson & Sherrerd, LLP ("MAS")
serves as Sub-Adviser for the Growth Fund. MAS, which is
wholly owned by Morgan Stanley Asset Management Holdings,
Inc., is located at One Tower Bridge, West Conshohocken,
Pennsylvania 19428. MAS provides investment counseling
services to employee benefit plans, endowment funds,
foundations, and other institutional investors and had over
$41 billion in assets under management as of
December 31, 1996. MAS is the adviser of the MAS Funds, a
registered investment company offering investment
alternatives to institutional clients with a minimum initial
investment of $1 million. MAS also manages certain assets
for First Allmerica and its affiliates.
Investment Policies: The Growth Fund is not limited to
investments in any particular type of company and may invest
in any company which, in the opinion of management, is
likely to further its investment objective. The Growth Fund
will pursue its investment objective by maintaining a
flexible position regarding the type of companies, as well
as the types of securities, in which it will invest.
Investments may include, but are not limited to, developing
or well-established companies, whether small or large. It is
anticipated that there will be a mix of assets in the Growth
Fund. For example, portions of the Growth Fund may be
invested in equity securities of good quality or in
well-established companies considered to represent good
value, based on factors including historical investment
standards (such as price/book value ratios and
price/earnings ratios) or in smaller emerging growth
companies which are in the development stage and are
expected to achieve above-average earnings growth because of
special factors (such as changes in the economy, the
relative attractiveness of the various securities markets,
or changes in consumer demand).
The Growth Fund proposes to keep its assets fully
invested, but may maintain reasonable amounts in cash or in
high-grade, short-term debt securities to meet current
expenses and anticipated redemptions, and during temporary
periods pending investment in accordance with its policies.
The term "high-grade, short-term debt securities" means
Items (a), (b), and (c) of money market instruments under
the Investment Grade Income Fund's Investment Policies.
The Fund also may invest up to 25% of its assets in
foreign securities.
The Growth Fund normally will invest substantially all
of its assets in equity-type securities, including common
stocks, warrants (which are options to purchase common stock
at specified prices during a specified time period with the
investment risk that the market value of the underlying
common stock may not be high enough in relation to the
warrant exercise price to justify purchase pursuant to the
terms of the warrant), preferred stocks and debt securities
convertible into or carrying rights to purchase common stock
or to participate in earnings, and real estate securities to
the extent permitted by paragraph four under "Investment
Restrictions" in the SAI. In periods considered by
management to warrant a more defensive position, the Growth
Fund may place a larger proportion of its portfolio in
high-grade preferred stocks, bonds, or other fixed income
securities, including U.S. Government securities, whether or
not convertible into stock or with rights attached, or
retain cash. The Fund may engage in the options and futures
strategies described under "Certain Investment Strategies
and Policies."
The Growth Fund may invest in both listed and unlisted
securities. The Growth Fund also may invest in foreign as
well as domestic securities. The Growth Fund will not
concentrate its foreign investments in any particular
foreign country, or limit its investments to issuers listed
on particular exchanges or traded in particular money market
centers. Investments in foreign securities carry additional
risks not present in domestic securities. See "Certain
Investment Strategies and Policies." The Sub-Adviser will
consider these and other factors before investing and will
not cause the Growth Fund to invest in foreign securities
unless, in its opinion, such investments will meet the
standards and objectives of the Growth Fund.
The investment objective and policies in the first,
third, and fourth paragraphs of this section on the Growth
Fund are fundamental and may not be changed without
shareholder approval.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 72%. The portfolio
turnover rate for the Fund may vary greatly from year to
year.
Equity Index Fund
Investment Objective: The Equity Index Fund seeks to
achieve investment results that correspond to the aggregate
price and yield performance of a representative selection of
common stocks that are publicly traded in the United States.
Sub-Adviser: Allmerica Asset Management, Inc. ("AAM")
serves as Sub-Adviser to the Equity Index Fund as well as
the Investment Grade Income Fund, Government Bond Fund, and
Money Market Fund, other series of the Trust. AAM, an
indirect, wholly-owned subsidiary of AFC, was incorporated
in 1993 and is located at 440 Lincoln Street, Worcester,
Massachusetts 01653. As of December 31, 1996, AAM had
approximately $11 billion in assets under management.
AAM serves as investment adviser to First Allmerica's
General Account and to a number of affiliated insurance
companies and other affiliated accounts, and as Adviser to
Allmerica Securities Trust, a diversified, closed-end
investment management company.
Investment Policies: The Equity Index Fund will seek to
achieve its objective by attempting to replicate the
aggregate price and yield performance of the Standard &
Poor's Composite Index of 500 Stocks ("S&P 500"). The Fund
uses the S&P 500 as the performance standard because it
represents over 70 percent of the total market value of all
publicly-traded common stocks in the U. S., is well-known to
investors, and, in the opinion of the Sub-Adviser, is
representative of the performance of common stocks publicly
traded in the U.S. Many, but not all, of the stocks in the
S&P 500 are issued by companies that are among the 500
largest as measured by the aggregate market value of their
outstanding stock (market price per share multiplied by
number of shares outstanding). Inclusion of a stock in the
S&P 500 does not imply that S&P has endorsed it as an
investment. With respect to investing in common stocks,
there can be no assurance of capital appreciation and there
is a substantial risk of market decline.
The method used to select investments for the Fund
involves investing in common stocks in approximately the
order of their weightings in the S&P 500 Index. In addition,
the Fund purchases stocks with smaller weightings in order
to represent other sectors of the S&P 500 for
diversification purposes.
The Equity Index Fund will invest only in those
stocks, and in such amounts, as its Sub-Adviser determines
to be necessary or appropriate for the Fund to approximate
the performance of the S&P 500. Under normal circumstances,
it is expected that the Fund will hold between 300 and
500 different stocks included in the S&P 500. The
Fund may compensate for the omission of a stock that is
included in the S&P 500, or for purchasing stocks in other
than the same proportions that they are represented in the
S&P 500, by purchasing stocks that are believed to have
characteristics that correspond to those of the omitted
stocks. The Fund also may invest in short-term debt
securities to maintain liquidity or pending investment in
stocks. The Fund also may engage in the options and futures
strategies described under "Certain Investment Strategies
and Policies." The Fund may invest up to 25% of its
assets in foreign securities.
Because of its policy of tracking the S&P 500, the
Equity Index Fund is not managed according to traditional
methods of active investment management, which involve the
buying and selling of securities based upon investment
analysis of economic, financial, and market factors.
Consequently, the projected adverse financial performance of
a company normally would not result in the sale of the
company's stock and projected superior financial performance
by a company normally would not lead to an increase in the
holdings of the company. From time to time, the Sub-Adviser
may make adjustments in the portfolio because of cash flows,
mergers, changes in the composition of the S&P 500, and
other similar reasons. Portfolio turnover is expected to be
lower than that of most funds investing in common stock. For
the fiscal year ended December 31, 1996, the portfolio
turnover rate for the Fund was 12%.
The Equity Index Fund's ability to duplicate the
performance of the S&P 500 will be influenced by the size
and timing of cash flows into or out of the Fund, the
liquidity of the securities included in the S&P 500,
transaction and operating expenses, and other factors. In
addition, the Fund will incur expenses (including advisory
and administrative fees) that are not reflected in the
performance results of the S&P 500. These factors, among
others, may result in "tracking error," which is a measure
of the degree to which the Fund's results differ from the
results of the S&P 500. Due to such factors, the return of
the Fund may be lower than the return of the S&P 500.
Tracking error is measured by the difference between
total return for the S&P 500 with dividends reinvested and
total return for the Fund with dividends reinvested after
deductions of fees and expenses. For the 12 months ended
December 31, 1996, the S&P 500 gained 22.96% versus a
gain of 22.82% for the Equity Index Fund producing a
tracking error of 0.14% before fees. Tracking error is
monitored by the Sub-Adviser on a daily basis. All tracking
error deviations are reviewed to determine the effectiveness
of investment policies and techniques. If the tracking error
deviation exceeds industry standards for the Fund's asset
size, the Sub-Adviser will bring the deviation to the
attention of the Trustees.
While the Board of Trustees of the Trust has selected
the S&P 500 as the index the Fund will attempt to replicate,
the Trustees reserve the right to select another index at
any time without seeking shareholder approval if they
believe that the S&P 500 no longer represents a broad
spectrum of common stocks that are publicly traded in the
United States or if there are legal, economic, or other
factors limiting the use of any particular index. If the
Trustees change the index which the Equity Index Fund
attempts to replicate, the Equity Index Fund may incur
significant transaction costs in switching from one index to
another.
S&P is not in any way affiliated with the Equity Index
Fund or the Trust. "Standard & Poor's," "Standard & Poor's
500" and "500" are trademarks of S&P.
Select Income Fund
Investment Objective: The Select Income Fund seeks a high
level of current income. The Fund will invest primarily in
investment grade, fixed-income securities.
Sub-Adviser: Standish, Ayer & Wood, Inc. ("SAW") serves as
Sub-Adviser to the Select Income Fund. SAW was founded in
1933 to provide investment management services to high net
worth individuals and institutions. As of December 31, 1996
total client assets exceeded $30 billion. SAW manages
fixed-income portfolios for major corporate and governmental
pension plans, financial institutions, and endowment and
foundation funds. Through its affiliate, Standish
International Investment Management Company, L.P., SAW
offers international investment services. SAW is an
independent investment counseling firm owned by its
twenty-two directors who are active with the firm. SAW is
located at One Financial Center, Boston, Massachusetts
02111.
Investment Policies: Under normal circumstances, at least
65% of the Select Income Fund's assets, at the time of
investment, will be invested in investment grade corporate
debt securities and securities issued or guaranteed as to
principal or interest by the U.S. Government or its agencies
or instrumentalities. Investment grade corporate debt
securities are: (a) assigned a rating within the four
highest grades (Baa/BBB or higher) by either Moody's or S&P,
(b) equivalently rated by another nationally recognized
statistical rating organization ("NRSRO"), or (c) unrated
securities but determined by the Sub-Adviser to be of
comparable quality. Securities rated in the fourth highest
grade (rated Baa and BBB by Moody's and S&P, respectively)
are considered to have some speculative characteristics. The
Fund will not invest in debt securities rated below
investment grade (Ba/BB or lower) by both Moody's and S&P.
For more information concerning the rating categories of
corporate debt securities and commercial paper, see the
Appendix to the Prospectus. The types of securities in which
the Fund invests are corporate debt obligations such as
bonds, notes and debentures, and obligations convertible
into common stock; "money market" instruments, such as
bankers acceptances, or negotiable certificates of deposit
issued by the 25 largest U.S. banks (in terms of deposits);
commercial paper rated Prime-1 by Moody's or A-1 by S&P;
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; asset-backed securities;
mortgage-backed securities); and stripped mortgage-backed
securities. The Fund also may invest in U.S. dollar
obligations of, or guaranteed by, the government of Canada
or a province of Canada or any instrumentality or political
subdivision thereof, and U.S. dollar obligations of
supranational entities such as the World Bank, European
Investment Bank, and African Development Bank. For more
information about asset-backed securities and
mortgage-backed securities and stripped mortgage-backed
securities, see "Certain Investment Strategies and
Policies."
The Fund's investments in corporate debt securities
are not limited to any particular type of company or
industry. The Fund will invest in corporate debt obligations
primarily of companies having a market capitalization of
more than $500 million at the time of investment.
The Fund's dollar average weighted maturity and the
mix of permitted portfolio securities as described above
will vary from time to time depending, among other things,
on current market and economic conditions and the
comparative yields on instruments in different sectors, such
as corporate and Treasuries, and with different maturities.
The dollar average weighted maturity of the portfolio,
excluding money market instruments, is expected to range
between 5 and 20 years under normal market conditions. The
Fund may invest up to 35% of its assets in money market
instruments under normal conditions. Although the Fund does
not invest for short-term trading purposes, portfolio
securities may be sold from time to time without regard to
the length of time they have been held. The value of the
Fund's portfolio securities generally will vary inversely
with changes in prevailing interest rates, declining as
interest rates rise and increasing as rates decline. The
value will also be affected by other market and economic
factors. There is the risk with corporate debt securities
that the issuers may not be able to meet their obligations
on interest and principal payments.
Obligations in which the Select Income Fund may invest
include debt obligations of supranational entities.
Supranational entities include international organizations
designated or supported by governmental entities to promote
economic reconstruction supported by appropriated but unpaid
commitments of their member countries, and there is no
assurance that these commitments will be undertaken or met
in the future. The Fund may not invest more than 25% of its
assets in debt obligations of supranational entities.
For hedging purposes, the Fund may engage in the
options and futures strategies described under "Certain
Investment Strategies and Policies."
The Fund also may invest up to 15% of its assets in
securities which are illiquid because they are subject to
restriction on resale or for which market quotations are not
readily available. The Fund may also invest up to 25% of
its assets in foreign securities.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 108%. The
portfolio turnover rate exceeded 100% due to the need to
make significant changes in the structure of the portfolio's
mortgage and corporate bond holdings. The portfolio turnover
rate for the Fund may vary from year to year. A high
portfolio turnover rate may result in greater brokerage
costs to the Fund.
Investment Grade Income Fund
Investment Objective: The Investment Grade Income Fund
seeks as high a level of total return, which includes
capital appreciation as well as income, as is consistent
with prudent investment management.
Sub-Adviser: AAM serves as Sub-Adviser to the Investment
Grade Income Fund. See "Equity Index Fund" for more
information about AAM.
Investment Policies: The Fund will invest its assets in
the following money market instruments and debt securities.
Money Market Instruments:
(a) Obligations issued or guaranteed by the United
States Government, its agencies, or instrumentalities;
(b) Commercial paper rated Prime-1 by Moody's
Investors Service ("Moody's"); or A-l by S&P; or unrated,
but determined by the Sub-Adviser to be of comparable
quality;
(c) Bankers acceptances or negotiable certificates
of deposit issued by the 25 largest U.S. banks (in terms of
deposits); and
(d) Cash and cash equivalents.
Debt Securities:
(a) Obligations issued or guaranteed by the United
States Government, its agencies, or instrumentalities;
(b) Debt securities which are rated Aaa, Aa, A, or
Baa by Moody's; AAA, AA, A, or BBB by S&P; or unrated, but
determined by the Sub-Adviser to be of comparable quality;
(c) Obligations (payable in U.S. dollars) of, or
guaranteed by, the Government of Canada or of a Province of
Canada or any instrumentality or political subdivision
thereof.
The Fund may engage in the options and futures
strategies described under "Certain Investment Strategies
and Policies."
The debt securities in which the Fund may invest are
considered "investment grade" in that they generally are
suitable for purchase by prudent investors. However, the
lowest category of investment grade securities (rated Baa by
Moody's or BBB by S&P) may have speculative characteristics,
such that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case of
debt securities with higher ratings. The portfolio of the
Fund is managed actively by AAM, as Sub-Adviser, in order to
anticipate events leading to price or ratings changes. If
the rating of a security falls below investment grade, or an
unrated security is deemed to have fallen below investment
grade, AAM analyzes relevant economic and market data in
making a determination of whether to retain or dispose of
the investment. The performance of the securities in the
portfolio is monitored continuously, and they are purchased
and sold as conditions warrant and permit.
The Fund may not invest in foreign securities other
than obligations issued by the Government of Canada and
political sub-divisions thereof.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 108%. The portfolio
turnover rate exceeded 100% due to mortgage rolls. The
portfolio turnover rate for the Fund may vary greatly from
year to year. A high portfolio turnover rate may result in
greater brokerage costs to the Fund.
See the Appendix to the Prospectus for an explanation
of the ratings of Moody's and S&P.
Government Bond Fund
Investment Objective: The Government Bond Fund seeks high
income, preservation of capital, and maintenance of
liquidity primarily through investments in debt instruments
issued or guaranteed by the U.S. Government or its agencies
or instrumentalities ("U.S. Government securities") and in
related options, futures, and repurchase agreements. Under
normal conditions, at least 80% of the Fund's assets will be
invested in U.S. Government securities.
Sub-Adviser: AAM serves as Sub-Adviser to the Government
Bond Fund. See "Equity Index Fund" for more information
about AAM.
Investment Policies: Some U.S. Government securities, such
as Treasury bills, notes, and bonds, which differ only in
their interest rates, maturities, and times of issuance, are
supported by the full faith and credit of the United States.
Other U. S. Government securities are supported by (i) the
right of the issuer to borrow from the U.S. Treasury,
(ii) discretionary authority of the U. S. Government to
purchase the obligations of the agency or instrumentality,
or (iii) only the credit of the instrumentality itself. No
assurances can be given that the U.S. Government would
provide financial support to U.S. Government sponsored
instrumentalities if it is not obligated to do so by law.
The Fund may invest in mortgage-backed government
securities, including pass-through securities and
participation certificates of the Government National
Mortgage Association ("Ginnie Mae"), the Federal Home Loan
Mortgage Corporation ("Freddie Mac"), and the Federal
National Mortgage Association ("Fannie Mae").
The Government Bond Fund may invest in any other
security or agreement collateralized or otherwise secured by
U.S. Government securities. The Fund also may invest in
separately traded principal and interest components of
securities guaranteed or issued by the U.S. Treasury if such
components are traded independently under the Separate
Trading Registered Interest and Principal Securities
Program. The Fund may enter into repurchase agreements and
from time to time may have temporary investments in
short-term debt obligations (including certificates of
deposit, bankers acceptances, and commercial paper) pending
the making of other investments or for liquidity purposes.
The Government Bond Fund may engage in several active
management strategies, including the lending of portfolio
securities, forward commitment purchases of securities,
writing covered call and covered put options on U.S.
Government securities, purchasing such call and put options,
and entering into closing purchase and sale transactions.
The Fund also may engage in the options and futures
strategies described under "Certain Investment Strategies
and Policies."
U.S. Government securities may be purchased or sold
without regard to the length of time they have been held to
attempt to take advantage of short-term differentials in
yields, with the objective of seeking income while
conserving capital. While short-term trading increases
portfolio turnover, the Government Bond Fund incurs little
or no brokerage costs for U.S. Government securities. For
the fiscal year ended December 31, 1996, the portfolio
turnover rate for the Fund was 112%.
Money Market Fund
Investment Objective: The Money Market Fund seeks to
obtain maximum current income consistent with preservation
of capital and liquidity.
Sub-Adviser: AAM serves as Sub-Adviser to the Money Market
Fund. See "Equity Index Fund" for more information about
AAM.
Investment Policies: The Fund seeks to achieve its
objective by investing in the following high quality money
market instruments:
(a) Obligations issued or guaranteed by the United
States Government, its agencies, or instrumentalities;
(b) Commercial paper which meets the ratings
requirements as set forth in the paragraph below;
(c) Obligations of banks or savings and loan associations
(such as bankers acceptances and certificates of deposit,
including dollar-denominated obligations of foreign branches
of U.S. banks ("Eurodollars") and U.S. branches of foreign
banks if such U.S. branches are subject to state banking
requirements and Federal Reserve reporting requirements)
which at the date of the investment have deposits of at
least $1 billion as of their most recently published
financial statements;
(d) Repurchase agreements with respect to
obligations described under (a) above (such obligations
subject to repurchase agreement may bear maturities of more
than one year) (For more information concerning repurchase
agreements, see "Certain Investment Strategies and
Policies."); and
(e) Cash and cash equivalents.
The Money Market Fund will not purchase any security
unless (i) the security has received the highest quality
rating by at least two nationally recognized statistical
rating organizations ("NRSROs") or by one NRSRO if only one
has rated the security, or (ii) the security is unrated and
in the opinion of AAM, as Sub-Adviser, in accordance with
guidelines adopted by the Trustees, is of a quality
comparable to the highest rating of an NRSRO. These
standards must be satisfied at the time an investment is
made. If the quality of the investment later declines, the
Fund may continue to hold the investment, but the Trustees
will evaluate whether the security continues to present
minimal credit risks. See the Appendix for an explanation of
NRSRO ratings.
The Fund will limit its portfolio investments to
securities with a remaining maturity of 397 days as of the
time of purchase, in accordance with the Trustees'
guidelines. The portfolio will be managed so as to maintain
a dollar weighted maturity of 90 days or less. In order to
maximize the yield on its assets, the Fund intends to be as
fully invested at all times as is reasonably practicable.
There is always the risk that the issuer of an instrument
may be unable to make payment upon maturity.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the
Manager is obligated to perform certain administrative and
management services for the Trust; furnishes to the Trust
all necessary office space, facilities, and equipment; and
pays the compensation, if any, of officers and Trustees who
are affiliated with the Manager. Other than the expenses
specifically assumed by the Manager under the Management
Agreement, all expenses incurred in the operation of the
Trust are borne by the Trust, including fees and expenses
associated with the registration and qualification of the
Trust's shares under the Securities Act of 1933 (the "1933
Act"); other fees payable to the Securities and Exchange
Commission; independent accountant, legal, and custodian
fees; association membership dues; taxes; interest;
insurance premiums; brokerage commissions; fees and expenses
of the Trustees who are not affiliated with the Manager;
expenses for proxies, prospectuses, and reports to
shareholders; Fund recordkeeping expenses; and other
expenses. The Manager has agreed voluntarily to absorb any
charges and expenses associated with Fund recordkeeping that
exceed 0.10% of a Fund's average net assets.
For its services to the Funds, the Manager receives
fees computed daily at an annual rate based on the average
daily net asset value of each Fund as set forth below:
Assets
G
r
o
w
t
h
F
u
n
d
E
q
u
i
t
y
I
n
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e
x
F
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t
G
r
a
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e
F
u
n
d
M
o
n
e
y
M
a
r
k
e
t
F
u
n
d
First
$50
Million
0
.
6
0
%
0
.
3
5
%
0
.
5
0
%
0
.
3
5
%
Next
$200
Million
0
.
5
0
%
0
.
3
0
%
0
.
3
5
%
0
.
2
5
%
Over
$250
Million
0
.
3
5
%
0
.
2
5
%
0
.
2
5
%
0
.
2
0
%
For its services to the Select Aggressive Growth Fund,
Select Capital Appreciation Fund, and Select International
Equity Fund, the Manager receives a fee computed daily at an
annual rate of 1.00% of the average daily net asset value of
each such Fund.
For its services to the Select Growth Fund and Select
Income Fund, the Manager receives a fee computed daily at an
annual rate of 0.85% of the average daily net asset value of
each such Fund.
For its services to the Government Bond Fund, the
Manager receives a fee computed daily at an annual rate of
0.50% of the average daily net asset value of such Fund.
The Manager is responsible for the payment of all fees
to the Sub-Advisers. Each Sub-Adviser receives from the
Manager fees computed daily at an annual rate based on the
average daily net asset value of each Fund as set forth
below. For the Select International Equity Fund and Growth
Fund, the Sub-Adviser fee varies according to the level of
assets in each such Fund, which will reduce the fees paid by
the Manager as Fund assets grow, but will not reduce the
operating expenses of the Fund.
S
e
l
e
c
t
A
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C
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A
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F
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F
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- -
A
d
v
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F
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e
0
.
6
0
%
(
1
)
(
2
)
(
3
)
(
4
)
E
q
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I
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F
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- -
A
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0
.
1
0
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2
0
%
0
.
2
0
%
0
.
2
0
%
0
.
1
0
%
___________
(1) For its services, JCC will receive a fee computed
daily at an annual rate based on the average daily net
assets of the Select Capital Appreciation Fund, under the
following schedule:
Assets
R
a
t
e
First $100 Million
0
.
6
0
%
Over $100 Million
0
.
5
5
%
(2) For its services, BIAM will receive a fee computed
daily at an annual rate based on the average daily net
assets of the Select International Equity Fund, under the
following schedule:
Assets
R
a
t
e
First $50 Million
0
.
4
5
%
Next $50 Million
0
.
4
0
%
Over $100 Million
0
.
3
0
%
(3) For its services, Putnam will receive a fee
computed daily at an annual rate based on the average daily
net assets of the Select Growth Fund, under the following
schedule:
Assets
R
a
t
e
First $50 Million
0
.
5
0
%
Next $100 Million
0
.
4
5
%
Next $100 Million
0
.
3
5
%
Next $100 Million
0
.
3
0
%
Over $350 Million
0
.
2
5
%
<
/
R
>
(4) For its services, MAS will receive a fee based on the
aggregate assets of the Growth Fund and certain other
accounts of the Manager and its affiliates which are managed
by MAS, under the following schedule:
Assets
R
a
t
e
First $50 Million
0
.
5
0
%
$50 Million to $100 Million
0
.
3
7
5
%
$100 Million to $500 Million
0
.
2
5
%
$500 Million to $850 Million
0
.
2
0
%
Over $850 Million
0
.
1
5
%
For the fiscal year ended December 31, 1996, the Funds
paid the Manager gross fees before reimbursement at a rate
based on the Funds' average daily net assets, under the
following schedule:
Fund
R
a
t
e
Select Aggressive Growth
Fund
1
.
0
0
%
Select Capital Appreciative
Fund
1
.
0
0
%
Select International Equity
Fund
1
.
0
0
%
Select Growth Fund
0
.
8
5
%
Growth Fund
0
.
4
4
%
Equity Index Fund
0
.
3
2
%
Select Income Fund
0
.
6
0
%
Investment Grade Income Fund
0
.
4
0
%
Government Bond Fund
0
.
5
0
%
Money Market Fund
0
.
2
8
%
The following table shows voluntary expense
limitations which the Manager has declared for each Fund and
the operating expenses incurred for the fiscal year ended
December 31, 1996 for each Fund:
Percentage
of
Average
Daily Net
Assets
Fund
V
o
l
u
n
t
a
r
y
E
x
p
e
n
s
e
L
i
m
i
t
a
t
i
o
n
s
O
p
e
r
a
t
i
n
g
E
x
p
e
n
s
e
s
+
Select Aggressive
Growth Fund
1
.
3
5
%
1
.
0
8
%
Select Capital
Appreciation Fund
1
.
3
5
%
1
.
1
3
%
Select
International
Equity Fund
1
.
5
0
%
1
.
2
0
%
Select Growth
Fund
1
.
2
0
%
0
.
9
2
%
Growth Fund
1
.
2
0
%
0
.
4
8
%
Equity Index Fund
0
.
6
0
%
0
.
4
6
%
Select Income
Fund
1
.
0
0
%
0
.
7
4
%
Investment Grade
Income Fund
1
.
0
0
%
0
.
5
2
%
Government Bond
Fund
1
.
0
0
%
0
.
6
6
%
Money Market Fund
0
.
6
0
%
0
.
3
4
%
<
/
R
>
+ Including reductions
The Manager will voluntarily reimburse its fees and
any expenses above the expense limitations. The expense
limitations are voluntary and may be removed at any time
after a Fund's first fiscal year of operation without prior
notice to existing shareholders. As shown above, all Funds
are within expense limitations for the year ended
December 31, 1996. The Manager reserves the right to recover
from a Fund any fees, within a current fiscal year period,
which were reimbursed in that same year to the extent that
total annual expenses did not exceed the applicable expense
limitation. Non-recurring and extraordinary expenses
generally are excluded in the determination of expense
ratios of the Funds for purposes of determining any required
expense reimbursement. Quotations of yield or total return
for any period when an expense limitation is in effect will
be greater than if the limitation had not been in effect.
FUND MANAGER INFORMATION
The following individuals are primarily responsible
for the day-to-day management of the particular Funds as
indicated below:
The following individuals have served as members of a
committee of fund managers for the Select Aggressive Growth
Fund since March 1994, with the exception of Mr. Nicholas
who has served as a fund manager since the Fund's inception
in August 1992:
Lawrence S. Speidell is a Partner and Director of
Global/Systematic Portfolio Management and Research at NACM.
Prior to joining NACM in 1994, Mr. Speidell spent ten years
with Batterymarch Financial Management. He was also Senior
Vice President and Portfolio Manager at Putnam Management
Company from 1971 to 1983.
John J. Kane, Senior Portfolio Manager, U.S.
Systematic at NACM, has twenty-eight years of
economic/investment experience. Prior to joining NACM in
1994, Mr. Kane was employed by ARCO Investment Management
Company and General Electric Company.
Mark W. Stuckelman, Portfolio Manager U.S.
Systematic, joined NACM in 1995. Prior to joining NACM, he
was employed for five years with Wells Fargo Bank's
Investment Management Group, Fidelity Management Trust Co.,
and BARRA.
The following individual has served as fund manager
for the Select Capital Appreciation Fund since the Fund's
inception in April 1995:
James P. Goff joined JCC in 1988. He has managed the
Janus Enterprise Fund since 1992 and co-managed the Janus
Venture Fund from December 1993 to January 1997. Mr. Goff
is a Chartered Financial Analyst.
The following portfolio managers are involved in the
investment process utilized for the Select International
Equity Fund:
Christopher Reilly, Chief Investment Officer, joined
Bank of Ireland in 1980 and has had overall responsibility
for asset management since 1985. Previously, he worked in
the United Kingdom in stockbroking and investment
management.
Denis Donovan, Director-Portfolio Management, received
an MBA from University College Dublin. Prior to joining Bank
of Ireland in 1985, he spent more than thirteen years in the
money market and foreign exchange operations of the Central
Bank of Ireland, the Irish equivalent of the U.S. Federal
Reserve. He has overall responsibility for the portfolio
management function for all of BIAM's client base.
John O'Callaghan is a graduate of Trinity College,
Dublin and is a Chartered Financial Analyst. He joined Bank
of Ireland in 1987.
Peter Wood joined Bank of Ireland in 1985 after
spending five years with another leading investment
management firm. He is responsible for portfolio
construction.
The following individuals have served as members of
a committee of fund managers for the Select Growth Fund
since July 1, 1996:
Carol C. McMullen, Managing Director, has been an
investment professional with Putnam since 1995. Prior to
1995, Ms. McMullen was Senior Vice President of Baring Asset
Management.
Beth Cotner, Senior Vice President, has been with
Putnam since 1995. Prior to 1995, Ms. Cotner was Executive
Vice President at Kemper Financial Services.
Manual Weiss, Senior Vice President, has been an
investment professional with Putnam since 1987.
The following individuals serve as members of a
committee of fund managers for the Growth Fund:
Gary G. Schlarbaum, Equity Portfolio Manager, joined
MAS in 1987 and has served on the committee since 1993.
Prior to 1987, Mr. Schlarbaum was employed by First Chicago
Investment Advisors from 1984 to 1987. Prior to First
Chicago, Mr. Schlarbaum held teaching positions at Purdue
University and the University of Pennsylvania.
Arden C. Armstrong, Partner at MAS, joined the firm
in 1985. Prior to joining MAS, Mr. Armstrong was employed
by Evans Economics, Inc. He is a Chartered Financial
Analyst.
Nicholas Kovich, Equity Portfolio Manager, joined MAS
in 1988 and has served on the committee since the Fund's
inception in April 1988. Prior to MAS, Mr. Kovich was
employed by Waddell & Reed Asset Management Company from
1982 to 1988 as an Investment Research Analyst and as
Assistant Vice President and Portfolio Manager.
Robert J. Marcin is a partner at MAS. Prior to joining MAS in 1988,
Mr. Marcian was an Account Executive at Smith Barney Harris Upham and Company,
Inc. He is also a Chartered Financial Analyst.
Kurt A. Feuerman, Managing Director, joined MAS in 1994. Prior to joining
MAS, Mr. Feuerman was a Managing Director at Morgan Stanley Asset Management.
Mr. Feuerman was also employed by Morgan Stanley & Company from 1990-1992.
James J. Jolinger, Equity Portfolio Manager, joined MAS in 1994 and has
served on the committee since 1997. Prior to 1994, Mr. Jolinger was employed by
Openheimer Capital as an Equity Analyst from 1987-1994.
Timothy G. Connors, Equity Portfolio Manager, joined MAS in 1994 and has
served on the committee since 1977. Prior to 1994, Mr. Connors was employed by
Corestates Investment Advisers from 1980 to 1994 as a Senior Vice President and
Managing Director.
The following individuals have served as members of a
committee of fund managers for the Select Income Fund since
the Fund's inception in August 1992:
Edward H. Ladd, Chairman and Managing Director, joined
SAW in 1962 and is the firm's economist. He also assists
clients in establishing investment strategies. Mr. Ladd is a
Director of the Federal Reserve Bank of Boston, New England
Electric System, Greylock Management, and Harvard Management
Corporation and a member of SAW's Executive Committee.
George W. Noyes, President and Managing Director,
joined SAW in 1970 and directs bond policy formulation and
manages institutional bond portfolios at SAW. Mr. Noyes is
Vice Chairman of the ICFA Research Foundation and serves on
SAW's Executive Committee.
Dolores S. Driscoll, Managing Director, joined SAW in
1974 and manages fixed-income portfolios with specific
emphasis on mortgage pass-throughs and original issue
discount bonds. Ms. Driscoll also serves on SAW's Executive
Committee.
Richard C. Doll, Manager, joined SAW in 1984 and is a
portfolio manager with research responsibilities in
convertible bonds. Prior to joining SAW, Mr. Doll was a Vice
President with the Bank of New England.
Maria D. Furman, Vice President and Director, joined
SAW in 1976. She is head of the tax-exempt area and manages
insurance and pension fund accounts. Ms. Furman currently
serves on SAW's Executive Committee.
The following individual has served as fund manager
for the Investment Grade Income Fund since May 1994:
Lisa M. Coleman, Vice President of AAM, was a Deputy
Manager/Portfolio Manager in the global fixed income area
for Brown Brothers Harriman & Company in New York prior to
joining AAM in May 1994.
The following individual has served as fund manager
for the Government Bond Fund since May 1995:
Richard J. Litchfield, Assistant Vice President of
AAM, was a mortgage-backed securities analyst and trader at
Keystone Investments, Inc. prior to joining AAM in May 1995.
The following individual has served as fund manager
for the Equity Index Fund and Money Market Fund since March
1995:
John C. Donohue, Assistant Vice President of AAM, was
a portfolio manager at CS First Boston Investment Management
prior to joining AAM in 1995.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is
determined once daily as of the close of regular trading on
the New York Stock Exchange (the "Exchange") on each day on
which the Exchange is open for trading.
Equity securities are valued on the basis of their
market value if market quotations are readily available. In
other cases, they are valued at their fair value as
determined in good faith by the Trustees, although the
actual calculations may be performed by persons acting
pursuant to the direction of the Trustees. Debt securities
(other than short-term obligations) normally are valued on
the basis of valuations formulated by a pricing service
which utilizes data processing methods to determine
valuations for normal, institutional-size trading units of
such securities. Such methods include the use of market
transactions for comparable securities and various
relationships between securities which generally are
recognized by institutional traders. All securities of the
Money Market Fund are valued at amortized cost. Debt
obligations in the other Funds having a remaining maturity
of 60 days or less are valued at amortized cost when it is
determined that amortized cost approximates fair value.
Short-term obligations of the other Funds having a remaining
maturity of more than 60 days are marked to market based
upon readily available market quotations for such
obligations or similar securities
Unlike the Money Market Fund which attempts to
maintain a stable net asset value, the net asset value of
the other Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to
regulated investment companies so that the Trust will not be
subject to federal income tax on any net income and any
capital gains to the extent they are distributed or are
deemed to have been distributed to shareholders. Dividends
out of net investment income will be declared and paid
quarterly in the case of the Growth Fund, Equity Index Fund,
Select Income Fund, Investment Grade Income Fund, and
Government Bond Fund; annually in the case of the Select
Aggressive Growth Fund, Select Capital Appreciation Fund,
Select International Equity Fund, and Select Growth Fund;
and daily in the case of the Money Market Fund.
Distributions of net capital gains for the year, if any, are
made annually. All dividends and capital gain distributions
are applied to purchase additional Fund shares at net asset
value as of the payment date. Fund shares are held by the
Separate Accounts and any distributions are reinvested
automatically by the Separate Accounts. Tax consequences to
investors in the Separate Accounts which are invested in the
Trust are described in the prospectuses for such Accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering
and currently may be purchased only by the Separate Accounts
of First Allmerica or its subsidiaries. The Separate Account
is the funding mechanism for variable annuity contracts. The
Separate Account invests in shares of one or more of the
Funds. Shares of each Fund are sold at their net asset value
as next computed after receipt of the purchase order without
the addition of any selling commission or "sales load." The
Distributor, Allmerica Investments, Inc., at its expense,
may provide promotional incentives to dealers that sell
variable annuity contracts for which the Funds serve as
investment vehicles
Shares of the Trust currently are being issued also to
Separate Accounts of Allmerica Life, First Allmerica, and
subsidiaries of First Allmerica which issue variable or
group annuity policies or variable premium life insurance
policies ("mixed funding"). Although neither Allmerica Life
nor the Trust currently foresees any disadvantage, it is
conceivable that in the future such mixed funding may be
disadvantageous for variable or group annuity policyowners
or variable premium life insurance policyowners
("Policyowners"). The Trustees of the Trust intend to
monitor events in order to identify any conflicts that may
arise between such Policyowners and to determine what
action, if any, should be taken in response thereto. If the
Trustees were to conclude that separate funds should be
established for variable annuity, group annuity, and
variable premium life Separate Accounts, Allmerica Life
would pay the attendant expenses.
The Trust redeems shares of each Fund at their net
asset value as next computed after receipt of the request
for redemption. The redemption price may be more or less
than the shareholder's cost. No fee is charged by the Trust
on redemption. The variable contracts funded through the
Separate Accounts are sold subject to certain fees and
charges which may include sales and redemption charges as
described in the prospectus or offering circular for the
Separate Account.
Redemption payments will be paid within seven days
after receipt of the written request therefor by the Trust,
except that the right of redemption may be suspended or
payments postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
A Fund's performance may be quoted in advertising. A
Fund's performance may be compared with the performance of
other investments or relevant indices. All performance
information is based on historical results and is not
intended to indicate future performance.
For Funds other than the Money Market Fund, "yield" is
calculated by dividing a Fund's annualized net investment
income per share during a recent 30-day period by the net
asset value per share on the last day of that period. For
the Money Market Fund, "yield" represents an annualization
of the change in value of an investment (excluding any
capital changes) in the Fund for a specific seven-day
period; "effective yield" compounds that yield for a year
and is, for that reason, greater than the Fund's yield.
Total returns are based on the overall dollar or
percentage change in value of a hypothetical investment in a
Fund assuming all dividends and capital gain distributions
are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual
total return reflects the hypothetical, annually-compounded
return that would have produced the same cumulative return
if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out
variations in the Fund's return, they are not the same as
actual year-by-year results.
Yields and total returns quoted for the Funds include
the effect of deducting the Funds' expenses, but may not
include charges and expenses attributable to a particular
insurance product. Since shares of the Funds can be
purchased only through a variable annuity contract or
variable life contract, you should review carefully the
prospectus for the Separate Accounts for information on
relevant charges and expenses. Including these charges in
the quotations of the Funds' yields and total returns would
have the effect of decreasing performance. Performance
information for the Funds must always be accompanied by, and
be reviewed with, performance information for the Separate
Accounts which invest in the Funds.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business
trust under the laws of Massachusetts by an Agreement and
Declaration of Trust dated October 11, 1984 (the "Trust
Declaration"). A copy of the Trust Declaration is on file
with the Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares
of beneficial interest which may be divided into an
unlimited number of series of such shares, and which are
divided presently into twelve series of shares, one series
underlying each Fund. Two of the series are not included in
this Prospectus. The Trust's shares are entitled to one vote
per share (with proportional voting for fractional shares).
The rights accompanying Fund shares are vested legally in
the Separate Accounts. As a matter of policy, however,
holders of variable premium life insurance or variable
annuity contracts funded through the Separate Accounts have
the right to instruct the Separate Accounts as to voting
Fund shares on all matters to be voted on by Fund
shareholders. Voting rights of the participants in the
Separate Accounts are set forth in the prospectus or
offering circular relating to the Separate Accounts. See
"Organization of the Trust" in the SAI for the definition of
a "majority vote" of shareholders.
The Trust is not required to hold annual meetings of
shareholders. The Trustees or shareholders holding at least
10% of the outstanding shares may call special meetings of
shareholders.
Fund Recordkeeping Agent
FDISG, a wholly-owned subsidiary of First Data
Corporation, calculates net asset value per share and
maintains general accounting records for each Fund. FDISG is
entitled to receive an annual Fund recordkeeping fee based
on Fund assets and certain out-of-pocket expenses.
Custodian
Bankers Trust Company, 130 Liberty Street, New York,
New York 10006, is the Custodian of the securities and other
assets of the Trust.
INVESTMENT RESTRICTIONS
The following is a description of certain investment
restrictions which are fundamental and may not be changed
with respect to a Fund without shareholder approval. For a
description of certain other investment restrictions,
reference should be made to the SAI.
1. No Fund will concentrate its investments in
particular industries, including debt obligations of foreign
governments, but a Fund may invest up to 25% of the value of
its total assets in a particular industry. The restriction
does not apply to investments in obligations issued or
guaranteed by the United States of America, its agencies or
instrumentalities, or to investments by the Money Market
Fund in securities issued or guaranteed by domestic branches
of U.S. banks.
2. As to 75% of the value of its total assets (100%
for the Money Market Fund), no Fund will invest more than 5%
of the value of its total assets in the securities of any
one issuer (other than securities issued by or guaranteed as
to principal or interest by the United States Government or
any agency or instrumentality thereof) or acquire more than
10% of the voting securities of any issuer. The remaining
25% of assets (other than for the Money Market Fund) may be
invested in the securities of one or more issuers without
regard to such limitations.
These limitations apply as of the time of purchase. If
through market action the percentage limitations are
exceeded, the Fund will not be required to reduce the amount
of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
Repurchase Agreements (applicable to all Funds) and
Reverse Repurchase Agreements (applicable to the Select
Capital Appreciation Fund)
Each Fund may invest in repurchase agreements, under
which the Fund acquires ownership of a security (ordinarily
U.S. Government securities) but the seller agrees at the
time of sale to purchase the security at a mutually agreed
upon time and price. Should any seller of a repurchase
agreement fail to repurchase the underlying security, or
should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur costs and losses.
Repurchase agreements maturing in more than seven days are
subject to the 15% (10% for the Money Market Fund) limit on
illiquid securities.
When the Select Capital Appreciation Fund invests
in a reverse repurchase agreement, it sells a security to
another party such as a banker or broker-dealer in return
for cash and agrees to buy the security back at a future
date and price. Reverse repurchase agreements may be used
to provide cash to satisfy unusually heavy redemption
requests or for other temporary or emergency purposes
without the necessity of selling portfolio securities or to
earn additional income on portfolio securities, such as
treasury bills and notes.
"When-Issued" Securities (applicable to all Funds)
Each Fund may purchase securities on a when-issued or
delayed delivery basis. Delivery and payment normally take
place 15 to 45 days after the commitment to purchase. No
income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that
yields available in the market when delivery occurs may be
higher than those available when the when-issued order is
placed resulting in a decline in the market value of the
security. There is also the risk that under some
circumstances the purchase of when-issued securities may act
to leverage the Fund.
Lending of Securities (applicable to all Funds)
For the purpose of realizing additional income, the
Funds may lend portfolio securities to broker-dealers or
financial institutions amounting to not more than 30% of
their respective total assets taken at current value. While
any such loan is outstanding, a Fund will continue to
receive amounts equal to the interest or dividends paid by
the issuer on the securities, as well as interest (less any
rebates to be paid to the borrower) on the investment of the
collateral or a fee from the borrower. Each Fund will have
the right to call each loan and obtain the securities.
Lending portfolio securities involves certain risks,
including possible delays in receiving additional collateral
or in the recovery of the securities or possible loss of
rights in the collateral should the borrower fail
financially. Loans will be made in accordance with
guidelines established by the Board of Trustees.
Foreign Securities (applicable to the Select Aggressive
Growth Fund, Select International Equity Fund, Select
Growth Fund, Growth Fund, and Select Income Fund)
Investments in foreign markets involve substantial
risks typically not associated with investing in the U. S.,
which should be considered carefully by the investor. Such
risks may include political and economic instability,
differing accounting and financial reporting standards,
higher commission rates on foreign portfolio transactions,
less readily available public information regarding issuers,
potential adverse changes in tax and exchange control
regulations, and the potential for restrictions on the flow
of international capital. Foreign securities also involve
currency risks. Accordingly, the relative strength of the
U.S. dollar may be an important factor in the performance of
the Fund, depending on the extent of the Fund's foreign
investments. Some foreign securities exchanges may not be as
developed or efficient as those in the U.S. and securities
traded on foreign securities exchanges generally are subject
to greater price volatility. There is also the possibility
of potentially adverse changes in investment or exchange
control regulations, expropriation or confiscatory taxation,
and limitations on the removal of funds or other assets.
Investments in emerging countries involve exposure to
economic structures that generally are less diverse and
mature than in the U. S., and to political systems which may
be less stable. In addition, securities of issuers located
in emerging countries may have limited market ability and
may be subject to more abrupt or erratic price fluctuations.
The Funds may buy or sell foreign currencies and
foreign currency forward contracts, options on foreign
currencies, and foreign currency futures contracts and
options thereon. Although such instruments may reduce the
risk of loss due to a decline in the value of the currency
which is sold, they also limit any possible gain which might
result should the value of the currency increase. Such
instruments will be used primarily to protect a Fund from
adverse currency movements; however, they also involve the
risk that anticipated currency movements will not be
accurately predicted, thus adversely affecting a Fund's
total return. See "Options and Futures Transactions."
The Funds' investments may include ADRs. For many
foreign securities, there are U.S. dollar-denominated ADRs
which are traded in the United States on exchanges or over
the counter. ADRs represent the right to receive securities
of foreign issuers deposited in a domestic bank or a
correspondent bank. An ADR may be sponsored by the issuer of
the underlying foreign security, or it may be issued in
unsponsored form. The holder of a sponsored ADR is likely to
receive more frequent and extensive financial disclosure
concerning the foreign issuer than the holder of an
unsponsored ADR and generally will bear lower transaction
charges. The Funds may invest in both sponsored and
unsponsored ADRs. The Select Capital Appreciation
Fund and Select International Equity Fund also may
utilize EDRs, which are designed for use in European
securities markets, and also may invest in GDRs.
Restricted Securities (applicable to the Select Aggressive
Growth Fund, Select Capital Appreciation Fund, Select
International Equity Fund, and Select Growth Fund)
The Funds also may purchase fixed-income securities
that are not registered under the 1933 Act ("restricted
securities"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A of the 1933 Act.
However, each Fund will not invest more than 15% of its
assets in restricted securities (as defined in its
investment restrictions) unless the Board of Trustees
determines, based upon a continuing review of the trading
markets for the specific restricted security, that such
restricted securities are liquid. The Board of Trustees has
adopted guidelines and delegated to the Manager the daily
function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain
sufficient oversight and be responsible ultimately for the
determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities
sold and offered under Rule 144A will develop, the Board
will monitor carefully a Fund's investments in securities,
focusing on such important factors, among others, as
valuation, liquidity and availability of information. This
investment practice could have the effect of increasing the
level of illiquidity in a Fund to the extent that qualified
institutional buyers become for a time uninterested in
purchasing these restricted securities. As a result, a Fund
might not be able to sell these securities when its
Sub-Adviser wishes to do so, or might have to sell them at
less than fair value. In addition, market quotations are
less readily available. Therefore, judgment at times may
play a greater role in valuing these securities than in the
case of unrestricted securities.
Obligations in which the Select Income Fund may
invest include debt obligations of supranational entities.
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.
Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments
will be undertaken or met in the future. The Fund may not
invest more than 25% of its assets in debt obligations of
supranational entities.
The Investment Grade Income Fund may not invest in
foreign securities other than obligations issued by the
Government of Canada and political subdivisions thereof.
Options and Futures Transactions (applicable to each Fund
except the Money Market Fund) and Forward Contracts and
Swaps (applicable to the Select Capital Appreciation
Fund)
Through the writing and purchase of put and call
options on its securities, financial indices, foreign
currencies, and the purchase and sale of futures contracts
and related options with respect to securities and financial
indices in which it may invest, each Fund except the Money
Market Fund at times may seek to hedge against fluctuations
in net asset value. Each Fund's ability to engage in options
and futures strategies will depend on the availability of
liquid markets in such instruments. It is impossible to
predict the amount of trading interest that may exist in
various types of options or futures contracts. Therefore,
there is no assurance that a Fund will be able to utilize
these instruments effectively for the purposes stated above.
Additionally, the Select Capital Appreciation Fund
may invest in forward contracts and swaps which may expose
the Fund to additional risks and the transaction costs.
Risks inherent in the use of futures and options
("derivative instruments") include (1) the risk that
interest rates, securities prices, and currency markets will
not move in the directions anticipated; (2) imperfect
correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates,
or currencies being hedged; (3) the fact that skills needed
to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any
time; and (5) the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences.
The Funds will purchase futures and options only on
exchanges or boards of trade when there appears to be an
active secondary market, but there can be no assurance that
a liquid secondary market will exist for any future or
option at any particular time.
In connection with transactions in futures and related
options, the Funds will be required to deposit as "initial
margin" an amount of cash and/or securities. Thereafter,
subsequent payments are made to and from the broker to
reflect changes in the value of the future contract.
A more detailed explanation of futures, options, and
other derivative instruments, and the risks associated with
them, is included in the SAI.
Investments in Money Market Securities (applicable to all
Funds)
Any Fund may hold at least a portion of its assets in
cash equivalents or money market instruments. There is
always the risk that the issuer of a money market instrument
may be unable to make payment upon maturity.
The Money Market Fund may hold uninvested cash
reserves pending investment during temporary, defensive
periods or if, in the opinion of the Sub-Adviser, suitable
securities are not available for investment. Securities in
which the Money Market Fund may invest may not earn as high
a level of current income as long-term, lower-quality
securities which, however, generally have less liquidity,
greater market risk, and more fluctuation in market value.
Pursuant to an exemptive order granted by the
Securities and Exchange Commission, the Select Capital
Appreciation Fund and other funds advised by JCC may
transfer daily uninvested cash balances into one or more
joint trading accounts. Assets in the joint trading
accounts are invested in money market instruments and the
proceeds are allocated to the participating funds on a pro
rata basis.
Asset-Backed Securities and Mortgage-Backed Securities
(applicable to the Select Income Fund, Investment
Grade Income Fund, and Government Bond Fund)
The Funds may purchase asset-backed securities, which
represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets,
frequently a pool of assets similar to one another. Assets
generating such payments include instruments such as motor
vehicle installment purchase obligations, credit card
receivables, and home equity loans. Payment of principal and
interest may be guaranteed for certain amounts and time
periods by a letter of credit issued by a financial
institution unaffiliated with the issuer of the securities.
The estimated life of an asset-backed security varies with
the prepayment experience of the underlying debt
instruments. The rate of such prepayments, and hence the
life of the assetbacked security, will be primarily a
function of current market rates, although other economic
and demographic factors will be involved. Under certain
interest rate and prepayment rate scenarios, the Funds may
fail to recoup fully their investment in asset-backed
securities. The Investment Grade Income Fund and Government
Bond Fund will not invest more than 20% of its total assets
in asset-backed securities. The Select Income Fund will not
invest more than 10% of its total assets in asset-backed
securities.
The Funds also may invest in mortgage-backed
securities which are debt obligations secured by real estate
loans and pools of loans on single family homes,
multi-family homes, mobile homes, and in some cases,
commercial properties. The Funds may acquire securities
representing an interest in a pool of mortgage loans that
are issued or guaranteed by a U.S. government agency such as
the Ginnie Mae, Fannie Mae, and Freddie Mac.
Mortgage-backed securities are in most cases
"pass-through" instruments through which the holder receives
a share of all interest and principal payments from the
mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not
possible to predict accurately the average life or realized
yield of a particular issue of pass-through certificates.
During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be
expected to accelerate. When the mortgage obligations are
prepaid, the Fund reinvests the prepaid amounts in
securities, the yield of which reflects interest rates
prevailing at the time. Moreover, prepayment of mortgages
that underlie securities purchased at a premium could result
in losses.
The Funds also may invest in multiple class securities
issued by U.S. government agencies and instrumentalities
such as Fannie Mae, Freddie Mac, and Ginnie Mae, including
guaranteed collateralized mortgage obligations ("CMOs") and
Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates, when consistent
with the Funds' investment objectives, policies, and
limitations. A CMO is a type of bond secured by an
underlying pool of mortgages or mortgage pass-through
certificates that are structured to direct payments on
underlying collateral to different series or classes of
obligations. A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code and invests in
certain mortgages principally secured by interests in real
property and other permitted investments.
CMOs and guaranteed REMIC pass-through certificates
("REMIC Certificates") issued by Fannie Mae, Freddie Mac,
and Ginnie Mae are types of multiple pass-through
securities. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests or "residual"
interests. The Funds currently do not intend to purchase
residual interests in REMICS. The REMIC Certificates
represent beneficial ownership interests in a REMIC trust,
generally consisting of mortgage loans or Fannie Mae,
Freddie Mac, or Ginnie Mae guaranteed mortgage pass-through
certificates. The obligations of Fannie Mae, Freddie Mac, or
Ginnie Mae under their respective guaranty of the REMIC
Certificates are obligations solely of Fannie Mae, Freddie
Mac, or Ginnie Mae, respectively.
Fannie Mae REMIC Certificates are issued and
guaranteed as to timely distribution of principal and
interest by Fannie Mae. In addition, Fannie Mae will be
obligated to distribute the principal balance of each class
of REMIC Certificates in full, whether or not sufficient
funds are available otherwise.
For Freddie Mac REMIC Certificates, Freddie Mac
guarantees the timely payment of interest and also
guarantees the payment of principal as payments are required
to be made on the underlying mortgage participation
certificates ("PCs"). PCs represent undivided interests in
specified residential mortgages or participations therein
purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally
guarantees ultimate collection of all principal of the
related mortgage loans without offset or deduction. Freddie
Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and
timely payment of interest and principal on each class of
securities (in accordance with the terms of those classes).
This Ginnie Mae guarantee is backed by the full faith and
credit of the United States of America.
REMIC Certificates issued by Fannie Mae, Freddie Mac,
and Ginnie Mae are treated as U. S. government securities
for purposes of investment policies. There can be no
assurance that the United States Government will provide
financial support to Fannie Mae, Freddie Mac, or Ginnie Mae
if necessary in the future.
Stripped Mortgage-Backed Securities (applicable to the
Select Income Fund , Investment Grade Income Fund, and
Government Bond Fund)
The Funds may invest in stripped mortgage-backed
securities ("SMBS"). SMBS are derivative multiclass mortgage
securities. SMBS may be 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, mortgage banks, commercial
banks, investment banks, and special purpose entities of the
foregoing.
SMBS usually are structured with two classes that
receive different proportions of the interest and principal
distributions on a pool of mortgage assets. One type of SMBS
will have one class receiving some of the interest and most
of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of
the principal. In some cases, one class will receive all of
the interest (the interest-only or "IO" class) while the
other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an
IO class is extremely sensitive to the rate of principal
payments (including prepayments on the related underlying
mortgage assets), and a rapid rate of principal payments may
have a material, adverse effect on a portfolio yield to
maturity from these securities. If the underlying mortgage
assets experience greater than anticipated prepayments of
principal, the Funds may fail to recoup fully their initial
investment in these securities even if the security is in
one of the highest rating categories. Certain SMBS may be
deemed "illiquid" and subject to a Fund's limitations on
investment in illiquid securities. The market value of the
PO class generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest from mortgage
assets generally are higher than prevailing market yields on
other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that
the initial investment will not be recouped fully. The
Sub-Adviser will seek to manage these risks (and potential
benefits) by investing in a variety of such securities and
by using certain hedging techniques.
Hedging Techniques and Investment Practices (applicable to
the Select Capital Appreciation Fund and Select
International Equity Fund)
The Select International Equity Fund may employ
certain strategies in order to manage exchange rate risks.
For example, the Fund may hedge some or all of its
investments denominated in a foreign currency against a
decline in the value of that currency. The Fund may enter
into contracts to sell that foreign currency for U.S.
dollars (not exceeding the value of the Fund's assets
denominated in or exposed to that currency) or by
participating in options on futures contracts with respect
to such currency ("position hedge"). The Fund also could
hedge that position by selling a second currency that is
expected to perform similarly to the currency in which
portfolio investments are denominated for U.S. dollars
("proxy hedge"). The Fund also may enter into a forward
contract to sell the currency in which the security is
denominated for a second currency that is expected to
perform better relative to the U.S. dollar if its
Sub-Adviser believes there is a reasonable degree of
correlation between movements in the two currencies
("cross-hedge"). As an operational policy, the Fund will not
commit more than 10% of its assets to the consummation of
cross-hedge contracts and either will cover currency hedging
transactions with liquid portfolio securities denominated in
or whose value is tied to the applicable currency or
segregate liquid assets in the amount of such commitments.
In addition, when the Fund anticipates repurchasing
securities denominated in a particular currency, the Fund
may enter into a forward contract to purchase such currency
in exchange for the dollar or another currency
("anticipatory hedge").
These strategies minimize the effect of currency
appreciation as well as depreciation, but do not protect
against a decline in the underlying value of the hedged
security. In addition, such strategies may reduce or
eliminate the opportunity to profit from increases in the
value of the original currency and may have an adverse
impact on a Fund's performance if its Sub-Adviser's
projection of future exchange rates is inaccurate.
APPENDIX
Descriptions of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Service, a
division of McGraw-Hill Companies, Inc. ("S&P") commercial
paper and bond ratings:
Commercial Paper Ratings
Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment
capacity of rated issuers. The two highest designations are
as follows:
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment
capacity normally will be evidenced by the following
characteristics:
- Leading market positions in
well-established industries.
-High rates of return on funds employed.
-Conservative capitalization structures with
moderate reliance on debt and ample asset protection.
-Broad margins in earnings coverage of fixed
financial charges and high internal cash generation.
-Well-established access to a range of financial
markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of
short-term promissory obligations. This normally will be
evidenced by many of the characteristics cited above, but to
a lesser degree. Earnings trends and coverage ratios, while
sound, will be subject more to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity
is maintained.
S&P commercial paper ratings are graded into several
categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest. The two highest rating
categories are described as follows:
A-1 - This highest category indicates that the degree
of safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated A-1.
Municipal Obligations
Moody's ratings for state and municipal and other
short-term obligations will be designated Moody's Investment
Grade ("MIG"). This distinction is in recognition of the
differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are
uppermost in importance in the short-term borrowing, while
various factors of the first importance in long-term
borrowing risk are of lesser importance in the long run.
Symbols used will be as follows:
MIG-1 - This designation denotes best quality. There
is present strong protection by established cash flows,
superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins
of protection are ample although not so large as in the
preceding group.
A short-term rating also may be assigned on an issue
having a demand feature. Such ratings will be designated as
VMIG to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may
be limited to the external liquidity with no or limited
legal recourse to the issuer in the event that demand is not
met. VMIG-1 and VMIG-2 ratings carry the same definitions as
MIG-1 and MIG-2, respectively.
Description of Moody's Bond Ratings
Aaa - Bonds that 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 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 that 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 - Bonds that 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 that suggest a susceptibility to impairment
some time in the future.
Baa - Bonds that are rated Baa are considered to be
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 that are rated Ba are judged to have
speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal
payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or maintenance of other
terms of the contract over any long period of time may be
small.
Those bonds within the Aa, A, Baa, Ba, and B
categories that Moody's believes possess the strongest
credit attributes within those categories are designated by
the symbols Aa1, A1, Baa1, Ba1, and B1.
Description of S&P's Debt Ratings
AAA - Debt rated AAA has the highest rating assigned
by S&P. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from AAA issues
only in a small degree.
A - Debt rated A has a strong capacity to pay interest
and repay principal, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Where as it
normally exhibits 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 debt in this category than in higher
rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC, or C is
regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and
C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by
large uncertainties or major exposures to adverse
conditions.
Plus (+) or (-): The ratings from AA to CCC may be
modified by the addition of a plus or minus sign to show
relative standing within the major categories.
ALLMERICA INVESTMENT TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a professionally managed,
open-end investment company designed to provide the underlying investment
vehicles for insurance-related accounts. The investment objectives of the two
separate portfolios of the Trust (collectively, the "Funds" and individually,
the
"Fund") currently offered by this Prospectus are as follows:
Select Aggressive Growth Fund seeks above-average capital appreciation
by investing primarily in common stocks of companies which are believed to have
significant potential for capital appreciation.
Select International Equity Fund seeks maximum long-term total return
(capital appreciation and income) primarily by investing in common stocks of
established non-U.S. companies.
Currently, shares of each Fund may be purchased only by separate
accounts ("Separate Accounts") established by First Allmerica Financial Life
Insurance Company ("First Allmerica") for the purpose of funding group annuity
contracts issued by First Allmerica. The offering circular for the Separate
Accounts should be read in conjunction with this Prospectus.
This Prospectus sets forth concisely the information about the Trust that a
prospective investor ought to know before investing. Certain additional
information contained in the Statement of Additional Information dated April
29, 1997 (the "SAI"), which has been filed with the Securities and Exchange
Commission, is incorporated herein by reference and is available upon request
without charge from the Trust, 440 Lincoln Street, Worcester, MA 01653, (508)
855-1000.
THIS PROSPECTUS SHOULD BE READ AND RETAINED 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.
DATED APRIL 29, 1997
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS
3
HOW ARE THE FUNDS MANAGED?
5
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
5
Select Aggressive Growth Fund
6
Select International Equity Fund
7
MANAGEMENT FEES AND EXPENSES
7
FUND MANAGER INFORMATION
8
HOW ARE SHARES VALUED?
9
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
9
SALE AND REDEMPTION OF SHARES
1
0
HOW IS PERFORMANCE DETERMINED?
1
0
ORGANIZATION AND CAPITALIZATION OF THE TRUST
1
1
INVESTMENT RESTRICTIONS
1
1
CERTAIN INVESTMENT STRATEGIES AND POLICIES
1
2
APPENDIX
1
5
</R
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited by Price Waterhouse
LLP, independent accountants of the Trust. This information should be read in
conjunction with the financial statements and notes thereto which appear in the
Policyholder's annual report for the year ended December 31,
1996
("Annual Report"), and which are incorporated by reference in the Trust's SAI.
Further information about the performance of the Funds is contained in the
Annual
Report which may be obtained without charge from the Trust, 440 Lincoln Street,
Worcester, MA 01653, (508) 855-1000.
[FINANCIAL HIGHLIGHTS TO BE FILED BY AMENDMENT]
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the affairs of the Trust
vests in the Board of Trustees of the Trust which meets on a quarterly basis.
Allmerica Investment Management Company, Inc. (the "Manager") is responsible
for the management of the Trust's day-to-day business affairs and has general
responsibility for the management of the investments of the Funds. The Manager,
at its expense, has contracted with certain Sub-Advisers to manage the
investments of the Funds subject to the requirements of the Investment Company
Act of 1940, as amended (the "1940 Act").
The Manager is an indirect, wholly-owned subsidiary of Allmerica
Financial Corporation ("AFC"), a Delaware holding company for a group of
affiliated companies, the largest of which is First Allmerica, a life insurance
company organized in Massachusetts in 1844. The Manager, organized
August 19, 1985, also serves as manager of the Allmerica Funds, an open-end
investment company. The Manager and First Allmerica are located at 440 Lincoln
Street, Worcester, Massachusetts 01653.
The Manager has entered into Sub-Adviser Agreements for the
management of the investments of each of the Funds. Each Sub-Adviser, who has
been selected on the basis of various factors including management experience,
investment techniques, and staffing, is authorized to engage in portfolio
transactions on behalf of the applicable Fund subject to such general or
specific
instructions as may be given by the Trustees and/or the Manager. The terms of a
Sub-Adviser Agreement cannot be changed without the approval of a majority
interest of the shareholders of the affected Fund. The Sub-Advisers have been
selected by the Manager and the Trustees in consultation with RogersCasey &
Associates, Inc. ("RogersCasey"), a leading pension consulting firm.
RogersCasey
is a wholly-owned subsidiary of BARRA, Inc. The cost of such consultation is
borne by the Manager.
RogersCasey provides consulting services to pension plans representing
over $300 billion in total assets and, in its consulting capacity,
monitors
the investment performance of over 1,000 investment advisers. From time to
time,
specific clients of RogersCasey and the Sub-Advisers will be provided in sales
materials. At times, RogersCasey assists in the development of asset allocation
strategies which may be used by shareholders in the diversification of their
portfolios across different asset classes.
Ongoing performance of the independent Sub-Advisers is reviewed and
evaluated by a committee whose members may be senior officers of First
Allmerica, its affiliates or the Manager and an independent consultant.
Combined,
the committee has over 150 years of investment experience. Historical
performance data for all of the Funds is set forth under
"Financial Highlights."
The Manager is responsible for the payment of all fees to the Sub-Advisers. The
Sub-Advisers for each of the Funds are as follows:
Select Aggressive Growth Fund
Nicholas-Applegate Capital
Management
Select International Equity Fund
Bank of Ireland Asset Management
(U.S.) Limited
For a sample listing of the Sub-Advisers' clients, see "Investment
Management and Other Services" in the SAI. For more information on each of the
Sub-Advisers, see "What Are the Investment Objectives and Policies?" and "Fund
Manager Information."
The Manager also has entered into an Administrative Services Agreement
with First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned
subsidiary of First Data Corporation, whereby FDISG performs administrative
services for each of the Funds and is entitled to receive an administrative fee
and
certain out-of-pocket expenses. The Manager is responsible for the payment of
the
administrative fee to FDISG.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and policies designed to
meet different investment and financial needs, as described below. There is no
assurance that a Fund will achieve its investment objective.
A Fund's investment objective is fundamental and may not be changed
without shareholder approval. Unless otherwise indicated, a Fund's investment
policies are not fundamental and may be changed without shareholder approval.
Select Aggressive Growth Fund
Investment Objective: The Select Aggressive Growth Fund seeks
above-average capital appreciation by investing primarily in common stocks of
companies which are believed to have significant potential for capital
appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management ("NACM")
serves as Sub-Adviser to the Select Aggressive Growth Fund. NACM is an
investment manager supervising accounts with approximately $32 billion in
total assets as of December 31, 1996 . NACM's clients are primarily major
corporate employee benefit funds, public employee retirement plans, foundations
and endowment funds, investment companies, and individuals. Founded in 1984,
NACM is located at 600 West Broadway, Suite 2900, San Diego, California
92101.
Investment Policies: Under normal circumstances, at least 65% of the
assets of the Select Aggressive Growth Fund will be invested in equity
securities
consisting of common stocks, securities convertible into common stocks
(including
bonds, notes and preferred stocks), and warrants. The Fund's assets also may be
invested in other debt securities and preferred stocks when such securities are
believed appropriate in light of the Fund's investment objective and market
conditions.
The selection of securities is made solely on the basis of their potential for
capital appreciation. Dividend and interest income from portfolio securities,
if any,
is incidental to the Fund's investment objective. While investments may be made
in
well-known and established companies, a significant portion of the Fund's
investments is expected to be in securities of newer and relatively unseasoned
companies or companies which represent new or changing industries.
At any given point, a substantial portion of the Fund's equity investments
may be in securities which are not listed for trading on national securities
exchanges and which, although publicly traded, may be less liquid than
securities
issued by larger, more seasoned companies which trade on national securities
exchanges. Up to 15% of the Fund's assets may be invested in assets which
are illiquid because they are subject to restriction on resale or for which
market
quotations are not readily available.
Securities of newer companies may be closely held with only a small
portion of their outstanding securities owned by the general public. Newer
companies may have relatively small revenue, lack depth of management, and have
a small share of the market for their products or services; thus, they may be
more
vulnerable to changes in economic conditions, market fluctuations, and other
factors affecting the profitability or marketability of companies. Due to these
and
other factors, the price movement of the securities held by the Fund can be
expected to be more volatile than is the case for the market as a whole, and
the net
asset value of a share of the Fund may fluctuate significantly. Consequently,
the
Fund should not be considered suitable for investors who are unable or
unwilling
to assume the risk of loss inherent in an aggressive growth portfolio, nor
should
investment in the Fund be considered a balanced or complete investment program.
When NACM determines that market conditions warrant a temporary
defensive position, the Fund may invest without limitation in high-grade,
fixed-income securities, U.S. Government securities, or hold assets in cash or
cash
equivalents. For hedging purposes, the Fund may engage in the options and
futures
strategies described under "Certain Investment Strategy and Policies."
The Fund also may invest up to 25% of its assets in foreign
securities (not including its investments in American Depositary Receipts
("ADRs").
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for the Fund was 113%. The portfolio turnover rate was the result of
the Sub-Adviser's investment approach which typically results in above-average
portfolio turnover as securities are sold when the Sub-Adviser believes the
reasons
for their initial purchase are no longer valid or when it believes that the
sale of a
security owned by the Fund and the purchase of another security can enhance
return. A security may be sold to avoid a prospective decline in market value
or
purchased in anticipation of a market rise. Portfolio turnover rates may vary
greatly from year to year. A high portfolio turnover rate will likely result
in
greater brokerage costs to the Fund.
Select International Equity Fund
Investment Objective: The Select International Equity Fund seeks
maximum long-term total return (capital appreciation and income) primarily by
investing in common stocks of established non-U S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.) Limited
("BIAM") serves as Sub-Adviser for the Select International Equity Fund. BIAM
is an indirect wholly-owned subsidiary of Bank of Ireland. Its main offices are
at
26 Fitzwilliam Place, Dublin 2, Ireland. Its U.S. offices are at Two Greenwich
Plaza, Greenwich, CT 06830. Bank of Ireland provides investment management
services through a network of affiliated companies, including BIAM which
represents North American clients. As of December 31, 1996, Bank of Ireland
managed approximately $21 billion in global securities for Irish,
United Kingdom,
European, Australian, South African, Canadian, and U.S. clients.
Investment Policies: To achieve its objective, the Select International
Equity Fund will invest primarily in common stocks of established non-U.S.
companies. Under normal market conditions, at least 65 % of the Fund's total
assets will be invested in the securities of companies domiciled in at least
five
foreign countries, not including the United States. The Fund also may acquire
fixed income debt securities. It will do so, at the discretion of BIAM,
primarily for
defensive purposes. The Fund may invest up to 15% of its assets in
securities
which are illiquid because they are subject to restriction on resale or for
which
market quotations are not readily available.
The Fund's investments may include American Depositary Receipts
("ADRs") which may be sponsored or unsponsored by the underlying issuer. The
Fund may also utilize European Depositary Receipts ("EDRs"), which are similar
to ADRs, in bearer form, designed for use in the European securities markets and
Global Depositary Receipts ("GDRs"). Investments in foreign securities carry
additional risks not present in domestic securities. See "Certain Investment
Strategies and Policies-Foreign Securities." For hedging purposes, the Fund may
engage in the options and futures strategies described under "Certain Investment
Strategies and Policies." Certain state insurance regulations may impose
additional
restrictions on the Fund's holdings of foreign securities.
For the fiscal year ended December 31, 1996, the portfolio turnover rate
for the Fund was 18%. The portfolio turnover rate for the Fund may vary greatly
from year to year.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the Manager is
obligated to perform certain administrative and management services for the
Trust; furnishes to the Trust all necessary office space, facilities, and
equipment;
and pays the compensation, if any, of officers and Trustees who are affiliated
with
the Manager. Other than the expenses specifically assumed by the Manager under
the Management Agreement, all expenses incurred in the operation of the Trust
are
borne by the Trust, including fees and expenses associated with the
registration
and qualification of the Trust's shares under the Securities Act of 1933
(the "1933
Act"); other fees payable to the Securities and Exchange Commission; independent
accountant, legal, and custodian fees; association membership dues; taxes;
interest; insurance premiums; brokerage commissions; fees and expenses of the
Trustees who are not affiliated with the Manager; expenses for proxies,
prospectuses, and reports to shareholders; Fund recordkeeping expenses; and
other
expenses. The Manager has agreed voluntarily to absorb any charges and
expenses associated with Fund recordkeeping that exceed 0.10% of a Fund's
average net assets.
For its services to the Select Aggressive Growth Fund and the Select
International Equity Fund, the Manager receives fees computed daily at an annual
rate of 1.00% of the average daily net asset value of each such Fund.
The Manager is responsible for the payment of all fees to the
Sub-Advisers. For its services, BIAM will receive a fee computed daily at an
annual rate based on the average daily net assets of the Select International
Equity
Fund, under the following schedule:
Assets
R
a
t
e
First $50 Million
0
.
4
5
%
Next $50 Million
0
.
4
0
%
Over $100 Million
0
.
3
0
%
The Manager pays NACM a fee computed daily at an annual rate of
0.60% of the average daily net asset value of the Select Aggressive Growth Fund.
BIAM's fee varies according to the level of assets in the Select
International Equity Fund, which will reduce the fees paid by the Manager as
Fund assets grow, but will not reduce the operating expenses of such Fund.
For the fiscal year ended December 31, 1996, each Fund paid the
Manager gross fees before reimbursement at a rate of 1.00% of such Fund's
average daily net assets.
The following table shows voluntary expense limitations which the
Manager has declared for each Fund and the operating expenses incurred for the
fiscal year ended December 31, 1996 for each Fund.
Percentage of Average
Daily Net Assets
Fund
V
o
l
u
n
t
a
r
y
E
x
p
e
n
s
e
L
i
m
i
t
a
t
i
o
n
s
O
p
e
r
a
t
i
n
g
E
x
p
e
n
s
e
s
+
Select Aggressive
Growth Fund
1
.
3
5
%
1
.
0
8
%
Select International
Equity Fund
1
.
5
0
%
1
.
2
0
%
<
/
R
>
+ Including reductions
The Manager will voluntarily reimburse its fees and any expenses above
the expense limitations. The expense limitations are voluntary and may be
removed at any time after a Fund's first fiscal year of operation without prior
notice to existing shareholders. As shown above, both Funds are within expense
limitations for the year ended December 31, 1996. The Manager reserves the right
to recover from a Fund any fees, within a current fiscal year period, which were
reimbursed in that same year to the extent that total annual expenses did not
exceed the applicable expense limitation. Non-recurring and extraordinary
expenses generally are excluded in the determination of expense ratios of the
Funds for determining any required expense reimbursement. Quotations of yield or
total return for any period when an expense limitation is in effect will be
greater
than if the limitation had not been in effect.
FUND MANAGER INFORMATION
The following individuals are primarily responsible for the day-to-day
management of the particular Funds as indicated below:
The following individuals have served as members of a committee of fund
managers for the Select Aggressive Growth Fund since March 1994, with the
exception of Mr. Nicholas who has served as a fund manager since the Fund's
inception in August 1992:
Lawrence S. Speidell is a Partner and Director of Global/Systematic
Portfolio Management and Research at NACM. Prior to joining NACM in 1994,
Mr. Speidell spent ten years with Batterymarch Financial Management. He also
was Senior Vice President and Portfolio Manager at Putnam Management
Company from 1971 to 1983.
John J. Kane, Senior Portfolio Manager, U.S. Systematic at NACM, has
twenty-eight years of economic/investment experience. Prior to joining NACM in
1994, Mr. Kane was employed by ARCO Investment Management Company and
General Electric Company.
Mark W. Stuckelman, Portfolio Manager, U.S. Systematic, joined
NACM in 1995. Prior to joining NACM, he was employed for five years with
Wells Fargo Bank's Investment Management Group, Fidelity Management Trust
Co., and BARRA.
The following portfolio managers are involved in the investment process
utilized for the Select International Equity Fund:
Christopher Reilly, Chief Investment Officer, joined Bank of Ireland in
1980 and has had overall responsibility for asset management since 1985.
Previously, he worked in the United Kingdom in stockbroking and investment
management.
Denis Donovan, Director-Portfolio Management, received an MBA from
University College Dublin. Prior to joining Bank of Ireland in 1985, he spent
more
than thirteen years in the money market and foreign exchange operations of the
Central Bank of Ireland, the Irish equivalent of the U.S. Federal Reserve. He
has
overall responsibility for the portfolio management function for all of BIAM's
client base.
John O'Callaghan is a graduate of Trinity College, Dublin and is a
Chartered Financial Analyst. He joined Bank of Ireland in 1987.
Peter Wood joined Bank of Ireland in 1985 after spending five years with
another leading investment management firm. He is responsible for portfolio
construction.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is determined once daily as
of the close of trading on the New York Stock Exchange (the "Exchange") on each
day on which the Exchange is open for trading.
Equity securities are valued on the basis of their market value if market
quotations are readily available. In other cases, they are valued at their fair
value
as determined in good faith by the Trustees, although the actual calculations
may
be performed by persons acting pursuant to the direction of the Trustees. Debt
securities (other than short-term obligations) normally are valued on the basis
of
valuations formulated by a pricing service which utilizes data processing
methods
to determine valuations for normal, institutional-size trading units of such
securities. Such methods include the use of market transactions for comparable
securities and various relationships between securities which generally are
recognized by institutional traders. Debt obligations in Funds having a
remaining
maturity of 60 days or less are valued at amortized cost when it is determined
that
amortized cost approximates fair value. Short-term obligations of Funds having a
remaining maturity of more than 60 days are marked to market based upon readily
available market quotations for such obligations or similar securities.
The net asset value of the Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies so that the Trust will
not be subject to federal income tax on any net income and any capital gains
to the
extent they are distributed or are deemed to have been distributed to
shareholders.
Dividends out of net investment income will be declared and paid annually.
Distributions of net capital gains for the year, if any, are made annually. All
dividends and capital gain distributions are applied to purchase additional Fund
shares at net asset value as of the payment date. Fund shares are held by the
Separate Accounts and any distributions are reinvested automatically by the
Separate Accounts. Tax consequences to investors in the Separate Accounts which
are invested in the Trust are described in the prospectus or offering circular
for
such Accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering and currently may
be purchased only by Separate Accounts established by First Allmerica. The
Separate Accounts are the funding mechanisms for group annuity contracts. The
Separate Accounts invest in shares of one or more of the Funds. Shares of each
Fund are sold at their net asset value as next computed after receipt of the
purchase order without the addition of any selling commission or "sales load."
Shares of the Trust currently are being issued also to Separate Accounts
of Allmerica Financial Life Insurance and Annuity Company ("Allmerica Life"), a
subsidiary of First Allmerica, First Allmerica, and other subsidiaries of First
Allmerica which issue variable or group annuity policies or variable premium
life
insurance policies ("mixed funding"). Although neither Allmerica Life nor the
Trust currently foresees any disadvantage, it is conceivable that in the future
such
mixed funding may be disadvantageous for variable or group annuity
policyowners or variable premium life insurance policyowners ("Policyowners").
The Trustees of the Trust intend to monitor events in order to identify any
conflicts that may arise between such Policyowners and to determine what action,
if any, should be taken in response thereto. If the Trustees were to conclude
that
separate funds should be established for variable annuity, group annuity, and
variable premium life separate accounts, Allmerica Life would pay the attendant
expenses.
The Trust redeems shares of each Fund at its net asset value as next
computed after receipt of the request for redemption. The redemption price may
be
more or less than the shareholder's cost. No fee is charged by the Trust on
redemption. The group contracts funded through the Separate Accounts are sold
subject to certain fees and charges which may include sales and redemption
charges as described in the prospectus or offering circular for such Separate
Account.
Redemption payments will be paid within seven days after receipt of the
written request therefor by the Trust, except that the right of redemption may
be
suspended or payments postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
A Fund's performance may be quoted in advertising. A Fund's
performance may be compared with the performance of other investments or
relevant indices. All performance information is based on historical results
and is
not intended to indicate future performance.
A Fund's "yield" is calculated by dividing the Fund's annualized net
investment income per share during a recent 30-day period by the net asset
value
per share on the last day of that period.
Total returns are based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming all dividends and capital gain
distributions are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual total return reflects
the
hypothetical, annually-compounded return that would have produced the same
cumulative return if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out variations in the
Fund's
return, they are not the same as actual year-by-year results.
Yields and total returns quoted for the Funds include the effect of
deducting the Funds' expenses, but may not include charges and expenses
attributable to a particular insurance product. Since shares of the Funds can
be
purchased only through a group annuity, you should review carefully the offering
circular for the Separate Accounts for information on relevant charges and
expenses. Including these charges in the quotations of the Funds' yields and
total
returns would have the effect of decreasing performance. Performance information
for the Funds must always be accompanied by, and be reviewed with, performance
information for the Separate Accounts which invest in the Funds.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business trust under the
laws of Massachusetts by an Agreement and Declaration of Trust dated
October 11, 1984 (the "Trust Declaration"). A copy of the Trust Declaration is
on
file with the Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of beneficial
interest which may be divided into an unlimited number of series of such
shares,
and which are divided presently into twelve series of shares, one series
underlying
each Fund. The two Funds described in this Prospectus may be purchased by the
Separate Accounts established by First Allmerica. The Trust's shares are
entitled
to one vote per share (with proportional voting for fractional shares). The
rights
accompanying Fund shares are vested legally in the Separate Accounts. As a
matter of policy, however, holders of group annuity contracts funded through
the
Separate Accounts have the right to instruct the Separate Accounts as to voting
Fund shares on all matters to be voted on by Fund shareholders. Voting rights of
the participants in the Separate Accounts are set forth more fully in the
prospectus
or offering circular relating to those Accounts. See "Organization of the Trust"
in
the SAI for a definition of a "majority vote" of shareholders.
The Trust is not required to hold annual meetings of shareholders. The
Trustees or shareholders holding at least 10% of the outstanding shares may call
special meetings of shareholders.
Fund Recordkeeping Agent
FDISG, a wholly-owned subsidiary of First Data Corporation, calculates
net asset value per share and maintains general accounting records for each
Fund.
FDISG is entitled to receive an annual Fund recordkeeping fee based on Fund
assets and certain out-of-pocket expenses.
Custodian
Bankers Trust Company, 130 Liberty Street, New York, New York
10006, is the Custodian of the investment securities and other assets of the
Trust.
INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions which are
fundamental and may not be changed with respect to a Fund without shareholder
approval. For a description of certain other investment restrictions, reference
should be made to the SAI.
1. No Fund will concentrate its investments in particular industries,
including debt obligations of foreign governments, but a Fund may invest up to
25% of the value of its total assets in a particular industry. The restriction
does
not apply to investments in obligations issued or guaranteed by the United
States
of America, its agencies or instrumentalities.
2. As to 75% of the value of its total assets, no Fund will invest
more than 5% of the value of its total assets in the securities of any one
issuer
(other than securities issued by or guaranteed as to principal or interest by
the
United States Government or any agency or instrumentality thereof) or acquire
more than 10% of the voting securities of any issuer. The remaining 25% of
assets
may be invested in the securities of one or more issuer without regard to such
limitations.
These limitations apply as of the time of purchase. If through market
action the percentage limitations are exceeded, the Fund will not be required to
reduce the amount of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
Repurchase Agreements (applicable to both Funds)
Each Fund may invest in repurchase agreements, under which the Fund
acquires ownership of a security (ordinarily U.S. Government Securities) but the
seller agrees at the time of sale to purchase the security at a mutually agreed
upon
time and price. Should any seller of a repurchase agreement fail to repurchase
the
underlying security, or should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur disposition costs and losses.
Repurchase agreements maturing in more than seven days are subject to the 15%
limit on illiquid securities.
"When-Issued" Securities (applicable to both Funds)
Each Fund may purchase securities on a when-issued or delayed delivery
basis. Delivery and payment normally take place 15 to 45 days after the
commitment to purchase. No income accrues on when-issued securities prior to
delivery. Purchase of when-issued securities involves the risk that yields
available
in the market when delivery occurs may be higher than those available when the
when-issued order is placed resulting in a decline in the market value of the
security. There is also the risk that under some circumstances the purchase of
when-issued securities may act to leverage the Fund.
Lending of Securities (applicable to both Funds)
For the purpose of realizing additional income, the Funds may lend
portfolio securities to broker-dealers or financial institutions amounting to
not
more than 30% of their respective total assets taken at current value. While
any
such loan is outstanding, a Fund will continue to receive amounts equal to the
interest or dividends paid by the issuer on the securities, as well as interest
(less
any rebates to be paid to the borrower) on the investment of the collateral or
a fee
from the borrower. Each Fund will have the right to call each loan and obtain
the
securities. Lending portfolio securities involves certain risks, including
possible
delays in receiving additional collateral or in the recovery of the securities
or
possible loss of rights in the collateral should the borrower fail financially.
Loans
will be made in accordance with guidelines established by the Board of Trustees.
Foreign securities (applicable to both Funds)
Investments in foreign markets involve substantial risks not associated
typically with investing in the U. S. which should be considered carefully by
the
investor. Such risks may include political and economic instability, differing
accounting and financial reporting standards, higher commission rates on foreign
portfolio transactions, less readily available public information regarding
issuers,
potentially adverse changes in tax and exchange control regulations, and the
potential for restrictions on the flow of international capital. Foreign
securities
also involve currency risks. Accordingly, the relative strength of the U.S.
dollar
may be an important factor in the performance of the Fund, depending on the
extent of such Fund's foreign investments. Some foreign securities exchanges may
not be as developed or efficient as those in the U.S. and securities traded on
foreign securities exchanges generally are subject to greater price volatility.
There
is also the possibility of adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation, and limitations on the
removal
of funds or other assets. Investments in emerging countries involve exposure to
economic structures that are generally less diverse and mature than in the
U. S.,
and to political systems which may be less stable. In addition, securities of
issuers
located in emerging countries may have limited marketability and may be subject
to more abrupt or erratic price fluctuations.
Each Fund may buy or sell foreign currencies and foreign currency
forward contracts, options on foreign currencies, and foreign currency futures
contracts and options thereon. Although such instruments may reduce the risk of
loss due to a decline in the value of the currency that is sold, they also limit
any
possible gain which might result should the value of the currency increase. Such
instruments will be used primarily to protect a Fund from adverse currency
movements; however, they also involve the risk that anticipated currency
movements will not be accurately predicted, thus adversely affecting a Fund's
total
return. See "Options and Futures Transactions."
The Funds' investments may include ADRs. For many foreign securities,
there are U.S. dollar-denominated ADRs which are traded in the United States on
exchanges or over the counter. ADRs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank. An ADR
may be sponsored by the issuer of the underlying foreign security, or it may be
issued in unsponsored form. The holder of a sponsored ADR is likely to receive
more frequent and extensive financial disclosure concerning the foreign issuer
than
the holder of an unsponsored ADR and generally will bear lower transaction
charges. The Funds will invest in both sponsored and unsponsored ADRs. The
Select International Equity Fund also may utilize EDRs, which are designed for
use in European securities markets, and also may invest in GDRs.
Options and Futures Transactions (applicable to both Funds)
Through the writing and purchase of put and call options on its securities,
financial indices, and foreign currencies and the purchase and sale of futures
contracts and related options with respect to securities and financial indices
in
which it may invest, each Fund at times may seek to hedge against fluctuations
in
net asset value. Each Fund's ability to engage in options and futures strategies
will
depend on the availability of liquid markets in such instruments. It is
impossible to
predict the amount of trading interest that may exist in various types of
options or
futures contracts. Therefore, there is no assurance that a Fund will be able to
utilize these instruments effectively for the purposes stated above.
Risks inherent in the use of futures and options ("derivative instruments")
include (1) the risk that interest rates, securities prices, and currency
markets will
not move in the directions anticipated; (2) imperfect correlation between the
price
of derivative instruments and movements in the prices of the securities,
interest
rates, or currencies being hedged; (3) the fact that skills needed to use these
strategies are different from those needed to select portfolio securities; (4)
the
possible absence of a liquid secondary market for any particular instrument at
any
time; and (5) the possible need to defer closing out certain hedged positions
to
avoid adverse tax consequences.
The Funds will purchase futures and options only on exchanges or boards
of trade when there appears to be an active secondary market, but there can be
no
assurance that a liquid secondary market will exist for any future or option at
any
particular time.
In connection with transactions in futures and related options, the Funds
will be required to deposit as "initial margin" an amount of cash and/or
securities.
Thereafter, subsequent payments are made to and from the broker to reflect
changes in the value of the futures contract.
A more detailed explanation of futures, options, and other derivative
instruments, and the risks associated with them, is included in the SAI.
Restricted Securities (applicable to both Funds)
The Funds may purchase fixed-income securities that are not registered
under the Securities Act of 1933 ("restricted securities"), but can be offered
and
sold to "qualified institutional buyers" under Rule 144A of the 1933 Act.
However, each Fund will not invest more than 15% of its assets in restricted
securities (as defined in its investment restrictions) unless the Board of
Trustees
determines, based upon a continuing review of the trading markets for the
specific
restricted security, that such restricted securities are liquid. The Board of
Trustees
has adopted guidelines and delegated to the Manager the daily function of
determining and monitoring liquidity of restricted securities. The Board,
however,
will retain sufficient oversight and be responsible ultimately for the
determinations. Since it is not possible to predict with assurance exactly how
this
market for restricted securities sold and offered under Rule 144A will develop,
the
Board will monitor carefully a Fund's investments in securities, focusing on
such
important factors, among others, as valuation, liquidity, and availability of
information. This investment practice could have the effect of increasing the
level
of illiquidity in a Fund to the extent that qualified institutional buyers
become for a
time uninterested in purchasing these restricted securities. As a result, a
Fund
might not be able to sell these securities when its Sub-Adviser wishes to do
so, or
might have to sell them at less than fair value. In addition, market quotations
are
less readily available. Therefore, judgment at times may play a greater role in
valuing these securities than in the case of unrestricted securities.
Investments in Money Market Securities (applicable to both Funds)
Each Fund may hold at least a portion of its assets in cash equivalents or
money market instruments. There is always the risk that the issuer of a money
market instrument may be unable to make payment upon maturity.
Foreign Currency Hedging Techniques and Investment Practices (applicable to the
Select International Equity Fund)
The Select International Equity Fund may employ certain strategies in
order to manage exchange rate risks. For example, the Fund may hedge some or
all of its investments denominated in a foreign currency against a decline in
the
value of that currency. The Fund may enter into contracts to sell that foreign
currency for U.S. dollars (not exceeding the value of the Fund's assets
denominated in or exposed to that currency) or by participating in options on
futures contracts with respect to such currency ("position hedge"). The Fund
also
could hedge that position by selling a second currency that is expected to
perform
similarly to the currency in which portfolio investments are denominated, for
U.S.
dollars ("proxy hedge"). The Fund also may enter into a forward contract to
sell
the currency in which the security is denominated for a second currency that is
expected to perform better relative to the U.S. dollar if its Sub-Adviser
believes
there is a reasonable degree of correlation between movements in the two
currencies ("cross-hedge"). As an operational policy, the Fund will not commit
more than 10% of its assets to the consummation of cross-hedge contracts and
either will cover currency hedging transactions with liquid portfolio
securities
denominated in or whose value is tied to the applicable currency or segregate
liquid assets in the amount of such commitments. In addition, when the Fund
anticipates purchasing securities denominated in a particular currency, the Fund
may enter into a forward contract to purchase such currency in exchange for the
dollar or another currency ("anticipatory hedge").
These strategies minimize the effect of currency appreciation as well as
depreciation, but do not protect against a decline in the underlying value of
the
hedged security. In addition, such strategies may reduce or eliminate the
opportunity to profit from increases in the value of the original currency and
may
have an adverse impact on the Fund's performance if its Sub-Adviser's projection
of future exchange rates is inaccurate.
APPENDIX
Descriptions of Moody's Investors Service, Inc. ("Moody's") and Standard
and Poor's Ratings Service, a division of McGraw-Hill Companies, Inc. ("S&P")
commercial paper and bond ratings:
Commercial Paper Ratings
Moody's employs three designations, all judged to be investment grade, to
indicate the relative repayment capacity of rated issuers. The two highest
designations are as follows:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-l repayment
capacity normally will be evidenced by the following characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This normally will
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be subject more to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
S&P commercial paper ratings are graded into several categories, ranging
from "A-1" for the highest quality obligations to "D" for the lowest. The two
highest rating categories are described as follows:
A-1 - This highest category indicates that the degree of safety regarding
timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues
designated A-1.
Municipal Obligations
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk.
Factors affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing, while various factors of the first importance in long-term
borrowing risk are of lesser importance in the long run. Symbols used will be as
follows:
MIG-1 - This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support, or
demonstrated
broad-based access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
A short-term rating also may be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG to reflect such
characteristics as
payment upon periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that
the source of payment may be limited to the external liquidity with no or
limited
legal recourse to the issuer in the event the demand is not met. VMIG-1 and
and payment
relying on external liquidity. Additionally, investors should be alert to the
fact that
the source of payment may be limited to the external liquidity with no or
limited
legal recourse to the issuer in the event the demand is not met. VMIG-1 and
VMIG-2 ratings carry the same definitions as MIG-1 and MIG-2, respectively.
Description of Moody's Bond Ratings
Aaa- Bonds that 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 that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are known generally as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A- Bonds that 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 that
suggest a susceptibility to impairment some time in the future.
Baa- Bonds that are rated Baa to be considered to be 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.
Those bonds within Aa, A, and Baa categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the
symbols Aa1, A1, and Baa1.
Description of S&P's Debt Ratings
AAA- Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from AAA issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB- Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Where as it normally exhibits 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 debt in this
category
than in higher rated categories.
Plus (+) or (-): The ratings from AA to BBB may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
* CRM Advisers LLC assumed sub-adviser responsibilities from David L. Babson
& Co.
Inc. on January 1, 1996.
** Putnam Investment Management, Inc. assumed sub-adviser responsibilities from
Provident
Investment Counsel on July 1, 1996.
* Putnam Investment Management, Inc. assumed sub-adviser responsibilities from
Provident
Investment Counsel on July 1, 1996.
* Putnam Investment Management, Inc. assumed sub-adviser responsibilities from
Provident
Investment Counsel on July 1, 1996.
G:\SHARED\440\AIT\P&SAI\PROSPEC\1997\D2.DOC 16
G:\SHARED\440\AIT\P&SAI\PROSPEC\1997\D2.DOC
ALLMERICA INVESTMENT TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a
professionally managed, open-end investment company designed
to provide the underlying investment vehicles for insurance
related accounts. The investment objectives of the five
separate portfolios of the Trust (collectively, the "Funds,"
and individually, the "Fund") currently offered by this
Prospectus are as follows:
Select Aggressive Growth Fund seeks
above-average capital appreciation by investing primarily in
common stocks of companies which are believed to have
significant potential for capital appreciation.
Select Capital Appreciation Fund seeks long-term
growth of capital in a manner consistent with the
preservation of capital. Realization of income is not a
significant investment consideration and any income realized
on the Fund's investments will be incidental to its primary
objective.
Select International Equity Fund seeks maximum
long-term total return (capital appreciation and income)
primarily by investing in common stocks of established
non-U.S. companies.
Select Growth Fund seeks to achieve long-term
growth of capital by investing in a diversified portfolio
consisting primarily of common stocks selected on the basis
of their long-term growth potential.
Select Income Fund seeks a high level of current
income. The Fund will invest primarily in investment grade,
fixed-income securities.
Currently, shares of each Fund may be purchased only
by separate accounts ("Separate Accounts") established by
First Allmerica Financial Life Insurance Company ("First
Allmerica") for the purpose of funding group annuity
contracts issued by First Allmerica. The offering circular
for the Separate Accounts should be read in conjunction with
this Prospectus.
This Prospectus sets forth concisely the information
about the Trust that a prospective investor ought to know
before investing. Certain additional information
contained in the Statement of Additional Information dated
April 29, 1997 (the "SAI") , which has been filed with
the Securities and Exchange Commission, is incorporated
herein by reference and is available upon request without
charge from the Trust, 440 Lincoln Street, Worcester, MA
01653, (508) 855-1000.
THIS PROSPECTUS SHOULD BE READ AND RETAINED 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.
DATED APRIL 29, 1997
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS
3
HOW ARE THE FUNDS MANAGED?
5
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
5
Select Aggressive Growth Fund
6
Select Capital Appreciation Fund
6
Select International Equity Fund
8
Select Growth Fund
8
Select Income Fund
9
MANAGEMENT FEES AND EXPENSES
1
0
FUND MANAGER INFORMATION
1
2
HOW ARE SHARES VALUED?
1
3
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
1
3
SALE AND REDEMPTION OF SHARES
1
3
HOW IS PERFORMANCE DETERMINED?
1
4
ORGANIZATION AND CAPITALIZATION OF THE TRUST
1
4
INVESTMENT RESTRICTIONS
1
5
CERTAIN INVESTMENT STRATEGIES AND POLICIES
1
5
APPENDIX
2
1
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited
by Price Waterhouse LLP, independent accountants of the
Trust. This information should be read in conjunction with
the financial statements and notes thereto which appear in
the Policyholder's annual report for the year ended
December 31, 1996 ("Annual Report"), and which are
incorporated by reference in the Trust's SAI. Further
information about the performance of the Funds is contained
in the Annual Report which may be obtained without charge
from the Trust, 440 Lincoln Street, Worcester, MA 01653,
(508) 855-1000.
[FINANCIAL HIGHLIGHTS TO BE FILED BY AMENDMENT]
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the
affairs of the Trust vests in the Board of Trustees of the
Trust which meets on a quarterly basis. Allmerica Investment
Management Company, Inc. (the "Manager") is responsible for
the management of the Trust's day-to-day business affairs
and has general responsibility for the management of the
investments of the Funds. The Manager, at its expense, has
contracted with certain Sub-Advisers to manage the
investments of the Funds subject to the requirements of the
Investment Company Act of 1940, as amended (the "1940 Act").
The Manager is an indirect, wholly-owned subsidiary
of Allmerica Financial Corporation ("AFC"), a Delaware
holding company for a group of affiliated companies, the
largest of which is First Allmerica, a life insurance
company organized in Massachusetts in 1844. The Manager,
organized August 19, 1985, also serves as manager of the
Allmerica Funds, an open-end investment company. The Manager
and AFC are located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
The Manager has entered into Sub-Adviser Agreements
for the management of the investments of each of the Funds.
Each Sub-Adviser, who has been selected on the basis of
various factors, including management experience, investment
techniques, and staffing, is authorized to engage in
portfolio transactions on behalf of the applicable Fund
subject to such general or specific instructions as may be
given by the Trustees and/or the Manager. The terms of a
Sub-Adviser Agreement cannot be changed materially without
the approval of a majority interest of the shareholders of
the affected Fund. The Sub-Advisers have been selected by
the Manager and the Trustees in consultation with
RogersCasey & Associates, Inc. ("RogersCasey"), a leading
pension consulting firm. RogersCasey is a wholly-owned
subsidiary of BARRA, Inc. The cost of such consultation is
borne by the Manager.
RogersCasey provides consulting services to pension
plans representing over $300 billion in total assets and, in
its consulting capacity, monitors the investment performance
of over 1,000 investment advisers. From time to time,
specific clients of RogersCasey and the Sub-Advisers will be
provided in sales materials. At times, RogersCasey assists
in the development of asset allocation strategies which may
be used by shareholders in the diversification of their
portfolios across different asset classes.
Ongoing performance of the independent Sub-Advisers is
monitored and evaluated by a committee whose members may
include senior officers of First Allmerica, its affiliates
or the Manager and an independent consultant. Combined, the
committee has over 150 years of investment experience.
Historical performance data for all of the Funds is set
forth under "Financial Highlights." The Manager is
responsible for the payment of all fees to the Sub-Advisers.
The Sub-Advisers for each of the Funds are as follows:
Select Aggressive
Growth Fund
Nicholas-Applegate Capital
Management
Select Capital
Appreciation Fund
Janus Capital Corporation
Select International
Equity Fund
Bank of Ireland Asset
Management (U.S.) Limited
Select Growth Fund
Putnam Investment
Management, Inc. *
Select Income Fund
Standish, Ayer & Wood, Inc.
For a sample listing of the Sub-Advisers' clients, see
"Investment Management and Other Services" in the SAI. For
more information on each of the Sub-Advisers, see "What Are
the Investment Objectives and Policies?" and "Fund Manager
Information."
The Manager also has entered into an Administrative
Services Agreement with First Data Investor Services
Group, Inc. ("FDISG"), a wholly-owned subsidiary of First
Data Corporation, whereby FDISG performs administrative
services for each of the Funds and is entitled to receive an
administrative fee and certain out-of-pocket expenses. The
Manager is responsible for the payment of the administrative
fee to FDISG.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and
policies designed to meet different investment and financial
needs, as described below. There is no assurance that a Fund
will achieve its investment objective.
A Fund's investment objective is fundamental and may
not be changed without shareholder approval. Unless
otherwise indicated, a Fund's investment policies are not
fundamental and may be changed without shareholder approval.
Select Aggressive Growth Fund
Investment Objective: The Select Aggressive Growth Fund
seeks above-average capital appreciation by investing
primarily in common stocks of companies which are believed
to have significant potential for capital appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management ("NACM")
serves as Sub-Adviser to the Select Aggressive Growth Fund.
NACM is an investment manager supervising accounts with
approximately $32 billion in total assets as of
December 31, 1996. NACM's clients are primarily major
corporate employee benefit funds, public employee retirement
plans, foundations and endowment funds, investment companies
and individuals. Founded in 1984, NACM is located at 600
West Broadway, Suite 2900, San Diego, California 92101.
Investment Policies: Under normal circumstances, at least
65% of the assets of the Select Aggressive Growth Fund will
be invested in equity securities, consisting of common
stocks, securities convertible into common stocks (including
bonds, notes and preferred stocks), and warrants. The Fund's
assets also may be invested in other debt securities and
preferred stocks when such securities are believed
appropriate in light of the Fund's investment objective and
market conditions.
The selection of securities is made solely on the
basis of their potential for capital appreciation. Dividend
and interest income from portfolio securities, if any, is
incidental to the Fund's investment objective. While
investments may be made in well-known and established
companies, a significant portion of the Fund's investments
is expected to be in securities of newer and relatively
unseasoned companies or companies which represent new or
changing industries.
At any given point, a substantial portion of the
Fund's equity investments may be in securities which are not
listed for trading on national securities exchanges and
which, although publicly traded, may be less liquid than
securities issued by larger, more seasoned companies which
trade on national securities exchanges. Up to 15% of the
Fund's assets may be invested in assets which are illiquid
because they are subject to restriction on resale or for
which market quotations are readily available.
Securities of newer companies may be closely held with
only a small portion of their outstanding securities owned
by the general public. Newer companies may have relatively
small revenue, lack depth of management, and have a small
share of the market for their products or services; thus,
they may be more vulnerable to changes in economic
conditions, market fluctuations, and other factors affecting
the profitability or marketability of companies. Due to
these and other factors, the price movement of the
securities held by the Fund can be expected to be more
volatile than is the case for the market as a whole, and the
net asset value of a share of the Fund may fluctuate
significantly. Consequently, the Fund should not be
considered suitable for investors who are unable or
unwilling to assume the risk of loss inherent in an
aggressive growth portfolio, nor should investment in the
Fund be considered a balanced or complete investment
program.
When NACM determines that market conditions warrant a
temporary defensive position, the Fund may invest without
limitation in high-grade, fixed-income securities, U.S.
Government securities, or hold assets in cash or cash
equivalents. The Fund may engage, for hedging purposes, in
the options and futures strategies described under "Certain
Investment Strategy and Policies."
The Fund also may invest up to 25% of its assets in
foreign securities (not including its investments in
American Depositary Receipts ("ADRs").
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 113%. The
portfolio turnover rate was the result of the Sub-Adviser's
investment approach which typically results in above-average
portfolio turnover as securities are sold when the
Sub-Adviser believes the reasons for their initial purchase
are no longer valid or when it believes that the sale of a
security owned by the Fund and the purchase of another
security can enhance return. A security may be sold to avoid
a prospective decline in market value or purchased in
anticipation of a market rise. Portfolio turnover rates may
vary greatly from year to year. A high portfolio turnover
rate will likely result in greater brokerage costs to the
Fund.
Select Capital Appreciation Fund
Investment Objective: The Select Capital Appreciation Fund
seeks long-term growth of capital in a manner consistent
with the preservation of capital. Realization of income is
not a significant investment consideration and any income
realized on the Fund's investments will be incidental to its
primary objective.
Sub-Adviser: Janus Capital Corporation ("JCC") serves as
Sub-Adviser to the Select Capital Appreciation Fund. JCC has
served as investment adviser to the Janus Fund since 1969
and currently serves as investment adviser to all of the
Janus retail funds, as well as adviser or sub-adviser to
other mutual funds and individual, corporate, charitable and
retirement accounts. Kansas City Southern Industries, Inc.,
a publicly traded holding company whose primary subsidiaries
are engaged in transportation and financial services, owns
approximately 83% of the outstanding stock of JCC. As of
December 31, 1996, JCC had approximately $47 billion in
total assets under management. JCC is located at 100
Fillmore Street, Denver, Colorado 80206-4923.
Investment Policies: The Fund invests in common stocks when
the Sub-Adviser believes that the relevant market
environment favors profitable investing in those securities.
The Fund pursues its objective by normally investing at
least 50% of its equity assets in securities issued by
medium-sized companies. Medium-sized companies are those
whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the "MidCap Index").
Companies whose capitalization falls outside this range
after the Fund's initial purchase continue to be considered
medium-sized companies for the purpose of this policy. As of
December 31, 1996, the MidCap Index included companies with
capitalizations between approximately $500 million to $10
billion. The range of the MidCap Index is expected to change
on a regular basis. Subject to the above policy, the Fund
also may invest in smaller or larger issuers. Common stock
investments are selected in industries and companies that
the Sub-Adviser believes are experiencing favorable demand
for their products and services, and which operate in a
favorable competitive environment and regulatory climate.
The Sub-Adviser's analysis and selection process focuses on
stocks with earnings growth potential that may not be
recognized by the market. Such securities are selected
solely for their capital growth potential; investment income
is not a consideration. Medium-sized companies may suffer
more significant losses as well as realize more substantial
growth than larger issues; thus, investments in such
companies tend to be more volatile and somewhat speculative.
The selection criteria for domestic issuers apply
equally to stocks of foreign issuers. In addition, factors
such as expected levels of inflation, government policies
influencing business conditions, the outlook for currency
relationships, and prospects for relative economic growth
among countries, regions or geographic areas may warrant
greater consideration in selecting foreign stocks. The Fund
may invest without limitation in foreign securities. The
Fund may invest directly in foreign securities denominated
in foreign currency and not publicly traded in the United
States. The Fund also may purchase foreign securities
through American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") , and other types of receipts or shares
evidencing ownership of the underlying foreign securities.
In addition, the Fund may invest indirectly in foreign
securities through foreign investment funds or trusts
(including passive foreign investment companies). Certain
state insurance regulations may impose additional
restrictions on the Fund's holdings of foreign securities.
Investments in foreign securities carry additional risks not
present in domestic securities. See "Certain Investment
Strategies and Policies - Foreign Securities."
Although the Fund normally invests primarily in
common stocks, the Fund's cash position may increase when
the Sub-Adviser is unable to locate investment opportunities
with desirable risk/reward characteristics. The Fund also
may invest in preferred stocks, warrants, government
securities, corporation bonds and debentures, high-grade
commercial papers, certificates of deposit, other debt
securities or repurchase agreements or reverse repurchase
agreements when the Sub-Adviser perceives an opportunity for
capital growth from such securities or so that the Fund may
receive a return on its idle cash. The Fund also may invest
in up to 35% of its assets in such lower-rated securities
commonly known as "junk bonds." Fixed income securities
rated in the fourth highest grade by Moody's Investors
Service, Inc. (Moody's) or Standard & Poor's Ratings
Service, a division of McGray-Hill Companies, Inc. ("S&P")
(Baa and BBB, respectively) are investment grade but are
considered to have some speculative characteristics. Lower-
rated securities or "junk bonds" (rated BA/BB or lower)
involve the risks discussed under "Certain Investment
Strategies and Policies." When the Fund invests in such
securities, investment income will increase and may
constitute a large portion of the return realized by the
Fund and the Fund probably will not participate in market
advances or declines to the extent that it would if it
remained fully invested in common stocks. Up to 15% of the
Fund's assets may be invested in restricted or illiquid
assets.
The Fund may invest in "special situations" from time
to time. A special situation arises when, in the opinion of
the Sub-Adviser, the securities of a particular issuer will
be recognized and appreciate in value due to a specific
development with respect to that issuer. Developments
creating a special situation might include, among others, a
new product or process, a technological breakthrough, a
management change or other extraordinary corporate event, or
differences in market supply of and demand for the security.
Investment in special situations may carry an additional
risk of loss in the event that the anticipated development
does not occur or does not attract the expected attention.
For hedging purposes, the Fund may engage in options
and futures strategies and may utilize forward contracts,
interest rate swaps and swap-related products. See "Certain
Investment Strategies and Policies."
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 98%. The
portfolio turnover rate for the Fund may vary from year to
year.
Select International Equity Fund
Investment Objective: The Select International Equity Fund
seeks maximum long-term total return (capital appreciation
and income) primarily by investing in common stocks of
established non-U.S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.)
Limited ("BIAM") serves as Sub-Adviser for the Select
International Equity Fund. BIAM is an indirect, wholly-owned
subsidiary of Bank of Ireland. Its main offices are at 26
Fitzwilliam Place, Dublin 2, Ireland. Its U.S. offices are
at Two Greenwich Plaza, Greenwich, C T 06830. Bank of
Ireland provides investment management services through a
network of affiliated companies, including BIAM which
represents North American clients. As of December 31, 1996,
Bank of Ireland managed approximately $21 billion in
global securities for Irish, United Kingdom, European,
Australian, South African, Canadian, and U.S. clients.
Investment Policies: To achieve its objective, the Select
International Equity Fund will invest primarily in common
stocks of established non-U.S. companies. Under normal
market conditions, at least 65 % of the Fund's total assets
will be invested in the securities of companies domiciled in
at least five foreign countries, not including the United
States. The Fund may also acquire fixed income debt
securities. It will do so, at the discretion of BIAM,
primarily for defensive purposes. The Fund may invest up to
15% of its assets in securities which are illiquid because
they are subject to restriction on resale or for which
market quotations are not readily available.
The Fund's investments may include ADRs which may be
sponsored or unsponsored by the underlying issuer. The Fund
may also utilize EDRs, which are similar to ADRs, in bearer
form, designed for use in the European securities markets
and GDRs. Investments in foreign securities carry additional
risks not present in domestic securities. See "Certain
Investment Strategies and Policies-Foreign Securities. " For
hedging purposes, the Fund may engage in the options and
futures strategies described under "Certain Investment
Strategies and Policies." Certain state insurance
regulations may impose additional restrictions on the Fund's
holdings of foreign securities.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 18%. The
portfolio turnover rate for the Fund may vary greatly from
year to year.
Select Growth Fund
Investment Objective: The Select Growth Fund seeks to
achieve long-term growth of capital by investing in a
diversified portfolio consisting primarily of common stocks
selected on the basis of their long-term growth potential.
Sub-Adviser: Putnam Investment Management, Inc.
("Putnam"), One Post Office Square, Boston, Massachusetts
02109, serves as Sub-Adviser to the Select Growth Fund.
Putnam has been an investment manager since 1937. As of
December 31, 1996, Putnam had assets under management of
approximately $173 billion. Putnam is a wholly-owned
subsidiary of Putnam Investments, Inc., a holding company
which is in turn wholly owned by Marsh & McLennan Companies,
Inc., a publicly-owned holding company whose principal
businesses are international insurance and reinsurance
brokerage, employee benefit consulting, and investment
management.
Investment Policies: The Select Growth Fund seeks to attain
its objective by investing in securities of companies that
appear to have favorable long-term growth characteristics.
Potential for long-term growth is the determinative factor
in the selection of portfolio securities. Although the Fund
may invest in dividend-paying stocks, generation of current
income is not an objective of the Fund. Any income that is
received is incidental to the Fund's objective of long-term
growth of capital. When choosing securities for the
portfolio, the Sub-Adviser focuses on companies that display
strong financial characteristics and earnings growth
potential.
When choosing securities for the portfolio, the Sub-
Adviser for the Select Growth Fund focuses on companies that
display strong financial characteristics and earnings growth
potential.
At least 65% of the Fund's assets under normal
conditions will consist of growth-oriented common stocks.
The Fund may invest in common stocks of large well-known
companies as well as smaller growth companies, which
generally include companies with a market capitalization of
$500 million or less ("smaller growth companies"). The
stocks of smaller growth companies may involve a higher
degree of risk than other types of securities and the price
movement of such securities can be expected to be more
volatile than is the case of the market as a whole. The Fund
may hold stocks traded on one or more of the national
exchanges as well as in the over-the-counter markets.
Because opportunities for capital growth may exist not only
in new and expanding areas of the economy but also in mature
and cyclical industries, the Fund's portfolio investments
are not limited to any particular type of company or
industry. The Fund may also purchase convertible bonds and
preferred stocks, warrants, and debt securities if the
Fund's Sub-Adviser believes they would help achieve the
Fund's objective of long-term growth.
The Fund may invest up to 35% of its assets in both
higher-rated and lower-rated fixed-income securities in
seeking its objective of long-term growth of capital. The
dollar average weighted maturity of the Fund's fixed-income
securities will vary depending on, among other things,
current market conditions. The Fund may invest up to 15% of
its assets in lower-rated securities, commonly known as
"junk bonds," which involve risks discussed under "Certain
Investment Strategies and Policies." For more information
concerning the rating categories of corporate debt
securities, see the Appendix to the Prospectus.
When the Sub-Adviser determines that market conditions
warrant a temporary, defensive position, the Fund may invest
without limitation in high-grade, fixed-income securities,
U.S. Government securities, or hold assets in cash or cash
equivalents. To the extent the Fund is so invested it is not
achieving its objective to the same degree as under normal
conditions. For hedging purposes, the Fund may engage in the
options and futures strategies described under "Certain
Investment Strategies and Policies."
The Select Growth Fund's objective of seeking
long-term growth of capital means that its assets generally
will be subject to greater risk than may be involved in
investing in securities that are not selected for growth
potential. The Fund may invest up to 15% of its assets in
securities which are illiquid because they are subject to
restriction on resale or for which market quotations are not
readily available. The Fund may also invest up to 25% of
its assets in foreign securities.
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 159%. The Fund
experienced such a rate of turnover due to a new sub-adviser
assuming responsibility for the Fund on July 1, 1996 and
subsequently repositioning the portfolio. The portfolio
turnover for the Fund may vary greatly from year to year.
Select Income Fund
Investment Objective: The Select Income Fund seeks a high
level of current income. The Fund will invest primarily in
investment grade, fixed-income securities.
Sub-Adviser: Standish, Ayer & Wood, Inc. ("SAW") serves as
Sub-Adviser to the Select Income Fund. SAW was founded in
1933 to provide investment management services to high net
worth individuals and institutions. As of December 31,
1996, total client assets exceeded $30 billion. SAW
manages fixed-income portfolios for major corporate and
governmental pension plans, financial institutions, and
endowment and foundation funds. Through its affiliate,
Standish International Investment Management Company, L.P.,
SAW offers international investment services. SAW is an
independent investment counseling firm owned by its
twenty-two directors who are active with the firm. SAW is
located at One Financial Center, Boston, Massachusetts
02111.
Investment Policies: Under normal circumstances, at least
65% of the Select Income Fund's assets, at the time of
investment, will be invested in investment grade corporate
debt securities and securities issued or guaranteed as to
principal or interest by the U.S. Government or its agencies
or instrumentalities. Investment grade corporate debt
securities are: (a) assigned a rating within the four
highest grades (Baa/BBB or higher) by either Moody's or S&P,
(b) equivalently rated by another nationally recognized
statistical rating organization ("NRSRO"), or (c) unrated
securities but determined by the Sub-Adviser to be of
comparable quality. Securities rated in the fourth highest
grade (rated Baa and BBB by Moody's and S&P, respectively)
are considered to have some speculative characteristics. The
Fund will not invest in debt securities rated below
investment grade (Ba/BB or lower) by both Moody's and S&P.
For more information concerning the rating categories of
corporate debt securities and commercial paper, see the
Appendix to the Prospectus. The types of securities in which
the Fund invests are corporate debt obligations such as
bonds, notes and debentures, and obligations convertible
into common stock; "money market" instruments, such as
bankers acceptances, or negotiable certificates of deposit
issued by the 25 largest U.S. banks (in terms of deposits);
commercial paper rated Prime-1 by Moody's or A-1 by S&P;
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; asset-backed securities;
mortgage-backed securities); and stripped mortgage-backed
securities. The Fund also may invest in U.S. dollar
obligations of, or guaranteed by, the government of Canada
or a province of Canada or any instrumentality or political
subdivision thereof, and U.S. dollar obligations of
supranational entities such as the World Bank, European
Investment Bank, and African Development Bank. For more
information about asset-backed securities and
mortgage-backed securities and stripped mortgage-backed
securities, see "Certain Investment Strategies and
Policies."
The Fund's investments in corporate debt securities
are not limited to any particular type of company or
industry. The Fund will invest in corporate debt obligations
primarily of companies having a market capitalization of
more than $500 million at the time of investment.
The Fund's dollar average weighted maturity and the
mix of permitted portfolio securities as described above
will vary from time to time depending, among other things,
on current market and economic conditions and the
comparative yields on instruments in different sectors, such
as corporate and Treasuries, and with different maturities.
The dollar average weighted maturity of the portfolio,
excluding money market instruments, is expected to range
between 5 and 20 years under normal market conditions. The
Fund may invest up to 35% of its assets in money market
instruments under normal conditions. Although the Fund does
not invest for short-term trading purposes, portfolio
securities may be sold from time to time without regard to
the length of time they have been held. The value of the
Fund's portfolio securities generally will vary inversely
with changes in prevailing interest rates, declining as
interest rates rise and increasing as rates decline. The
value will also be affected by other market and economic
factors. There is the risk with corporate debt securities
that the issuers may not be able to meet their obligations
on interest and principal payments.
Obligations in which the Select Income Fund may
invest include debt obligations of supranational entities.
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.
Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments
will be undertaken or met in the future. The Fund may not
invest more than 25% of its assets in debt obligations of
supranational entities.
The Fund may invest up to 15% of its assets in
securities which are illiquid because they are subject to
restriction on resale or for which market quotations are not
readily available. The Fund may also invest up to 25% of
its assets in foreign securities.
For hedging purposes, the Fund may engage in the
options and futures strategies described under "Certain
Investment Strategies and Policies."
For the fiscal year ended December 31, 1996, the
portfolio turnover rate for the Fund was 108%. The portfolio
turnover rate exceeded 100% due to the need to make
significant changes in the structure of the portfolio's
mortgage and corporate bond holdings . The portfolio
turnover rate for the Fund may vary from year to year. A
high portfolio turnover rate may result in greater brokerage
costs to the Fund.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the
Manager is obligated to perform certain administrative and
management services for the Trust; furnishes to the Trust
all necessary office space, facilities, and equipment; and
pays the compensation, if any, of officers and Trustees who
are affiliated with the Manager. Other than the expenses
specifically assumed by the Manager under the Management
Agreement, all expenses incurred in the operation of the
Trust are borne by the Trust, including fees and expenses
associated with the registration and qualification of the
Trust's shares under the Securities Act of 1933 (the "1933
Act"); other fees payable to the Securities and Exchange
Commission; independent accountant, legal, and custodian
fees; association membership dues; taxes; interest;
insurance premiums; brokerage commissions; fees and expenses
of the Trustees who are not affiliated with the Manager;
expenses for proxies, prospectuses, and reports to
shareholders; Fund recordkeeping expenses; and other
expenses. The Manager has agreed voluntarily to absorb any
charges and expenses associated with Fund recordkeeping that
exceed 0.10% of a Fund's average net assets.
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The Manager is responsible for the payment of all fees
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computed daily at an annual rate based on the average daily
net asset value of each Fund as set forth below. In certain
Funds, Sub-Adviser fees vary according to the level of
assets in such Funds, which will reduce the fees paid by the
Manager as Fund assets grow but will not reduce the
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(1) For its services, JCC will receive a fee computed
daily at an annual rate based on the average daily net
assets of the Select Capital Appreciation Fund, under the
following schedule:
Assets
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0
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6
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Over $100 Million
0
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(2) For its services, BIAM will receive a fee computed
daily at an annual rate based on the average daily net
assets of the Select International Equity Fund, under the
following schedule:
Assets
R
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First $50 Million
0
.
4
5
%
Next $50 Million
0
.
4
0
%
Over $100 Million
0
.
3
0
%
(3) For its services, Putnam will receive a fee computed
daily at an annual rate based on the average daily net
assets of the Select Growth Fund, under the following
schedule:
Assets
R
a
t
e
First $50 Million
0
.
5
0
%
Next $100 Million
0
.
4
5
%
Next $100 Million
0
.
3
5
%
Next $100 Million
0
.
3
0
%
Over $350 Million
0
.
2
5
%
For the fiscal year ended December 31, 1996, the Funds
paid the Manager gross fees before reimbursement at a rate
based on the Funds' average daily net assets, under the
following schedule:
Fund
R
a
t
e
Select Aggressive Growth Fund
1
.
0
0
%
Select Capital Appreciation Fund
1
.
0
0
%
Select International Equity Fund
1
.
0
0
%
Select Growth Fund
0
.
4
4
%
Select Income Fund
0
.
6
0
%
The following table shows voluntary expense
limitations which the Manager has declared for each Fund and
the operating expenses incurred for the fiscal year ended
December 31, 1996 for each Fund:
Percentage of
Average Daily Net
Assets
Fund
V
o
l
u
n
t
a
r
y
E
x
p
e
n
s
e
L
i
m
i
t
a
t
i
o
n
s
O
p
e
r
a
t
i
n
g
E
x
p
e
n
s
e
s
+
Select Aggressive
Growth Fund
1
.
3
5
%
1
.
0
8
%
Select Capital
Appreciation Fund
1
.
3
5
%
1
.
1
3
%
Select
International
Equity Fund
1
.
5
0
%
1
.
2
0
%
Select Growth
Fund
1
.
2
0
%
0
.
9
2
%
Select Income
Fund
1
.
0
0
%
0
.
7
4
%
<
/
R
>
+ Including reductions
The Manager will voluntarily reimburse its fees and
any expenses above the expense limitations. The expense
limitations are voluntary but will remain in effect through
the end of the first full fiscal year that a Fund has been
in operation. The expense limitations may be removed at any
time thereafter, without prior notice to existing
shareholders (although the Prospectus will be revised
accordingly). The Manager reserves the right to recover
from a Fund any fees, within a current fiscal year period,
which were reimbursed in that same year to the extent that
total annual expenses did not exceed the applicable expense
limitation. Non-recurring and extraordinary expenses
generally are excluded in the determination of expense
ratios of the Funds for purposes of determining any required
expense reimbursement. Quotations of yield or total return
for any period when an expense limitation is in effect will
be greater than if the limitation had not been in effect.
FUND MANAGER INFORMATION
The following individuals are responsible primarily
for the day-to-day management of the particular Funds as
indicated below:
The following individuals have served as members of a
committee of fund managers for the Select Aggressive Growth
Fund since March 1994, with the exception of Mr. Nicholas
who has served as a fund manager since the Fund's inception
in August 1992:
Lawrence S. Speidell is a Partner and Director of
Global/Systematic Portfolio Management and Research at NACM.
Prior to joining NACM in 1994, Mr. Speidell spent ten years
with Batterymarch Financial Management. He was also Senior
Vice President and Portfolio Manager at Putnam Management
Company from 1971 to 1983.
John J. Kane, Senior Portfolio Manager, U. S.
Systematic at NACM, has twenty-eight years of
economic/investment experience. Prior to joining NACM in
1994, Mr. Kane was employed by ARCO Investment Management
Company and General Electric Company.
Mark W. Stuckelman, Portfolio Manager - U.S.
Systematic, joined NACM in 1995. Prior to joining NACM, he
was employed for five years with Wells Fargo Bank's
Investment Management Group, Fidelity Management Trust Co.,
and BARRA.
The following individual has served as fund manager
for the Select Capital Appreciation Fund since the Fund's
inception in April 1995:
James P. Goff joined JCC in 1988. He managed the
Janus Enterprise Fund since 1992 and has co-managed the
Janus Venture Fund from December 1993 to January 1997.
Mr. Goff is a Chartered Financial Analyst.
The following portfolio managers are involved in the
investment process utilized for the Select International
Equity Fund:
Christopher Reilly, Chief Investment Officer,
joined Bank of Ireland in 1980 and has had overall
responsibility for asset management since 1985. Previously,
he worked in the United Kingdom in stockbroking and
investment management.
Denis Donovan, Director-Portfolio Management, received
an MBA from University College Dublin. Prior to joining Bank
of Ireland in 1985, he spent more than thirteen years in the
money market and foreign exchange operations of the Central
Bank of Ireland, the Irish equivalent of the U.S. Federal
Reserve. He has overall responsibility for the portfolio
management function for all of BIAM's client base.
John O'Callaghan is a graduate of Trinity College,
Dublin and is a Chartered Financial Analyst. He joined Bank
of Ireland in 1987.
Peter Wood joined Bank of Ireland in 1985 after
spending five years with another leading investment
management firm. He is responsible for portfolio
construction.
The following individuals have served as members of a
committee of fund managers for the Select Growth Fund since
July 1, 1996:
Carol McMullen, Managing Director, has been an
investment professional with Putnam since 1995. Prior to
1995, Ms. McMullen was Senior Vice President of Baring Asset
Management.
Beth Cotner, Senior Vice President, has been with
Putnam since 1995. Prior to 1995, Ms. Cotner was Executive
Vice President at Kemper Financial Services.
Manual Weiss, Senior Vice President, has been an
investment professional with Putnam since 1987.
The following individuals have served as members of a
committee of fund managers for the Select Income Fund since
the Fund's inception in August 1992:
Edward H. Ladd, Chairman and Managing Director, joined
SAW in 1962 and is the firm's economist. He also assists
clients in establishing investment strategies. Mr. Ladd is a
Director of the Federal Reserve Bank of Boston, New England
Electric System, Greylock Management, and Harvard Management
Corporation and a member of SAW's Executive Committee.
George W. Noyes, President and Managing Director,
joined SAW in 1970 and directs bond policy formulation and
manages institutional bond portfolios at SAW. Mr. Noyes is
Vice Chairman of the ICFA Research Foundation and serves on
SAW's Executive Committee.
Dolores S. Driscoll, Managing Director, joined SAW in
1974 and manages fixed-income portfolios with specific
emphasis on mortgage pass-throughs and original issue
discount bonds. Ms. Driscoll also serves on SAW's Executive
Committee.
Richard C. Doll, Manager, joined SAW in 1984 and is a
portfolio manager with research responsibilities in
convertible bonds. Prior to joining SAW, Mr. Doll was a Vice
President with the Bank of New England.
Maria D. Furman, Vice President and Director, joined
SAW in 1976. She is head of the tax-exempt area and manages
insurance and pension fund accounts. Ms. Furman currently
serves on SAW's Executive Committee.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is
determined once daily as of regular trading on the close of
the New York Stock Exchange (the "Exchange") on each day on
which the Exchange is open for trading.
Equity securities are valued on the basis of their
market value if market quotations are readily available. In
other cases, they are valued at their fair value as
determined in good faith by the Trustees, although the
actual calculations may be performed by persons acting
pursuant to the direction of the Trustees. Debt securities
(other than short-term obligations) are normally valued on
the basis of valuations formulated by a pricing service
which utilizes data processing methods to determine
valuations for normal, institutional-size trading units of
such securities. Such methods include the use of market
transactions for comparable securities and various
relationships between securities which generally are
recognized by institutional traders. Debt obligations in
Funds having a remaining maturity of 60 days or less are
valued at amortized cost when it is determined that
amortized cost approximates fair value. Short-term
obligations of Funds having a remaining maturity of more
than 60 days are marked to market based upon readily
available market quotations for such obligations or similar
securities.
The net asset value of the Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to
regulated investment companies so that the Trust will not be
subject to federal income tax on any net income and any
capital gains to the extent they are distributed or are
deemed to have been distributed to shareholders. Dividends
out of net investment income will be declared and paid
quarterly in the case of the Select Income Fund and
annually in the case of the Select Aggressive Growth Fund,
Select Capital Appreciation Fund, Select International
Equity Fund, and Select Growth Fund. Distributions of net
capital gains for the year, if any, are made annually.
All dividends and capital gain distributions are applied to
purchase additional Fund shares at net asset value as of the
payment date. Fund shares are held by the Separate Accounts
and any distributions are reinvested automatically by the
Separate Accounts. Tax consequences to investors in the
Separate Accounts which are invested in the Trust are
described in the prospectus or offering circular for such
Accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering
and currently may be purchased only by Separate Accounts
established by First Allmerica. The Separate Accounts are
the funding mechanisms for group annuity contracts. The
Separate Accounts invest in shares of one or more of the
Funds. Shares of each Fund are sold at its net asset value
as next computed after receipt of the purchase order without
the addition of any selling commission or "sales load."
Shares of the Trust currently are being issued also to
Separate Accounts of Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Life"), a subsidiary of First
Allmerica, First Allmerica, and other subsidiaries of First
Allmerica which issue variable or group annuity policies or
variable premium life insurance policies ("mixed funding").
Although neither Allmerica Life nor the Trust currently
foresees any disadvantage, it is conceivable that in the
future such mixed funding may be disadvantageous for
variable or group annuity policyowners or variable premium
life insurance policyowners ("Policyowners"). The Trustees
of the Trust intend to monitor events in order to identify
any conflicts that may arise between such Policyowners and
to determine what action, if any, should be taken in
response thereto. If the Trustees were to conclude that
separate funds should be established for variable annuity,
group annuity, and variable premium life separate accounts,
Allmerica Life would pay the attendant expenses.
The Trust redeems shares of each Fund at its net asset
value as next computed after receipt of the request for
redemption. The redemption price may be more or less than
the shareholder's cost. No fee is charged by the Trust on
redemption. The group contracts funded through the Separate
Accounts are sold subject to certain fees and charges which
may include sales and redemption charges as described in the
prospectus or offering circular for such Separate Account.
Redemption payments will be paid within seven days
after receipt of the written request therefor by the Trust,
except that the right of redemption may be suspended or
payments postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
Each Fund's performance may be quoted in advertising.
A Fund's performance may be compared with the performance of
other investments or relevant indices. All performance
information is based on historical results and is not
intended to indicate future performance.
A Fund's "yield" is calculated by dividing the Fund's
annualized net investment income per share during a recent
30-day period by the net asset value per share on the last
day of that period.
Total returns are based on the overall dollar or
percentage change in value of a hypothetical investment in a
Fund assuming all dividends and capital gain distributions
are reinvested. Cumulative total return reflects the Fund's
performance over a stated period of time. Average annual
total return reflects the hypothetical, annually-compounded
return that would have produced the same cumulative return
if the Fund's performance had been constant over the entire
period. Because average annual returns tend to smooth out
variations in the Fund's return, they are not the same as
actual year-by-year results.
Yields and total returns quoted for the Funds include
the effect of deducting the Funds' expenses, but may not
include charges and expenses attributable to a particular
insurance product. Since shares of the Funds can be
purchased only through a group annuity, you should review
carefully the offering circular for the Separate Accounts
for information on relevant charges and expenses. Including
these charges in the quotations of the Funds' yields and
total returns would have the effect of decreasing
performance. Performance information for the Funds must
always be accompanied by, and be reviewed with, performance
information for the Separate Accounts which invest in the
Funds.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business
trust under the laws of Massachusetts by an Agreement and
Declaration of Trust dated October 11, 1984 (the "Trust
Declaration"). A copy of the Trust Declaration is on file
with the Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares
of beneficial interest which may be divided into an
unlimited number of series of such shares, and which are
divided presently into twelve series of shares, one series
underlying each Fund. The five Funds described in this
Prospectus may be purchased by the Separate Accounts
established by First Allmerica. The Trust's shares are
entitled to one vote per share (with proportional voting for
fractional shares). The rights accompanying Fund shares are
vested legally in the Separate Accounts. As a matter of
policy, however, holders of group annuity contracts funded
through the Separate Accounts have the right to instruct the
Separate Accounts as to voting Fund shares on all matters to
be voted on by Fund shareholders. Voting rights of the
participants in the Separate Accounts are set forth more
fully in the prospectus or offering circular relating to
those Accounts. See "Organization of the Trust" in the SAI
for a definition of a "majority vote" of shareholders.
The Trust is not required to hold annual meetings of
shareholders. The Trustees or shareholders holding at least
10% of the outstanding shares may call special meetings of
shareholders.
Fund Recordkeeping Agent
FDISG, a wholly-owned subsidiary of First Data
Corporation, calculates net asset value per share and
maintains general accounting records for each Fund. FDISG is
entitled to receive an annual Fund recordkeeping fee based
on Fund assets and certain out-of-pocket expenses.
Custodian
Bankers Trust Company, 130 Liberty Street, New York,
New York 10006, is the Custodian of the investment
securities and other assets of the Trust.
INVESTMENT RESTRICTIONS
The following is a description of certain investment
restrictions which are fundamental and may not be changed
with respect to a Fund without shareholder approval. For a
description of certain other investment restrictions,
reference should be made to the SAI.
1. No Fund will concentrate its investments in particular
industries, including debt obligations of supranational
entities and foreign governments, but a Fund may invest up
to 25% of the value of its total assets in a particular
industry. The restriction does not apply to investments in
obligations issued or guaranteed by the United States of
America, its agencies or instrumentalities.
2. As to 75% of the value of its total assets, no Fund
will invest more than 5% of the value of its total assets in
the securities of any one issuer (other than securities
issued by or guaranteed as to principal or interest by the
United States Government or any agency or instrumentality
thereof) or acquire more than 10% of the voting securities
of any issuer. The remaining 25% of assets may be invested
in the securities of one or more issuer without regard to
such limitations.
These limitations apply as of the time of purchase. If
through market action the percentage limitations are
exceeded, the Fund will not be required to reduce the amount
of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
Repurchase Agreements (applicable to all Funds) and Reverse
Repurchase Agreements (applicable to the Select Capital
Appreciation Fund)
Each Fund may invest in repurchase agreements, under
which the Fund acquires ownership of a security (ordinarily
U.S. Government Securities) but the seller agrees at the
time of sale to purchase the security at a mutually agreed
upon time and price. Should any seller of a repurchase
agreement fail to repurchase the underlying security or
should any seller become insolvent or involved in a
bankruptcy proceeding, a Fund could incur disposition costs
and losses. Repurchase agreements maturing in more than
seven days are subject to the 15% limit on illiquid
securities.
When the Select Capital Appreciation Fund invests in a
reverse repurchase agreement, it sells a security to another
party such as a banker or broker-dealer in return for cash
and agrees to buy the security back at a future date and
price. Reverse repurchase agreements may be used to provide
cash to satisfy unusually heavy redemption requests or for
other temporary or emergency purposes without the necessity
of selling portfolio securities or to earn additional income
on portfolio securities, such as treasury bills and notes.
"When-Issued" Securities (applicable to all Funds)
Each Fund may purchase securities on a when-issued or
delayed delivery basis. Delivery and payment normally take
place 15 to 45 days after the commitment to purchase. No
income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that
yields available in the market when delivery occurs may be
higher than those available when the when-issued order is
placed resulting in a decline in the market value of the
security. There is also the risk that under some
circumstances the purchase of when-issued securities may act
to leverage the Fund.
Lending of Securities (applicable to all Funds)
For the purpose of realizing additional income, the
Funds may lend portfolio securities to broker-dealers or
financial institutions amounting to not more than 30% of
their respective total assets taken at current value. While
any such loan is outstanding, a Fund will continue to
receive amounts equal to the interest or dividends paid by
the issuer on the securities, as well as interest (less any
rebates to be paid to the borrower) on the investment of the
collateral or a fee from the borrower. Each Fund will have
the right to call each loan and obtain the securities.
Lending portfolio securities involves certain risks,
including possible delays in receiving additional collateral
or in the recovery of the securities or possible loss of
rights in the collateral should the borrower fail
financially. Loans will be made in accordance with
guidelines established by the Board of Trustees.
Foreign securities (applicable to all Funds)
Investments in foreign markets involve substantial
risks typically not associated with investing in the U. S.
which should be considered carefully by the investor. Such
risks may include political and economic instability,
differing accounting and financial reporting standards,
higher commission rates on foreign portfolio transactions,
less readily available public information regarding issuers,
potentially adverse changes in tax and exchange control
regulations and the potential for restrictions on the flow
of international capital. Foreign securities also involve
currency risks. Accordingly, the relative strength of the
U.S. dollar may be an important factor in the performance of
the Fund, depending on the extent of such Fund's foreign
investments. Some foreign securities exchanges may not be as
developed or efficient as those in the U.S. and securities
traded on foreign securities exchanges generally are subject
to greater price volatility. There is also the possibility
of adverse changes in investment or exchange control
regulations, expropriation or confiscatory taxation and
limitations on the removal of funds or other assets.
Investments in emerging countries involve exposure to
economic structures that are generally less diverse and
mature than in the U. S., and to political systems which may
be less stable. In addition, securities of issuers located
in emerging countries may have limited marketability and may
be subject to more abrupt or erratic price fluctuations.
Each Fund may buy or sell foreign currencies and
foreign currency forward contracts, options on foreign
currencies, and foreign currency futures contracts and
options thereon. Although such instruments may reduce the
risk of loss due to a decline in the value of the currency
that is sold, they also limit any possible gain which might
result should the value of the currency increase. Such
instruments will be used primarily to protect a Fund from
adverse currency movements, however, they also involve the
risk that anticipated currency movements will not be
accurately predicted, thus adversely affecting a Fund's
total return. See "Options and Futures Transactions."
The Funds' investments may include ADRs. For many
foreign securities, there are U.S. dollar-denominated ADRs
which are traded in the United States on exchanges or over
the counter. ADRs represent the right to receive securities
of foreign issuers deposited in a domestic bank or a
correspondent bank. An ADR may be sponsored by the issuer of
the underlying foreign security, or it may be issued in
unsponsored form. The holder of a sponsored ADR is likely to
receive more frequent and extensive financial disclosure
concerning the foreign issuer than the holder of an
unsponsored ADR and generally will bear lower transaction
charges. The Funds will invest in both sponsored and
unsponsored ADRs. The Select International Equity Fund and
the Select Capital Appreciation Fund also may utilize EDRs,
which are designed for use in European securities markets,
and also may invest in GDRs.
Obligations in which the Select Income Fund may invest
include debt obligations of supranational entities.
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.
Obligations of supranational entities may be supported by
appropriated but unpaid commitments of their member
countries, and there is no assurance that these commitments
will be undertaken or met in the future. The Fund may not
invest more than 25% of its assets in debt obligations of
supranational entities.
Options and Futures Transactions (applicable to all Funds)
and Forward Contracts and Swaps (applicable to the Select
Capital Appreciation Fund)
Through the writing and purchase of put and call
options on its securities, financial indices, and foreign
currencies, and the purchase and sale of futures contracts
and related options with respect to securities, financial
indices, and (in the case of the Select Capital Appreciation
Fund) foreign currencies in which it may invest, each Fund
may at times seek to hedge against fluctuations in net asset
value. Each Fund's ability to engage in options and futures
strategies will depend on the availability of liquid markets
in such instruments. It is impossible to predict the amount
of trading interest that may exist in various types of
options or futures contracts. Therefore, there is no
assurance that a Fund will be able to utilize these
instruments effectively for the purposes stated above.
Additionally, the Select Capital Appreciation Fund may
invest in forward contracts and swaps which may expose the
Fund to additional investment risks and transaction costs.
Risks inherent in the use of futures and options
("derivative instruments") include (1) the risk that
interest rates, securities prices, and currency markets will
not move in the directions anticipated; (2) imperfect
correlation between the price of derivative instruments and
movements in the prices of the securities, interest rates,
or currencies being hedged; (3) the fact that skills needed
to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a
liquid secondary market for any particular instrument at any
time; and (5) the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences.
The Funds will purchase futures and options only on
exchanges or boards of trade when there appears to be an
active secondary market, but there can be no assurance that
a liquid secondary market will exist for any future or
option at any particular time.
In connection with transactions in futures and related
options, the Funds will be required to deposit as "initial
margin" an amount of cash and/or securities. Thereafter,
subsequent payments are made to and from the broker to
reflect changes in the value of the futures contract.
A more detailed explanation of futures, options, and
other derivative instruments, and the risks associated with
them, is included in the SAI.
Restricted Securities (applicable to all Funds)
The Funds may purchase fixed-income securities that
are not registered under the 1933 Act ("restricted
securities"), but can be offered and sold to "qualified
institutional buyers" under Rule 144A of the 1933 Act.
However, each Fund will not invest more than 15% of its
assets in restricted securities (as defined in its
investment restrictions) unless the Board of Trustees
determines, based upon a continuing review of the trading
markets for the specific restricted security, that such
restricted securities are liquid. The Board of Trustees has
adopted guidelines and delegated to the Manager the daily
function of determining and monitoring liquidity of
restricted securities. The Board, however, will retain
sufficient oversight and be responsible ultimately for the
determinations. Since it is not possible to predict with
assurance exactly how this market for restricted securities
sold and offered under Rule 144A will develop, the Board
will monitor carefully a Funds' investments in securities,
focusing on such important factors, among others, as
valuation, liquidity, and availability of information. This
investment practice could have the effect of increasing the
level of illiquidity in a Funds to the extent that qualified
institutional buyers become for a time uninterested in
purchasing these restricted securities. As a result, a Fund
might not be able to sell these securities when its
Sub-Adviser wishes to do so, or might have to sell them at
less than fair value. In addition, market quotations are
less readily available. Therefore judgment at times may play
a greater role in valuing these securities than in the case
of unrestricted securities.
Investments in Money Market Securities (applicable to all
Funds)
Any Fund may hold at least a portion of its assets in
cash equivalents or money market instruments. There is
always the risk that the issuer of a money market instrument
may be unable to make payment upon maturity.
Pursuant to an exemptive order granted by the
Securities and Exchange Commission, the Select Capital
Appreciation Fund and other funds advised by Janus Capital
may transfer daily uninvested cash balances into one or more
joint trading accounts. Assets in the joint trading accounts
are invested in money market instruments and the proceeds
are allocated to the participating funds on a pro rata
basis.
High Yield Securities (applicable to the Select Capital
Appreciation Fund and Select Growth Fund)
Corporate debt securities purchased by the Select
Capital Appreciation and the Select Growth Fund will be
rated at the time of purchase B or better by Moody's or S&P,
or equivalently rated by another NRSRO, or unrated but
believed by the Sub-Adviser to be of comparable quality
under guidelines established for the Funds. The Select
Growth Fund may not invest more than 15% of its assets and
the Select Capital Appreciation Fund may not invest more
than 35% of its assets at the time of investment in
securities rated below Baa by Moody's or BBB by S&P, or
equivalently rated by another NRSRO, or unrated but believed
by the Sub-Adviser to be of comparable quality. Securities
rated B by Moody's or S&P (or equivalently by another NRSRO)
are below investment grade and are considered, on balance,
to be predominantly speculative with respect to capacity to
pay interest and repay principal and generally will involve
more credit risk than securities in the higher rating
categories.
Periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices
of lower-rated securities, commonly known as "high yield"
securities or "junk bonds," and the asset value of the
Select Capital Appreciation Fund and the Select Growth Fund.
Many issuers of high yield corporate debt securities are
leveraged substantially, which may impair their ability to
meet debt service obligations. Also, during an economic
downturn or substantial period of rising interest rates,
highly leveraged issuers may experience financial stress.
The lack of a liquid secondary market in certain
lower-rated securities may have an adverse impact on their
market price and the ability of a Fund to dispose of
particular issues when necessary to meet its liquidity needs
or in response to a specific economic event such as a
deterioration in the credit-worthiness of the issuer. In
addition, a less liquid market may interfere with the
ability of a Fund to value accurately high yield securities
and, consequently, value a Fund's assets. Furthermore,
adverse publicity and investor perceptions may decrease the
value and liquidity of high yield securities. It is
reasonable to expect any recession to disrupt severely the
market for high yield fixed-income securities, have an
adverse impact on the value of such securities and adversely
affect the ability of the issuers of such securities to
repay principal and pay interest thereon. The market prices
of lower-rated securities generally are less sensitive to
interest rate changes than higher-rated investments, but
more sensitive to adverse economic or political changes, or
individual developments specific to the issuer. Periods of
economic or political uncertainty and change can be expected
to result in volatility of price of these securities.
The Funds also may invest in unrated debt securities
of foreign and domestic issuers. Unrated debt, while not
necessarily of lower quality than rated securities, may not
have as broad a market. Sovereign debt of foreign
governments generally is rated by country. Because these
ratings do not take into account individual factors relevant
to each issue and may not be updated regularly, the
Sub-Adviser may treat such securities as unrated debt.
Unrated debt securities and securities with different
ratings from more than one agency will be included in the
15% and 35% limits of the Funds as stated above, unless such
Fund's Sub-Adviser deems such securities to be the
equivalent of investment grade securities. See the Appendix
for a description of the bond ratings.
Asset-Backed Securities and Mortgage-Backed Securities
(applicable to the Select Income Fund)
The Fund may purchase asset-backed securities, which
represent a participation in, or are secured by and payable
from, a stream of payments generated by particular assets,
frequently a pool of assets similar to one another. Assets
generating such payments include instruments such as motor
vehicle installment purchase obligations, credit card
receivables, and home equity loans. Payment of principal and
interest may be guaranteed for certain amounts and time
periods by a letter of credit issued by a financial
institution unaffiliated with the issuer of the securities.
The estimated life of an asset-backed security varies with
the prepayment experience of the underlying debt
instruments. The rate of such prepayments, and hence the
life of the asset-backed security, will be primarily a
function of current market rates, although other economic
and demographic factors will be involved. Under certain
interest rate and prepayment rate scenarios, the Fund may
fail to recoup fully their investment in asset-backed
securities. The Fund will not invest more than 10% of its
total assets in asset-backed securities.
The Fund also may invest in mortgage-backed securities
which are debt obligations secured by real estate loans and
pools of loans on single family homes, multi-family homes,
mobile homes, and in some cases, commercial properties. The
Fund may acquire securities representing an interest in a
pool of mortgage loans that are issued or guaranteed by a
U.S. government agency such as the Government National
Mortgage Association ("Ginnie Mae"), the Federal National
Mortgage Association ("Fannie Mae"), and the Federal Home
Loan Mortgage Corporation ("Freddie Mac").
Mortgage-backed securities are in most cases
"pass-through" instruments through which the holder receives
a share of all interest and principal payments from the
mortgages underlying the certificate. Because the prepayment
characteristics of the underlying mortgages vary, it is not
possible to predict accurately the average life or realized
yields of a particular issue of pass-through certificates.
During periods of declining interest rates, prepayment of
mortgages underlying mortgage-backed securities can be
expected to accelerate. When the mortgage obligations are
prepaid, the Fund reinvests the prepaid amounts in
securities, the yield of which reflects interest rates
prevailing at the time. Moreover, prepayment of mortgages
that underlie securities purchased at a premium could result
in losses.
The Fund also may invest in multiple class securities
issued by U.S. government agencies and instrumentalities
such as Fannie Mae, Freddie Mac, and Ginnie Mae, including
guaranteed collateralized mortgage obligations ("CMOs") and
Real Estate Mortgage Investment Conduit ("REMIC")
pass-through or participation certificates, when consistent
with the Fund's investment objective, policies, and
limitations. A CMO is a type of bond secured by an
underlying pool of mortgages or mortgage pass-through
certificates that are structured to direct payment on
underlying collateral to different series or classes of
obligations. A REMIC is a CMO that qualifies for special tax
treatment under the Internal Revenue Code and invests in
certain mortgages principally secured by interests in real
property and other permitted investments.
CMOs and guaranteed REMIC pass-through certificates
("REMIC Certificates") issued by Fannie Mae, Freddie Mac,
and Ginnie Mae are types of multiple pass-through
securities. Investors may purchase beneficial interests in
REMICs, which are known as "regular" interests or "residual"
interests. The Fund currently does not intend to purchase
residual interests in REMICs. The REMIC Certificates
represent beneficial ownership interests in a REMIC trust,
generally consisting of mortgage loans or Fannie Mae,
Freddie Mac, or Ginnie Mae guaranteed mortgage pass-through
certificates. The obligations of Fannie Mae, Freddie Mac, or
Ginnie Mae under their respective guaranty of the REMIC
Certificates are obligations solely of Fannie Mae, Freddie
Mac, or Ginnie Mae, respectively.
Fannie Mae REMIC Certificates are issued and
guaranteed as to timely distribution of principal and
interest by Fannie Mae. In addition, Fannie Mae will be
obligated to distribute the principal balance of each class
of REMIC Certificates in full, whether or not sufficient
funds are available otherwise.
For Freddie Mac REMIC Certificates, Freddie Mac
guarantees the timely payment of interest, and also
guarantees the payment of principal as payments are required
to be made on the underlying mortgage participation
certificates ("PCs"). PCs represent undivided interest in
specified residential mortgages or participations therein
purchased by Freddie Mac and placed in a PC pool. With
respect to principal payments on PCs, Freddie Mac generally
guarantees ultimate collection of all principal of the
related mortgage loans without offset or deduction. Freddie
Mac also guarantees timely payment of principal on certain
PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and
timely payment of interest and principal on each class of
securities (in accordance with the terms of those classes,
as specified in the related offering circular supplement).
This Ginnie Mae guarantee is backed by the full faith and
credit of the United States of America.
REMIC Certificates issued by Fannie Mae, Freddie Mac,
and Ginnie Mae are treated as U.S. government securities for
purposes of investment policies. There can be no assurance
that the United States Government will continue to provide
financial support to Fannie Mae, Freddie Mac, or Ginnie Mae
in the future.
Stripped Mortgage-Backed Securities (applicable to the
Select Income Fund)
The Fund may invest in stripped mortgage-backed
securities ("SMBS"). SMBS are derivative multiclass mortgage
securities. SMBS may be 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, mortgage banks, commercial
banks, investment banks, and special purpose entities of the
foregoing.
SMBS usually are structured with two classes that
receive different proportions of the interest and principal
distributions on a pool of mortgage assets. One type of SMBS
will have one class receiving some of the interest and most
of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of
the principal. In some cases, one class will receive all of
the interest (the interest-only or "IO" class) while the
other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an
IO class is extremely sensitive to the rate of principal
payments (including prepayment on the related underlying
mortgage assets), and a rapid rate of principal payments may
have a material, adverse effect on a portfolio yield to
maturity from these securities. If the underlying mortgage
assets experience greater than anticipated prepayments of
principal, the Fund may fail to recoup fully their initial
investment in these securities even if the security is in
one of the highest rating categories. Certain SMBS may be
deemed "illiquid" and subject to the Fund's limitations on
investment in illiquid securities. The market value of the
PO class generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS
that receives all or most of the interest from mortgage
assets generally are higher than prevailing market yields in
other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that
the initial investment will not be recouped fully. The
Sub-Adviser will seek to manage these risks (and potential
benefits) by investing in a variety of such securities and
by using certain hedging techniques.
Hedging Techniques and Investment Practices (applicable to
the Select Capital Appreciation Fund and Select
International Equity Fund)
The Select International Equity Fund and Select
Capital Appreciation Fund may employ certain strategies in
order to manage exchange rate risks. For example, each Fund
may hedge some or all of its investments denominated in a
foreign currency against a decline in the value of that
currency. Each Fund may enter into contracts to sell that
foreign currency for U.S. dollars (not exceeding the value
of the Fund's assets denominated in or exposed to that
currency) or by participating in options on futures
contracts with respect to such currency ("position hedge").
Each Fund also could hedge that position by selling a second
currency that is expected to perform similarly to the
currency in which portfolio investments are denominated, for
U.S. dollars ("proxy hedge"). Each Fund also may enter into
a forward contract to sell the currency in which the
security is denominated for a second currency that is
expected to perform better relative to the U.S. dollar if
its Sub-Adviser believes there is a reasonable degree of
correlation between movements in the two currencies
("cross-hedge"). As an operational policy, each Fund will
not commit more than 10% of its assets to the consummation
of cross-hedge contracts and will either cover currency
hedging transactions with liquid portfolio securities
denominated in or whose value is tied to the applicable
currency or segregate liquid assets in the amount of such
commitments. In addition, when a Fund anticipates purchasing
securities denominated in a particular currency, the Fund
may enter into a forward contract to purchase such currency
in exchange for the dollar or another currency
("anticipatory hedge").
These strategies minimize the effect of currency
appreciation as well as depreciation, but do not protect
against a decline in the underlying value of the hedged
security. In addition, such strategies may reduce or
eliminate the opportunity to profit from increases in the
value of the original currency and may have an adverse
impact on a Fund's performance if its Sub-Adviser's
projection of future exchange rates is inaccurate.
APPENDIX
Descriptions of Moody's Investors Service, Inc.
("Moody's") and Standard and Poor's Ratings Service, a
division of McGraw-Hill Companies, Inc. ("S&P") commercial
paper and bond ratings:
Commercial Paper Ratings
Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment
capacity of rated issuers. The two highest designations are
as follows:
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-l repayment
capacity normally will be evidenced by the following
characteristics:
- Leading market positions in well-
established industries.
- High rates of returns on funds employed.
- Conservation capitalization structures
with moderate reliance on debt and ample asset protection.
- Broad margins in earnings coverage of
fixed financial charges and high internal cash generation.
- Well established access to a range of
financial markets and assured sources of alternate
liquidity.
Issuers rated Prime-2 (or related supporting
institutions) have a strong capacity for repayment of
short-term promissory obligations. This normally will be
evidenced by many of the characteristics cited above, but to
a lesser degree. Earnings trends and coverage ratios, while
sound, will be subject more to variation. Capitalization
characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity
is maintained.
S&P commercial paper ratings are graded into several
categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest. The two highest rating
categories are described as follows:
A-1 - This highest category indicates that the degree
of safety regarding timely payment is strong. Those issues
determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign
designation.
A-2 - Capacity for timely payment on issues with this
designation is satisfactory. However, the relative degree of
safety is not as high as for issues designated A-1.
Municipal Obligations
Moody's ratings for state and municipal and other
short-term obligations will be designated Moody's Investment
Grade ("MIG"). This distinction is in recognition of the
differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are
uppermost in importance in short-term borrowing, while
various factors of the first importance in long-term
borrowing risk are of lesser importance in the long run.
Symbols used will be as following
MIG-1 - This designation denotes best quality. There
is present strong protection by established cash flows,
superior liquidity support, or demonstrated broad-based
access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins
of protection are ample although not so large as in the
preceding group.
A short-term rating also may be assigned on an issue
having a demand feature. Such ratings will be designated as
VMIG to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment
relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may
be limited to the external liquidity with no or limited
legal recourse to the issuer in the event the demand is not
met. VMIG- 1 and VMIG-2 ratings carry the same definitions
as MIG-1 and MIG-2, respectively.
Description of Moody's Bond Ratings
Aaa - Bonds that 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 that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group, they
comprise what are generally known as high-grade bonds. They
are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa
securities.
A - Bonds that 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 that suggest a susceptibility to impairment
some time in the future.
Baa - Bonds that are rated Baa are considered to be
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 that are rated Ba are judged to have
speculative elements; their future cannot be considered as
well-assured. Often the protection of interest and principal
payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or maintenance of other
terms of the contract over any long period of time may be
small.
Those bonds within the Aa, A, Baa, Ba and B categories
that Moody's believes possess the strongest credit
attributes within those categories are designated by the
symbols Aa1, A1, Baa1, Ba1 and B1.
Description of S&P's Debt Ratings
AAA - Debt rated AAA has the highest rating assigned
by S&P. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay
interest and repay principal and differs from AAA issues
only in a small degree.
A - Debt rated A has a strong capacity to pay interest
and repay principal, although it is somewhat more
susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Where as it
normally exhibits 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 debt in this category than in higher
rated categories.
BB - Debt rated BB has less near-term vulnerability to
default than other speculative issues. However, it faces
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 The BB rating category is also used for debt
subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B - Debt rated B has a greater vulnerability to
default but currently has the capacity to meet interest
payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair
capacity or willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB-
rating.
Plus (+) or (-): The ratings from AA to B may be
modified by the addition of a plus or minus sign to show
relative standing within the major categories.
ALLMERICA INVESTMENT TRUST
MONEY MARKET FUND
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Money Market Fund (the "Fund") is a separate portfolio
of Allmerica Investment Trust (the "Trust"), a
professionally-managed, open-end investment company designed
to provide an underlying investment vehicle for insurance-
related accounts. Only one of the separate portfolios of the
Trust, the Fund, is offered by this Prospectus.
Currently, shares of the Fund may only be purchased by
the separate accounts ("Separate Accounts") established by
First Allmerica Financial Life Insurance Company ("First
Allmerica") or Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Life"), an indirect, wholly-
owned subsidiary of First Allmerica, for the purpose of
funding variable annuity contracts or variable life
insurance policies. The prospectus of the specific
insurance product you have chosen should be read in
conjunction with this Prospectus.
This Prospectus sets forth concisely the information
about the Fund that a prospective investor ought to know
before investing. Certain additional information contained
in the Statement of Additional Information dated April
29, 1997 (the SAI"), which has been filed with the
Securities and Exchange Commission (the "SEC"), is
incorporated herein by reference and is available upon
request without charge from the Trust, 440 Lincoln Street,
Worcester, MA 01653, (508) 855-1000.
Investment in the Fund is neither insured nor
guaranteed by the U.S. Government. There can be no assurance
that the Fund will be able to maintain a stable net asset
value of $1.00 per share.
THIS PROSPECTUS SHOULD BE READ AND RETAINED 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.
DATED APRIL 29, 1997
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS
3
HOW IS THE FUND MANAGED?
5
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES?
5
MANAGEMENT FEES AND EXPENSES
6
HOW ARE SHARES VALUED?
7
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
7
SALE AND REDEMPTION OF SHARES
7
HOW IS PERFORMANCE DETERMINED?
7
ORGANIZATION AND CAPITALIZATION OF THE TRUST
8
INVESTMENT RESTRICTIONS
8
CERTAIN INVESTMENT STRATEGIES AND POLICIES
9
APPENDIX
1
0
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited
by Price Waterhouse LLP, independent accountants of the
Trust. This information should be read in conjunction with
the financial statements and notes thereto which appear in
the Trust's annual report for the year ended December 31,
1996 ("Annual Report"), and which are incorporated by
reference in the SAI. Further information about the
performance of the Fund and the Trust is contained in the
Annual Report which may be obtained without charge from the
Trust, 440 Lincoln Street, Worcester, MA 01653,
(508) 855-1000.
[FINANCIAL HIGHLIGHTS TO BE FILED BY AMENDMENT]
HOW IS THE FUND MANAGED?
The overall responsibility for the supervision of the
affairs of the Trust vests in the Board of Trustees of the
Trust which meets on a quarterly basis. Allmerica Investment
Management Company, Inc. (the "Manager") is responsible for
the management of the Trust's day-to-day business affairs
and has general responsibility for the management of the
investments of the Fund. The Manager, at its expense, has
contracted with Allmerica Asset Management, Inc. ("AAM" or
the "Sub-Adviser") to manage the investments of the Fund,
subject to the requirements of the Investment Company Act of
1940, as amended (the "1940 Act").
The Manager is an indirect, wholly-owned subsidiary
of Allmerica Financial Corporation ("AFC"), a Delaware
holding company for a group of affiliated companies, the
largest of which is First Allmerica, a life insurance
company, which was organized in Massachusetts in 1844. The
Manager, organized August 19, 1985, also serves as manager
of Allmerica Funds, an open-end investment company. The
Manager and AFC are located at 440 Lincoln Street,
Worcester, Massachusetts 01653.
The Sub-Adviser, which has been selected on the basis
of various factors including management experience,
investment techniques, and staffing, is authorized to engage
in portfolio transactions on behalf of the Fund subject to
such general or specific instructions as may be given by the
Trustees and/or the Manager. The terms of the Sub-Adviser
Agreement cannot be changed materially without the approval
of a majority interest of the shareholders of the Fund. The
Sub-Adviser has been selected by the Manager and the
Trustees in consultation with RogersCasey & Associates, Inc.
("RogersCasey"), a leading pension consulting firm.
RogersCasey is a wholly-owned subsidiary of BARRA, Inc. The
cost of such consultation is borne by the Manager.
RogersCasey provides consulting services to pension
plans representing over $300 billion in total assets
and, in its consulting capacity, monitors the investment
performance of over 1,000 investment advisers. From time to
time, specific clients of RogersCasey and the Sub-Adviser
will be named in sales materials. At times, RogersCasey
assists in the development of asset allocation strategies
which may be used by shareholders in the diversification of
their portfolios across different asset classes.
Ongoing performance of the Sub-Adviser is reviewed and
evaluated by a committee whose members may include senior
officers of First Allmerica, its affiliate or the Manager
and an independent consultant. Combined, the committee has
over 150 years of investment experience. Historical
performance data for the Fund is set forth under "Financial
Highlights." The Manager is responsible for the payment of
all fees to the Sub-Adviser.
The Manager also has entered into an Administrative
Services Agreement with First Data Investor Services Group,
Inc. ("FDISG"), a wholly-owned subsidiary of First Data
Corporation, whereby FDISG performs administrative services
for the Fund and is entitled to receive an administrative
fee and certain out-of-pocket expenses. The Manager is
responsible for the payment of the administrative fee to
FDISG.
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES?
Investment Objective: The Fund seeks to obtain maximum
current income consistent with preservation of capital and
liquidity. There is no assurance that the Fund will achieve
its investment objective.
Sub-Adviser: AAM, a wholly-owned subsidiary of First
Allmerica, was incorporated in 1993 and is located at 440
Lincoln Street, Worcester, Massachusetts 01653. As of
December 31, 1996, AAM had approximately $11 billion
in assets under management. AAM serves as investment
adviser to First Allmerica's General Account and to a number
of affiliated insurance companies and other affiliated
accounts and as adviser to Allmerica Securities Trust, a
diversified, closed-end management investment company.
The Fund's investment objective is fundamental and may
not be changed without shareholder approval. Unless
otherwise indicated, the Fund's investment policies are not
fundamental and may be changed without shareholder approval.
Investment Policies: The Fund seeks to achieve its
objective by investing in the following high quality money
market instruments:
(a) Obligations issued or guaranteed by the United
States Government, its agencies, or instrumentalities;
(b) Commercial paper which meets the ratings
requirements as set forth in the paragraph below;
(c) Obligations of banks or savings and loan
associations (such as bankers acceptances and certificates
of deposit, including dollar-denominated obligations of
foreign branches of U.S. banks ("Eurodollars") and U.S.
branches of foreign banks if such U.S. branches are subject
to state banking requirements and Federal Reserve reporting
requirements) which at the date of the investment have
deposits of at least $1 billion as of their most recently
published financial statements;
(d) Repurchase agreements with respect to
obligations described under (a) above (such obligations
subject to repurchase agreement may bear maturities of more
than one year); and
(e) Cash and cash equivalents.
The Fund will not purchase any security unless (i) the
security has received the highest quality rating by at least
two nationally-recognized statistical rating organizations
("NRSROs") or by one NRSRO if only one has rated the
security or (ii) the security is unrated and in the opinion
of AAM as Sub-Adviser, in accordance with guidelines adopted
by the Trustees, is of a quality comparable with the highest
rating of an NRSRO. These standards must be satisfied at the
time an investment is made. If the quality of the investment
later declines, the Fund may continue to hold the
investment, but the Trustees will evaluate whether the
security continues to present minimal credit risks. See the
Appendix for an explanation of NRSRO ratings.
The Fund will limit its portfolio investments to
securities with a remaining maturity of 397 days or less as
of the time of purchase, in accordance with the Trustees'
guidelines. The portfolio will be managed to maintain a
dollar weighted maturity of 90 days or less. In order to
maximize the yield on its assets, the Fund intends to be as
fully invested at all times as is reasonably practicable.
There is always the risk that the issuer of an instrument
may be unable to make payment upon maturity.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the
Manager is obligated to perform certain administrative and
management services for the Trust; furnishes to the Trust
all necessary office space, facilities, and equipment; and
pays the compensation, if any, of officers and Trustees who
are affiliated with the Manager. Other than the expenses
specifically assumed by the Manager under the Management
Agreement, all expenses incurred in the operation of the
Trust are borne by the Trust, including: fees and expenses
associated with the registration and qualification of the
Trust's shares under the Securities Act of 1933 (the "1933
Act"); other fees payable to the SEC; independent
accountant, legal, and custodial fees; association
membership dues; taxes; interest; insurance premiums;
brokerage commissions; fees and expenses of the Trustees who
are not affiliated with the Manager; expenses for proxies,
prospectuses, and reports to shareholders; Fund
recordkeeping expenses; and other expenses. The Manager has
voluntarily agreed to absorb any charges and expenses
associated with Fund recordkeeping that exceed 0.10% of the
Fund's average net assets.
For services to the Fund, the Manager receives fees
computed daily at an annual rate based on the average daily
net asset value of the Fund in accordance with the following
schedule:
Assets
First
$50
Million
0
.
3
5
%
Next
$200
Million
0
.
2
5
%
Over
$250
Million
0
.
2
0
%
The Manager is responsible for the payment of all fees
to the Sub-Adviser. The Manager pays the Sub-Adviser fees
computed daily at an annual rate of 0.10% based on the
average daily net asset value of the Fund. For the fiscal
year ended December 31, 1996, the Fund paid the Manager
gross fees before reimbursement at a rate of __% of the
Fund's average daily net assets.
The voluntary expense limitation which the Manager
has declared for the Fund and the operating expenses
incurred for the fiscal year ended December 31, 1996 for the
Fund were 0.60% and 0.34%, respectively.
The Manager will voluntarily reimburse its fees and
any expenses above the expense limitation. The expense
limitation is voluntary and may be removed at any time
without prior notice to existing shareholders. The Manager
reserves the right to recover from the Fund any fees, within
a current fiscal year period, which were reimbursed in that
same year to the extent that total annual expenses did not
exceed the applicable expense limitation. Non-recurring and
extraordinary expenses are generally excluded in the
determination of expense ratios of the Fund for purposes of
determining any required expense reimbursement. Quotations
of yield or total return for any period when an expense
limitation is in effect will be greater than if the
limitation had not been in effect.
HOW ARE SHARES VALUED?
The net asset value of the shares of the Fund is
determined once daily as of the close of regular trading on
the New York Stock Exchange (the "Exchange") on each day on
which the Exchange is open for trading. All securities of
the Fund are valued at amortized cost.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the
provisions of the Internal Revenue Code applicable to
regulated investment companies so that the Trust will not be
subject to federal income tax on any net income and any
capital gains to the extent they are distributed or are
deemed to have been distributed to shareholders. Dividends
out of net investment income will be declared and paid
daily. Distributions of net capital gains for the year, if
any, are made annually. All dividends and capital gain
distributions are applied to purchase additional Fund shares
at net asset value as of the payment date. Fund shares are
held by the Separate Accounts and any distributions are
reinvested automatically by the Separate Accounts. Tax
consequences to investors in the Separate Accounts which are
invested in the Fund are described in the prospectuses for
such accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Fund are sold in a continuous offering
and currently may be purchased only by Separate Accounts of
First Allmerica or its subsidiaries. The Separate Accounts
are the funding mechanisms for variable annuity contracts.
Shares of the Fund are sold at net asset value as next
computed after receipt of the purchase order without the
addition of any selling commission or "sales load." The
Distributor, Allmerica Investments, Inc., at its expense,
may provide promotional incentives to dealers that sell
variable annuity contracts for which the Fund serves as an
investment vehicle.
Shares of the Fund currently are being issued also
under separate prospectuses to Separate Accounts of
Allmerica Life, First Allmerica, and subsidiaries of First
Allmerica which issue variable or group annuity policies or
variable life insurance policies (''mixed funding'').
Although neither Allmerica Life nor the Trust currently
foresees any disadvantage, it is conceivable that in the
future such mixed funding may be disadvantageous for
variable or group annuity policyowners or variable life
insurance policyowners ("Policyowners"). The Trustees of
the Trust intend to monitor events in order to identify any
conflicts that may arise between such Policyowners and to
determine what action, if any, should be taken in response
thereto. If the Trustees were to conclude that separate
funds should be established for variable annuity and
variable life separate accounts, Allmerica Life will pay the
attendant expenses.
The Trust redeems shares of the Fund at net asset
value as next computed after receipt of a request for
redemption in proper order. No fee is charged by the Trust
on redemption. The variable contracts funded through the
Separate Accounts are sold subject to certain fees and
charges, which may include sales and redemption charges, as
described in the prospectuses for such Separate Accounts.
Redemption payments will be paid within seven days
after receipt by the Trust of a written request, except that
the right of redemption may be suspended or payments
postponed whenever permitted by applicable law and
regulations.
HOW IS PERFORMANCE DETERMINED?
The Fund's performance may be quoted in advertising.
The Fund's performance may be compared with the performance
of other investments or relevant indices. All performance
information is based on historical results and is not
intended to indicate future performance.
For the Fund, "yield" represents an annualization of
the change in value of an investment (excluding any capital
changes) in the Fund for a specific seven-day period;
"effective yield" compounds that yield for a year and is,
for that reason, greater than the Fund's yield.
Total return is based on the overall dollar or
percentage change in value of a hypothetical investment in
the Fund assuming all dividends and capital gain
distributions are reinvested. Cumulative total return
reflects the Fund's performance over a stated period of
time. Average annual total return reflects the
hypothetical, annually-compounded return that would have
produced the same cumulative return if the Fund's
performance had been constant over the entire period.
Because average annual returns tend to smooth out variations
in the Fund's return, they are not the same as actual year-
by-year results.
Yields and total returns quoted for the Fund include
the effect of deducting the Fund's expenses, but may not
include charges and expenses attributable to a particular
insurance product. Since shares of the Fund can be
purchased only through a variable annuity contract or
variable life contract, you should carefully review the
prospectus for the Separate Accounts for information on
relevant charges and expenses. Including these charges in
the quotations of the Fund's yield and total return would
have the effect of decreasing performance. Performance
information for the Fund must always be accompanied by, and
be reviewed with, performance information for the Separate
Accounts which invest in the Fund.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business
trust under the laws of Massachusetts by an Agreement and
Declaration of Trust dated October 11, 1984 (the "Trust
Declaration"). A copy of the Trust Declaration is on file
with the Secretary of the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares
of beneficial interest which may be divided into an
unlimited number of series of such shares, and which are
divided presently into twelve series of shares, one series
underlying the Fund. The Trust's shares are entitled to one
vote per share (with proportional voting for fractional
shares). The rights accompanying Fund shares are legally
vested in the Separate Accounts. As a matter of policy,
however, holders of variable life insurance or variable
annuity contracts funded through the Separate Accounts have
the right to instruct the Separate Accounts as to voting
Fund shares on all matters to be voted on by Fund
shareholders. Voting rights of the participants in the
Separate Accounts are set forth more fully in the
prospectuses or offering circular relating to those
Accounts. See "Organization of the Trust" in the SAI for
the definition of a "majority vote" of shareholders.
The Trust is not required to hold annual meetings of
shareholders. The Trustees or shareholders holding at least
10% of the outstanding shares may call special meetings of
shareholders.
Fund Recordkeeping Agent
FDISG, a wholly-owned subsidiary of First Data
Corporation, calculates net asset value per share and
maintains general accounting records for the Fund. FDISG is
entitled to receive an annual Fund recordkeeping fee based
on Fund assets and certain out-of-pocket expenses.
Custodian
Bankers Trust Company, 130 Liberty Street, New York, New
York 10006, is the custodian of the securities and other
assets of the Fund.
INVESTMENT RESTRICTIONS
The following is a description of certain investment
restrictions which are fundamental and may not be changed
with respect to the Fund without shareholder approval. For a
description of certain other investment restrictions,
reference should be made to the SAI.
1. The Fund will not concentrate its investments in
particular industries, including debt obligations of foreign
governments, but it may invest up to 25% of the value of its
total assets in a particular industry. The restriction does
not apply to investments in obligations issued or guaranteed
by the United States of America, its agencies or
instrumentalities, or to investments by the Fund in
securities issued or guaranteed by domestic branches of U.S.
banks.
2. The Fund will not invest more than 5% of the
value of its total assets in the securities of any one
issuer (other than securities issued by or guaranteed as to
principal or interest by the United States Government or any
agency or instrumentality thereof) or acquire more than 10%
of the voting securities of any one issuer.
These limitations apply as of the time of purchase. If
through market action the percentage limitations are
exceeded, the Fund will not be required to reduce the amount
of its holding in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
Repurchase Agreements
The Fund may invest in repurchase agreements, under
which the Fund acquires ownership of a security (ordinarily
U.S. Government securities) but the seller agrees, at the
time of sale, to purchase the security at a mutually agreed
upon time and price. Should any seller of a repurchase
agreement fail to repurchase the underlying security, or
should any seller become insolvent or involved in a
bankruptcy proceeding, the Fund could incur costs and
losses. Repurchase Agreements maturing in more than seven
days are subject to the 10% limit on illiquid securities.
"When-Issued" Securities
The Fund may purchase securities on a when-issued or
delayed delivery basis. Delivery and payment normally take
place 15 to 45 days after the commitment to purchase. No
income accrues on when-issued securities prior to delivery.
Purchase of when-issued securities involves the risk that
yields available in the market when delivery occurs may be
higher than those available when the when-issued order is
placed, resulting in a decline in the market value of the
security. There is also the risk that under some
circumstances the purchase of when-issued securities may act
to leverage the Fund.
Lending of Securities
For the purpose of realizing additional income, the
Fund may lend portfolio securities to broker-dealers or
financial institutions amounting to not more than 30% of its
total assets taken at current value. While any such loan is
outstanding, the Fund will continue to receive amounts equal
to the interest or dividends paid by the issuer on the
securities, as well as interest (less any rebates to be paid
to the borrower) on the investment of the collateral or a
fee from the borrower. The Fund will have the right to call
each loan and obtain the securities. Lending portfolio
securities involves certain risks, including possible delays
in receiving additional collateral or in the recovery of the
securities or possible loss of rights in the collateral
should the borrower fail financially. Loans will be made in
accordance with guidelines established by the Board of
Trustees.
APPENDIX
Description of Moody's Investors Service, Inc.
("Moody's") and Standard & Poor's Ratings Service ("S&P"), a
division of McGraw-Hill Companies, Inc., commercial paper
ratings:
Commercial Paper Ratings
Moody's employs three designations, all judged to be
investment grade, to indicate the relative repayment
capacity of rated issuers. The highest designations is as
follows:
Issuers rated Prime-1 (or related supporting
institutions) have a superior capacity for repayment of
short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following
characteristics:
- Leading market positions in
well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structures
with moderate reliance on debt and ample asset protection.
- Broad margins in earnings coverage of
fixed financial charges and high internal cash generation.
- Well-established access to a range of
financial markets and assured sources of alternate
liquidity.
S&P commercial paper ratings are graded into several
categories, ranging from "A-1" for the highest quality
obligations to "D" for the lowest. The highest rating
category is as follows:
A-1 - This highest category indicates that the
degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign
designation.
ALLMERICA INVESTMENT TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
(508) 855-1000
Allmerica Investment Trust (the "Trust") is a professionally
managed,
open-end investment company designed to provide the underlying
investment vehicles
for insurance-related accounts. The twelve separate portfolios of the Trust
(collectively,
the "Funds" and individually, the "Fund") currently offered by this
Prospectus are as
follows:
Select Aggressive Growth Fund
Select Capital Appreciation Fund
Small-Mid Cap Value Fund
Select International Equity Fund
Select Growth Fund
Growth Fund
Equity Index Fund
Select Growth and Income Fund
Select Income Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
Currently, shares of each Fund may be purchased only by the
separate
accounts ("Separate Accounts") established by First Allmerica Financial
Life Insurance
Company ("First Allmerica") or Allmerica Financial Life Insurance and
Annuity
Company ("Allmerica Life"), an indirect, wholly-owned subsidiary of First
Allmerica,
for the purpose of funding variable annuity contracts and variable life
insurance
policies. A particular Fund may not be available under the variable annuity
or variable
life insurance policy which you have chosen. The Prospectus of the specific
insurance
product you have chosen will indicate which Funds are available, and
should be read in
conjunction with this Prospectus. Inclusion in this Prospectus of a Fund
which is not
available under your policy is not to be considered a solicitation.
This Prospectus sets forth concisely the information about the Trust
that a
prospective investor ought to know before investing. Certain additional
information
contained in the Statement of Additional Information dated April 29, 1997
(the "SAI"),
which has been filed with the Securities and Exchange Commission, is
incorporated
herein by reference and is available upon request without charge from the
Trust,
440 Lincoln Street, Worcester, MA 01653, (508) 855-1000.
Investment in the Money Market Fund is neither insured nor
guaranteed by the
U.S. Government. There can be no assurance that the Fund will be able to
maintain a
stable net asset value of $1.00 per share.
THIS PROSPECTUS SHOULD BE READ AND RETAINED
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.
DATED APRIL 29, 1997
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS
3
HOW ARE THE FUNDS MANAGED?
5
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
6
Select Aggressive Growth Fund
6
Select Capital Appreciation Fund
7
Small-Mid Cap Value Fund
8
Select International Equity Fund
9
Select Growth Fund
9
Growth Fund
1
0
Equity Index Fund
1
1
Select Growth and Income Fund
1
2
Select Income Fund
1
3
Investment Grade Income Fund
1
4
Government Bond Fund
1
5
Money Market Fund
1
6
MANAGEMENT FEES AND EXPENSES
1
6
FUND MANAGER INFORMATION
1
9
HOW ARE SHARES VALUED?
2
2
TAXES AND DISTRIBUTIONS TO SHAREHOLDER
2
2
SALE AND REDEMPTION OF SHARES
2
2
HOW IS PERFORMANCE DETERMINED?
2
3
ORGANIZATION AND CAPITALIZATION OF THE TRUST
2
3
INVESTMENT RESTRICTIONS
2
4
CERTAIN INVESTMENT STRATEGIES AND POLICIES
2
4
APPENDIX
3
0
FINANCIAL HIGHLIGHTS
The following financial highlights have been audited by Price
Waterhouse
LLP, independent accountants of the Trust. This information should be
read in
conjunction with the financial statements and notes thereto which appear in
the
Policyowner's annual report for the year ended December 31, 1996
("Annual Report")
and which are incorporated by reference in the Trust's SAI. Further
information about
the performance of the Funds is contained in the Annual Report which may
be obtained
without charge from the Trust, 440 Lincoln Street, Worcester, MA 01653,
(508) 855-1000.
[FINANCIAL HIGHLIGHTS TO BE FILED BY AMENDMENT]
HOW ARE THE FUNDS MANAGED?
The overall responsibility for the supervision of the affairs of the
Trust vests in
the Board of Trustees of the Trust which meets on a quarterly basis.
Allmerica
Investment Management Company, Inc. (the "Manager") is responsible for
the
management of the Trust's day-to-day business affairs and has general
responsibility for
the management of the investments of the Funds. The Manager, at its
expense, has
contracted with certain Sub-Advisers to manage the investments of the
Funds, subject to
the requirements of the Investment Company Act of 1940, as amended (the
"1940
Act").
The Manager is an indirect, wholly-owned subsidiary of Allmerica
Financial
Corporation ("AFC"), a Delaware holding company for a group of
affiliated
companies, the largest of which is First Allmerica, a life insurance company
organized
in Massachusetts in 1844. The Manager, organized August 19, 1985, also
serves as
manager of the All
merica Funds, an open-end investment company. The Manager and AFC
are located at
440 Lincoln Street, Worcester, Massachusetts 01653.
The Manager has entered into Sub-Adviser Agreements for the
management of
the investments of each of the Funds. Each Sub-Adviser, who has been
selected on the
basis of various factors including management experience, investment
techniques, and
staffing, is authorized to engage in portfolio transactions on behalf of the
applicable
Fund subject to such general or specific instructions as may be given by the
Trustees
and/or the Manager. The terms of a Sub-Adviser Agreement cannot be
changed
materially without the approval of a majority interest of the shareholders of
the affected
Fund. The Sub-Advisers have been selected by the Manager and Trustees
in
consultation with RogersCasey & Associates ("RogersCasey"), a leading
pension
consulting firm. RogersCasey is a wholly-owned subsidiary of BARRA,
Inc. The cost
of such consultation is borne by the Manager.
RogersCasey provides consulting services to pension plans
representing over
$300 billion in total assets and, in its consulting capacity, monitors the
investment
performance of over 1,000 investment advisers. From time to time, specific
clients of
RogersCasey and the Sub-Advisers will be named in sales materials. At
times,
RogersCasey assists in the development of asset allocation strategies which
may be used
by shareholders in the diversification of their portfolios across different
asset classes.
Ongoing performance of the Sub-Advisers is reviewed and
evaluated by a
committee which includes members who may include senior officers of
First Allmerica,
its affiliates or the Manager and an independent consultant. Combined, the
committee
has over 150 years of investment experience. Historical performance data
for all Funds
is set forth under "Financial Highlights." The Manager is responsible for
the payment
of all fees to the Sub-Advisers. The Sub-Advisers for each of the Funds are
as follows:
Select Aggressive Growth Fund
Nicholas-Applegate Capital
Management
Select Capital Appreciation Fund
Janus Capital Corporation
Small-Mid Cap Value Fund
CRM Advisors, LLC*
Select International Equity Fund
Bank of Ireland Asset Management
(U.S.) Limited
Select Growth Fund
Putnam Investment Management,
Inc.**
Growth Fund
Miller Anderson & Sherrerd, LLP
Equity Index Fund
Allmerica Asset Management, Inc.
Select Growth and Income Fund
John A. Levin & Co., Inc.
Select Income Fund
Standish, Ayer & Wood, Inc.
Investment Grade Income Fund
Allmerica Asset Management, Inc.
Government Bond Fund
Allmerica Asset Management, Inc.
Money Market Fund
Allmerica Asset Management, Inc.
For a sample listing of certain of the Sub-Advisers' clients, see
"Investment
Management and Other Services" in the SAI. For more information on
each of the
Sub-Advisers, see "What Are the Investment Objectives and Policies?" and
"Fund
Manager Information."
The Manager also has entered into an Administrative Services
Agreement with
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned
subsidiary of
First Data Corporation, whereby First Data performs administrative
services for each of
the Funds and is entitled to receive an administrative fee and certain out-of-
pocket
expenses. The Manager is responsible for the payment of the administrative
fee to
FDISG.
WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES?
Each Fund has a separate investment objective and policies
designed to meet
different investment and financial needs, as described below. There is no
assurance that
a Fund will achieve its investment objective.
A Fund's investment objective is fundamental and may not be
changed without
shareholder approval. Unless otherwise indicated, a Fund's investment
policies are not
fundamental and may be changed without shareholder approval.
Select Aggressive Growth Fund
Investment Objective: The Select Aggressive Growth Fund seeks above-
average capital
appreciation by investing primarily in common stocks of companies which
are believed
to have significant potential for capital appreciation.
Sub-Adviser: Nicholas-Applegate Capital Management ("NACM") serves
as
Sub-Adviser to the Select Aggressive Growth Fund. NACM is an
investment manager
supervising accounts with approximately $32 billion as of December 31,
1996.
NACM's clients are primarily major corporate employee benefit funds,
public
employee retirement plans, foundations and endowment funds, investment
companies
and individuals. Founded in 1984, NACM is located at 600 West
Broadway,
Suite 2900, San Diego, California 92101.
Investment Policies: Under normal circumstances, at least 65% of the
assets of the
Select Aggressive Growth Fund will be invested in equity securities
consisting of
common stocks, securities convertible into common stocks (including
bonds, notes and
preferred stocks), and warrants. The Fund's assets also may be invested in
other debt
securities and preferred stocks when such securities are believed
appropriate in light of
the Fund's investment objective and market conditions.
The selection of securities is made solely on the basis of potential
for capital
appreciation. Dividend and interest income from portfolio securities, if any,
is
incidental to the Fund's investment objective. While investments may be
made in
well-known and established companies, a significant portion of the Fund's
investments
is expected to be in securities of newer and relatively unseasoned
companies or
companies which represent new or changing industries.
At any given point, a substantial portion of the Fund's equity
investments may
be in securities which are not listed for trading on national securities
exchanges and,
although publicly traded, may be less liquid than securities issued by larger,
more
seasoned companies which trade on national securities exchanges. Up to
15% of the
Fund's assets may be invested in assets which are illiquid because they are
subject to
restriction on resale for which market quotations are not readily available.
Securities of newer companies may be closely held with only a
small portion of
their outstanding securities owned by the general public. Newer companies
may have
relatively small revenue, lack depth of management, and have a small share
of the
market for their products or services; thus, they may be more vulnerable to
changes in
economic conditions, market fluctuations, and other factors affecting the
profitability or
marketability of companies. Due to these and other factors, the price
movement of the
securities held by the Fund can be expected to be more volatile than is the
case for the
market as a whole, and the net asset value of a share of the Fund may
fluctuate
significantly. Consequently, the Fund should not be considered suitable for
investors
who are unable or unwilling to assume the risk of loss inherent in an
aggressive growth
portfolio, nor should investment in the Fund be considered a balanced or
complete
investment program.
When NACM determines that market conditions warrant a
temporary defensive
position, the Fund may invest without limitation in high-grade, fixed-
income securities,
U.S. Government securities, or hold assets in cash or cash equivalents. The
Fund may
engage, for hedging purposes, in the options and futures strategies
described under
"Certain Investment Strategies and Policies."
The Fund may also invest up to 25% of its assets in foreign
securities (not
including its investments) investments in American Depositary Receipts
("ADRs").
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for
the Fund was 113%. The portfolio turnover rate was the result of the Sub-
Adviser's
investment approach which typically results in above-average portfolio
turnover as
securities are sold when the Sub-Adviser believes the reasons for their
initial purchase
are no longer valid or when it believes that the sale of a security owned by
the Fund
and the purchase of another security can enhance return. A security may be
sold to
avoid a prospective decline in market value or purchased in anticipation of
a market
rise. Portfolio turnover rates may vary greatly from year to year. A high
portfolio
turnover rate will likely result in greater brokerage costs to the Fund.
Select Capital Appreciation Fund
Investment Objective: The Select Capital Appreciation Fund seeks long-
term growth of
capital in a manner consistent with the preservation of capital. Realization
of income is
not a significant investment consideration and any income realized on the
Fund's
investments will be incidental to its primary objective.
Sub-Adviser: Janus Capital Corporation ("JCC") serves as Sub-Adviser to
the Select
Capital Appreciation Fund. JCC has served as investment adviser to the
Janus Fund
since 1969 and currently serves as investment adviser to all of the Janus
retail funds, as
well as adviser or sub-adviser to other mutual funds and individual,
corporate,
charitable, and retirement accounts. Kansas City Southern Industries, Inc.,
a publicly-
traded holding company whose primary subsidiaries are engaged in
transportation and
financial services, owns approximately 83% of the outstanding stock of
JCC. As of
December 31, 1996, JCC had approximately $47 billion in total assets
under
management. JCC is located at 100 Fillmore Street, Denver, Colorado
80206-4923.
Investment Policies: The Fund invests in common stocks when the Sub-
Adviser
believes that the relevant market environment favors profitable investing in
those
securities. The Fund pursues its objective normally by investing at least
50% of its
equity assets in securities issued by medium-sized companies. Medium-
sized companies
are those whose market capitalizations fall within the range of companies in
the S&P
MidCap 400 Index (the "MidCap Index"). Companies whose capitalization
falls outside
this range after the Fund's initial purchase continue to be considered
medium-sized
companies for the purpose of this policy. As of December 31, 1996, the
MidCap Index
included companies with capitalizations between approximately $500
million to
$10 billion. The range of the MidCap Index is expected to change on a
regular basis.
Subject to the above policy, the Fund may also invest in smaller or large
issuers.
Common stock investments are selected in industries and companies that
the
Sub-Adviser believes are experiencing favorable demand for their products
and
services, and which operate in a favorable competitive environment and
regulatory
climate. The Sub-Adviser's analysis and selection process focuses on stocks
with
earnings growth potential that may not be recognized by the market. Such
securities are
selected solely for their capital growth potential; investment income is not a
consideration. Medium-sized companies may suffer more significant losses
as well as
realize more substantial growth than larger issues; thus, investments in such
companies
tend to be more volatile and somewhat speculative.
The selection criteria for domestic issuers apply equally to stocks of
foreign
issuers. In addition, factors such as expected levels of inflation, government
policies
influencing business conditions, the outlook for currency relationships, and
prospects
for relative economic growth among countries, regions or geographic areas
may
warrant greater consideration in selecting foreign stocks. The Fund may
invest without
limitation in foreign securities. The Fund may invest directly in foreign
securities
denominated in foreign currency and not publicly traded in the United
States. The Fund
also may purchase foreign securities through American Depositary
Receipts ("ADRs"),
European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") and
other types of receipts or shares evidencing ownership of the underlying
foreign
securities. In addition, the Fund may invest indirectly in foreign securities
through
foreign investment funds or trusts (including passive foreign investment
companies).
Certain state insurance regulations may impose additional restrictions on
the Fund's
holdings of foreign securities. Investments in foreign securities carry
additional risks
not present in domestic securities. See "Certain Investment Strategies and
Policies -
Foreign Securities."
Although the Fund normally invests primarily in common stocks,
the Fund's
cash position may increase when the Sub-Adviser is unable to locate
investment
opportunities with desirable risk/reward characteristics. The Fund also may
invest in
preferred stocks, warrants, government securities, corporate bonds and
debentures,
high-grade commercial paper, certificates of deposit, other debt securities
or repurchase
agreements or reverse repurchase agreements when the Sub-Adviser
perceives an
opportunity for capital growth from such securities or so that the Fund may
receive a
return on its idle cash. The Fund also may invest up to 35% of its assets in
such
lower-rated securities commonly known as "junk bonds." Fixed-income
securities
rated in the fourth highest grade by Moody's Investors Service, Inc.
("Moody's") or
Standard & Poor's Ratings Service, a division of McGraw-Hill Companies,
Inc.
("S&P") (Baa and BBB, respectively) are investment grade but are
considered to have
some speculative characteristics. Lower-rated securities or "junk bonds"
(rated Ba/BB
or lower) involve the risks discussed under "Certain Investment Strategies
and
Policies." When the Fund invests in such securities, investment income will
increase
and may constitute a large portion of the return realized by the Fund and
the Fund
probably will not participate in market advances or declines to the extent
that it would
if it remained fully invested in common stocks. Up to 15% of the Fund's
assets may be
invested in restricted or illiquid securities.
The Fund may invest in "special situations" from time to time. A
special
situation arises when, in the opinion of the Sub-Adviser, the securities of a
particular
issuer will be recognized and appreciate in value due to a specific
development with
respect to that issuer. Developments creating a special situation might
include, among
others, a new product or process, a technological breakthrough, a
management change
or other extraordinary corporate event, or differences in market supply of
and demand
for the security. Investment in special situations may carry an additional
risk of loss in
the event that the anticipated development does not occur or does not
attract the
expected attention.
For hedging purposes, the Fund may engage in options and futures
strategies
and may utilize forward contracts, interest rate swaps, and swap-related
products. See
"Certain Investment Strategies and Policies."
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for
the Fund was 98%. The portfolio turnover rate for the Fund may vary from
year to
year.
Small-Mid Cap Value Fund
Investment Objective: The Small-Mid Cap Value Fund
seeks long
term growth of capital by investing primarily in a diversified portfolio of
common
stocks of small and mid-size companies, whose securities at the time of
purchase are
considered by the Sub-Adviser to be undervalued.
Sub-Adviser: CRM Advisors, LLC ("CRM"), an affiliate of Cramer
Rosenthal
McGlynn, Inc. ("Cramer Rosenthal") serves as Sub-Adviser to the Small-
Mid Cap
Value Fund. Founded in 1973, Cramer Rosenthal and its affiliates
currently have over
$2.5 billion in assets under management and provide investment advice to
individuals,
state and local government agencies, pension and profit sharing plans,
trusts, estates,
endowments and other organizations. The Sub-Adviser provides advisory
and sub-
advisory services to mutual funds with approximately $100 million under
management.
Cramer Rosenthal is wholly owned by its active investment professionals.
The Sub-
Adviser is located at 707 Westchester Avenue, White Plains, New York
10604.
Investment Policies: A stock will be considered to be attractively
valued and,
therefore, eligible for investment in the Fund, if it is trading at a price
which
the Sub-
Adviser believes is reasonable relative to its own past valuation history as
well as
compared to a large universe of stocks as selected by the investment Sub-
Adviser, based
on one or more of the following comparisons:
1. price relative to cash flow,
2. price relative to earnings,
3. price relative to sales,
4. price relative to assets as measured by book value.
The Small-Mid Cap Value Fund generally intends to invest at least
65% of its
total assets in stocks of companies with market capitalization between
$200 million and
$5 billion at the time of purchase and which are listed on a national or
regional
exchange or over-the-counter with prices quoted daily in the financial
press. The Fund
at times may invest temporarily in preferred stocks, bonds or other
defensive issues.
Normally, however, the Fund will maintain at least 80% of the portfolio in
common
stocks. There are no restrictions or guidelines regarding the investment of
Fund assets
in shares listed on an exchange or traded over-the-counter. The Fund may
invest up to
25% of its assets in foreign securities.
The Small-Mid Cap Value Fund seeks investment opportunities in
companies
whose stocks are trading at attractive valuations relative to the market as a
whole. The
most attractive of these companies often exist among those securities
which have been
out of favor, where Wall Street coverage is limited, and where there is a
degree of
misunderstanding or neglect resulting in low expectations. The Sub-
Adviser seeks
companies which are expected to undergo some significant change that will
improve
their market valuations. Value investing may reduce downside risk while
offering
potential for capital appreciation as a company gains favor among other
investors and
its stock price rises. The portfolio normally will be diversified among
different
industry sectors, but is not an index approach. Stocks are bought as
investments and
generally held for the long term, rather than as active trading vehicles.
Small-mid cap companies may present greater opportunities for
capital
appreciation, but also may involve greater risk. Smaller cap companies,
when
compared with larger cap companies, may be more dependent upon a
single product,
have limited financial resources, have fewer securities outstanding,
experience greater
price fluctuations, and be somewhat less liquid than securities of larger
companies.
The Fund may invest up to 15% of its assets in illiquid securities,
including
restricted securities (as defined in its investment restrictions) unless the
Board of
Trustees determines, based upon a continuing review of the trading
markets for the
specific restricted security, that such securities are liquid.
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for
the Fund was 20%. The portfolio turnover rate for the Fund may vary
from year to
year.
Select International Equity Fund
Investment Objective: The Select International Equity Fund seeks
maximum long-term
total return (capital appreciation and income) primarily by investing in
common stocks
of established non-U.S. companies.
Sub-Adviser: Bank of Ireland Asset Management (U.S.) Limited
("BIAM") serves as
Sub-Adviser for the Select International Equity Fund. BIAM is an indirect,
wholly-owned subsidiary of Bank of Ireland. Its main offices are at 26
Fitzwilliam
Place, Dublin 2, Ireland. Its U.S. offices are at Two Greenwich Plaza,
Greenwich, CT
06830. Bank of Ireland provides investment management services through
a network of
affiliated companies, including BIAM which represents North American
clients. As of
December 31, 1996, Bank of Ireland managed approximately $21 billion in
global
securities for Irish, United Kingdom, European, Australian, South African,
Canadian,
and U.S. clients.
Investment Policies: To achieve its objective, the Select International
Equity Fund will
invest primarily in common stocks of established non-U.S. companies.
Under normal
market conditions, at least 65% of the Fund's total assets will be invested in
the
securities of companies domiciled in at least five foreign countries, not
including the
United States. The Fund may also acquire fixed-income debt securities. It
will do so, at
the discretion of BIAM, primarily for defensive purposes. The Fund may
invest up to
15% of its asses in securities which are illiquid because they are subject to
restriction
on resale or for which market quotations are not readily available.
The Fund's investments may include ADRs which may be
sponsored or
unsponsored by the underlying issuer. The Fund may also utilize EDRs,
which are
similar to ADRs, in bearer form, designed for use in the European
securities market
and GDRs. Investments in foreign securities carry additional risks not
present in
domestic securities. See "Certain Investment Strategies and Policies -
Foreign
Securities." For hedging purposes, the Fund may engage in the options and
futures
strategies described under "Certain Investment Strategies and Policies."
Certain state
insurance regulations may impose additional restrictions on the Fund's
holdings of
foreign securities.
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for
the Fund was 18%. The portfolio turnover rate for the Fund may vary
greatly from
year to year.
Select Growth Fund
Investment Objective: The Select Growth Fund seeks to achieve long-
term growth of
capital by investing in a diversified portfolio consisting primarily of
common stocks
selected on the basis of their long-term growth potential.
Sub-Adviser: Putnam Investment Management, Inc. ("Putnam"), One
Post Office
Square, Boston, Massachusetts 02109, serves as Sub-Adviser to the Select
Growth
Fund. Putnam has been an investment manager since 1937. As of
December 31, 1996,
Putnam had assets under management of approximately $173 billion.
Putnam is a
wholly-owned subsidiary of Putnam Investments, Inc., a holding company
which is in
turn wholly owned by Marsh & McLennan Companies, Inc., a publicly-
owned holding
company whose principal businesses are international insurance and
reinsurance
brokerage, employee benefit consulting, and investment management.
Investment Policies: The Select Growth Fund seeks to attain its objective
by investing
in securities of companies that appear to have favorable long-term growth
characteristics. Potential for long-term growth is the determinative factor in
the
selection of all portfolio securities. Although the Fund may invest in
dividend-paying
stocks, the generation of current income is not an objective of the Fund.
Any income
that is received is incidental to the Fund's objective of long-term growth of
capital.
When choosing securities for the portfolio, the Sub-Adviser for the
Select
Growth Fund focuses on companies that display strong financial
characteristics and
earnings growth potential.
At least 65% of the Fund's assets under normal conditions will
consist of
growth-oriented common stocks. The Fund may invest in common stocks
of large
well-known companies as well as smaller growth companies, which
generally include
companies with a market capitalization of $500 million or less ("smaller
growth
companies"). The stocks of smaller growth companies may involve a higher
degree of
risk than other types of securities and the price movement of such
securities can be
expected to be more volatile than is the case of the market on the whole.
The Fund may
hold stocks traded on one or more of the national exchanges as well as in
the
over-the-counter markets. Because opportunities for capital growth may
exist not only
in new and expanding areas of the economy but also in mature and cyclical
industries,
the Fund's portfolio investments are not limited to any particular type of
company or
industry. The Fund may also purchase convertible bonds and preferred
stocks,
warrants, and debt securities if the Fund's Sub-Adviser believes they would
help
achieve the Fund's objective of long-term growth.
The Fund may invest up to 35% of its assets in both higher-rated
and
lower-rated fixed-income securities in seeking its objective of long-term
growth of
capital. The dollar average weighted maturity of the Fund's fixed-income
securities will
vary depending on, among other things, current market conditions. The
Fund may
invest up to 15% of its assets in lower-rated securities, commonly known
as "junk
bonds," which involve risks discussed under "Certain Investment Strategies
and
Policies." For more information concerning the rating categories of
corporate debt
securities, see the Appendix to the Prospectus.
When the Sub-Adviser determines that market conditions warrant a
temporary,
defensive position, the Fund may invest without limitation in high-grade,
fixed-income
securities; U.S. Government securities; or hold assets in cash or cash
equivalents. To
the extent the Fund is so invested it is not achieving its objective to the
same degree as
under normal conditions. For hedging purposes, the Fund may engage in
the options
and futures strategies described under "Certain Investment Strategies and
Policies."
The Select Growth Fund's objective of seeking long-term growth of
capital
means that its assets generally will be subject to greater risk than may be
involved in
investing in securities that are not selected for growth potential. The Fund
may invest
up to 15% of its assets in securities which are illiquid because they are
subject to
restriction on resale or for which market quotations are not readily
available. The Fund
may also invest up to 25% of its assets in foreign securities.
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for
the Fund was 159%. The Fund experienced such a rate of turnover due to
a new sub-
adviser assuming responsibility for the Fund on July 1, 1996 and
subsequently
repositioning the portfolio. The portfolio turnover rate for the Fund may
vary greatly
from year to year.
Growth Fund
Investment Objective: The Growth Fund seeks to achieve long-term
growth of capital
through investments primarily in common stocks and securities convertible
into
common stocks that are believed to represent significant underlying value
in relation to
current market prices. Realization of current income, if any, is incidental to
this
objective.
Sub-Adviser: Miller Anderson & Sherrerd, LLP ("MAS") is Sub-Adviser
for the
Growth Fund. MAS, which is wholly owned by Morgan Stanley Asset
Management
Holdings, Inc., is located at One Tower Bridge, West Conshohocken,
Pennsylvania
19428. MAS provides investment counseling services to employee benefit
plans,
endowment funds, foundations, and other institutional investors and had
over
$41 billion in assets under management as of December 31, 1996. MAS is
the adviser
of the MAS Funds, a registered investment company offering investment
alternatives to
institutional clients with a minimum initial investment of $1 million. MAS
also
manages certain assets for First Allmerica and its affiliates.
Investment Policies: The Growth Fund is not limited to investments in any
particular
type of company and may invest in any company which, in the opinion of
management,
is likely to further its investment objective. The Growth Fund will pursue
its
investment objective by maintaining a flexible position regarding the type of
companies
as well as the types of securities, in which it will invest. Investments may
include, but
are not limited to, developing or well-established companies, whether small
or large. It
is anticipated that there will be a mix of assets in the Growth Fund. For
example,
portions of the Growth Fund may be invested in equity securities of good
quality or in
well-established companies considered to represent good value, based on
factors
including historical investment standards (such as price/book value ratios
and
price/earnings ratios) or in smaller emerging growth companies which are
in the
development stage and are expected to achieve above-average earnings
growth because
of special factors (such as changes in the economy, the relative
attractiveness of the
various securities markets, or changes in consumer demand).
The Growth Fund proposes to keep its assets fully invested, but
may maintain
reasonable amounts in cash or in high-grade, short-term debt securities to
meet current
expenses and anticipated redemptions, and during temporary periods
pending
investment in accordance with its policies. The term "high-grade, short-
term debt
securities" means Items (a), (b), and (c) of money market instruments
under the
Investment Grade Income Fund's Investment Policies.
The Growth Fund normally will invest substantially all of its assets
in
equity-type securities, including common stocks, warrants (which are
options to
purchase common stock at specified prices during a specified time period
with the
investment risk that the market value of the underlying common stock may
not be high
enough in relation to the warrant exercise price to justify purchase pursuant
to the terms
of the warrant), preferred stocks and debt securities convertible into or
carrying rights
to purchase common stock or to participate in earnings, and real estate
securities to the
extent permitted by paragraph four under "Investment Restrictions" in the
SAI. In
periods considered by management to warrant a more defensive position,
the Growth
Fund may place a larger proportion of its portfolio in high-grade preferred
stocks,
bonds, or other fixed-income securities, including U.S. Government
securities, whether
or not convertible into stock or with rights attached, or retain cash. The
Fund may
engage in the options and futures strategies described under "Certain
Investment
Strategies and Policies."
The Fund may also invest up to 25% of its assets in foreign
securities.
The Growth Fund may invest in both listed and unlisted securities.
The
Growth Fund also may invest in foreign as well as domestic securities. The
Growth
Fund will not concentrate its foreign investments in any particular foreign
country, or
limit its investments to issuers listed on particular exchanges or traded in
particular
money market centers. Investments in foreign securities carry additional
risks not
present in domestic securities. See "Certain Investment Strategies and
Policies." The
Sub-Adviser will consider these and other factors before investing and will
not cause
the Growth Fund to invest in foreign securities unless, in its opinion, such
investments
will meet the standards and objectives of the Growth Fund.
The investment objective and policies in the first, third, and fourth
paragraphs
of this section on the Growth Fund are fundamental and may not be
changed without
shareholder approval.
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for
the Fund was 72%. The portfolio turnover rate for the Fund may vary
greatly from
year to year.
Equity Index Fund
Investment Objective: The Equity Index Fund seeks to achieve investment
results that
correspond to the aggregate price and yield performance of a
representative selection of
common stocks that are publicly traded in the United States.
Sub-Adviser: Allmerica Asset Management, Inc. ("AAM") serves as Sub-
Adviser to
the Equity Index Fund as well as the Investment Grade Income Fund,
Government
Bond Fund, and Money Market Fund, other series of the Trust. AAM, an
indirect,
wholly-owned subsidiary of AFC, was incorporated in 1993 and is located
at
440 Lincoln Street, Worcester, Massachusetts 01653. As of December 31,
1996, AAM
had approximately $11 billion in assets under management. AAM serves as
investment
adviser to First Allmerica's General Account and to a number of affiliated
insurance
companies and other affiliated accounts, and as Adviser to Allmerica
Securities Trust, a
diversified, closed-end management investment company.
Investment Policies: The Equity Index Fund will seek to achieve its
objective by
attempting to replicate the aggregate price and yield performance of the
Standard &
Poor's Composite Index of 500 Stocks ("S&P 500"). The Fund uses the
S&P 500 as the
performance standard because it represents over 70 percent of the total
market value of
all publicly-traded common stocks in the U.S., is well-known to investors,
and, in the
opinion of the Sub-Adviser, is representative of the performance of
common stocks
publicly-traded in the U.S. Many, but not all, of the stocks in the S&P 500
are issued
by companies that are among the 500 largest as measured by the aggregate
market value
of their outstanding stock (market price per share multiplied by number of
shares
outstanding). Inclusion of a stock in the S&P 500 does not imply that S&P
has
endorsed it as an investment. With respect to investing in common stocks,
there can be
no assurance of capital appreciation and there is a substantial risk of market
decline.
The method used to select investments for the Fund involves
investing in
common stocks in approximately the order of their weightings in the S&P
500 Index.
In addition, the Fund purchases stocks with smaller weightings in order to
represent
other sectors of the S&P 500 for diversification purposes.
The Equity Index Fund will invest only in those stocks, and in such
amounts,
as its Sub-Adviser determines to be necessary or appropriate for the Fund
to
approximate the performance of the S&P 500. Under normal
circumstances, it is
expected that the Fund will hold between 300 and 500 different stocks
included in the
S&P 500. The Fund may compensate for the omission of a stock that is
included in the
S&P 500, or for purchasing stocks in other than the same proportions that
they are
represented in the S&P 500, by purchasing stocks that are believed to have
characteristics that correspond to those of the omitted stocks. The Fund
may invest in
short-term debt securities to maintain liquidity or pending investment in
stocks. The
Fund also may engage in the options and futures strategies described under
"Certain
Investment Strategies and Policies." The Fund also may invest up to 25%
of its assets
in foreign securities.
Because of its policy of tracking the S&P 500, the Equity Index
Fund is not
managed according to traditional methods of active investment
management, which
involve the buying and selling of securities based upon investment analysis
of
economic, financial, and market factors. Consequently, the projected
adverse financial
performance of a company normally would not result in the sale of the
company's stock
and projected superior financial performance by a company normally would
not lead to
an increase in the holdings of the company. From time to time, the Sub-
Adviser may
make adjustments in the portfolio because of cash flows, mergers, changes
in the
composition of the S&P 500, and other similar reasons. Portfolio turnover
is expected
to be lower than that of most investment funds investing in common stock.
For the
fiscal year ended December 31, 1996, the portfolio turnover rate for the
Fund was
12%.
The Equity Index Fund's ability to duplicate the performance of the
S&P 500
will be influenced by the size and timing of cash flows into or out of the
Fund, the
liquidity of the securities included in the S&P 500, transaction and
operating expenses,
and other factors. In addition, the Fund will incur expenses (including
advisory and
administrative fees) that are not reflected in the performance results of the
S&P 500.
These factors, among others, may result in "tracking error," which is a
measure of the
degree to which the Fund's results differ from the results of the S&P 500.
Due to such
factors, the return of the Fund may be lower than the return of the S&P
500.
Tracking error is measured by the difference between total return
for the S&P
500 with dividends reinvested and total return for the Fund with dividends
reinvested
after deductions of fees and expenses. For the 12 months ended December
31, 1996,
the S&P 500 gained 22.96% versus a gain of 22.82% for the Equity Index
Fund
producing a tracking error of 0.14% before fees. Tracking error is
monitored by the
Sub-Adviser on a regular basis. All tracking error deviations are reviewed
to determine
the effectiveness of investment policies and techniques. If the tracking error
deviation
exceeds industry standards for the Fund's asset size, the Sub-Adviser will
bring the
deviation to the attention of the Trustees.
While the Board of Trustees of the Trust has selected the S&P 500
as the index
the Fund will attempt to replicate, the Trustees reserve the right to select
another index
at any time without seeking shareholder approval if they believe that the
S&P 500 no
longer represents a broad spectrum of common stocks that are publicly
traded in the
United States or if there are legal, economic or other factors limiting the
use of any
particular index. If the Trustees change the index which the Equity Index
Fund attempts
to replicate, the Equity Index Fund may incur significant transaction costs
in switching
from one index to another.
S&P is not in any way affiliated with the Equity Index Fund or the
Trust.
"Standard & Poor's," "Standard & Poor's 500," and "500" are trademarks
of S&P.
Select Growth and Income Fund
Investment Objective: The Select Growth and Income Fund seeks a
combination of
long-term growth of capital and current income. The Fund will invest
primarily in
dividend-paying common stocks and securities convertible into common
stocks.
Sub-Adviser: John A. Levin & Co., Inc. ("JAL"), One Rockefeller Plaza,
25th Floor,
New York, New York 10020, serves as Sub-Adviser to the Select Growth
and Income
Fund. JAL was founded as a Delaware corporation in 1982 and is wholly
owned by
Baker, Fentress & Company, a non-diversified closed-end management
investment
company registered under the 1940 Act. JAL had approximately $6.5
billion in assets
under management as of December 31, 1996. JAL's clients include U.S.
and foreign
individuals and their related trust and charitable organizations, pooled
funds for
individuals and university endowments, and pension and profit sharing
funds.
Investment Policies: To achieve its objective of long-term growth of
capital and
current income, the Select Growth and Income Fund will invest primarily in
dividend-paying common stocks and securities convertible into common
stocks. It may
invest in a wide range of equity securities, consisting of both dividend-
paying and
non-dividend-paying common stocks, preferred stocks, securities
convertible into
common and preferred stocks, and warrants. These may include securities
of large
well-known companies as well as smaller growth companies. The securities
of smaller
growth companies involve certain risks as described above under the
"Select Growth
Fund." The Fund may hold securities traded on one or more of the national
exchanges
as well as in the over-the-counter markets. The Fund's portfolio
investments are not
limited to any particular type of company or industry. The Fund may
purchase
individual stocks not presently paying dividends which offer opportunities
for capital
growth or future income provided that the Sub-Adviser believes the overall
portfolio is
appropriately positioned to achieve its income objective. To achieve
current income, the
Fund may invest up to 35% of its assets in both higher-rated and lower-
rated
fixed-income securities, including not more than 15% in lower-rated
securities,
commonly known as "junk bonds." In certain circumstances, fixed-income
securities
may be purchased by the Fund for long-term growth potential. (However,
the Fund
expects to have substantially less than 35% of its assets invested in fixed-
income
securities in most circumstances.) Lower-rated, fixed-income securities
involve risks
discussed under "Certain Investment Strategies and Policies." For more
information
concerning the rating categories of corporate debt securities, see the
Appendix to the
Prospectus. The dollar average weighted maturity of the Fund's fixed-
income securities
will vary depending on, among other things, current market conditions.
Purchases and
sales of portfolio securities are made at such times and in such amounts as
deemed
advisable in light of market, economic and other conditions.
The Fund may invest up to 15% of its assets in securities which are
illiquid
because they are subject to restriction on resale or for which market
quotations are not
readily available. The Fund may also invest up to 25% of its assets in
foreign
securities (not including investments in ADRs).
When the Sub-Adviser determines that market conditions warrant a
temporary,
defensive position, the Fund may invest without limitation in high-grade,
fixed-income;
U.S. Government securities; or hold assets in cash or cash equivalents. To
the extent
the Fund is so invested, it is not achieving its objective to the same degree
as under
normal conditions. For hedging purposes, the Fund may engage in the
options and
futures strategies described under "Certain Investment Strategies and
Policies." There
can be no assurance of growth of capital, of course, and because the Fund
invests a
substantial portion of its assets in common stocks and other securities
which fluctuate in
value, there is substantial risk of market decline. The Fund's Sub-Adviser
seeks to
minimize this risk through detailed analyses of financial markets and issuers
of equity
securities and through investment in a diversified portfolio of such
securities.
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for
the Fund was 78%. The portfolio turnover rate for the Fund may vary
greatly from
year to year. A high portfolio turnover rate will likely result in greater
brokerage costs
to the Fund.
Select Income Fund
Investment Objective: The Select Income Fund seeks a high level of
current income.
The Fund will invest primarily in investment grade, fixed-income securities.
Sub-Adviser: Standish, Ayer & Wood, Inc. ("SAW") serves as Sub-
Adviser to the
Select Income Fund. SAW was founded in 1933 to provide investment
management
services to high net worth individuals and institutions. As of December 31,
1996, total
client assets exceeded $30 billion. SAW manages fixed-income portfolios
for major
corporate and governmental pension plans, financial institutions, and
endowment and
foundation funds. Through its affiliate, Standish International Investment
Management
Company, L.P., SAW offers international investment services. SAW is an
independent
investment counseling firm owned by its twenty-two directors who are
active with the
firm. SAW is located at One Financial Center, Boston, Massachusetts
02111.
Investment Policies: Under normal circumstances, at least 65% of the
Select Income
Fund's assets, at the time of investment, will be invested in investment
grade corporate
debt securities and securities issued or guaranteed as to principal or interest
by the U.S.
Government or its agencies or instrumentalities. Investment grade
corporate debt
securities are: (a) assigned a rating within the four highest grades
(Baa/BBB or higher)
by either Moody's or S&P, (b) equivalently rated by another nationally
recognized
statistical rating organization ("NRSRO"), or (c) unrated securities but
determined by
the Sub-Adviser to be of comparable quality. Securities rated in the fourth
highest grade
(rated Baa and BBB by Moody's and S&P, respectively) are considered to
have some
speculative characteristics. The Fund will not invest in debt securities rated
below
investment grade (Ba/BB or lower) by both Moody's and S&P. For more
information
concerning the rating categories of corporate debt securities and
commercial paper, see
the Appendix to the Prospectus. The types of securities in which the Fund
invests are
corporate debt obligations such as bonds, notes and debentures, and
obligations
convertible into common stock; "money market" instruments, such as
bankers
acceptances, or negotiable certificates of deposit issued by the 25 largest
U.S. banks (in
terms of deposits); commercial paper rated Prime-1 by Moody's or A-1 by
S&P;
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities; asset-backed securities; mortgage-backed securities); and
stripped
mortgage-backed securities. The Fund also may invest in U.S. dollar
obligations of, or
guaranteed by, the government of Canada or a province of Canada or any
instrumentality or political subdivision thereof, and U.S. dollar obligations
of
supranational entities such as the World Bank, European Investment Bank,
and African
Development Bank. For more information about asset-backed securities
and
mortgage-backed securities and stripped mortgage-backed securities, see
"Certain
Investment Strategies and Policies."
The Fund's investments in corporate debt securities are not limited
to any
particular type of company or industry. The Fund will invest in corporate
debt
obligations primarily of companies having a market capitalization of more
than $500
million at the time of investment.
The Fund's dollar average weighted maturity and the mix of
permitted
portfolio securities as described above will vary from time to time
depending, among
other things, on current market and economic conditions and the
comparative yields on
instruments in different sectors, such as corporate and Treasuries, and with
different
maturities. The dollar average weighted maturity of the portfolio, excluding
money
market instruments, is expected to range between 5 and 20 years under
normal market
conditions. The Fund may invest up to 35% of its assets in money market
instruments
under normal conditions. Although the Fund does not invest for short-term
trading
purposes, portfolio securities may be sold from time to time without regard
to the
length of time they have been held. The value of the Fund's portfolio
securities
generally will vary inversely with changes in prevailing interest rates,
declining as
interest rates rise and increasing as rates decline. The value will also be
affected by
other market and economic factors. There is the risk with corporate debt
securities that
the issuers may not be able to meet their obligations on interest and
principal payments.
The Fund also may invest up to 15% of its assets in securities which
are
illiquid because they are subject to restriction on resale or for which market
quotations
are not readily available. The Fund may also invest up to 25% of its assets
in foreign
securities.
Obligations in which the Select Income Fund may invest include
debt
obligations of supranational entities. 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. Obligations of supranational entities may be
supported by
appropriated but unpaid commitments of their member countries, and there
is no
assurance that these commitments will be undertaken or met in the future.
The Fund
may not invest more than 25% of its assets in debt obligations of
supranational entities.
The Fund also may invest up to 15% of its assets in securities which
are
illiquid because they are subject to restriction on resale or for which market
quotations
are not readily available. The Fund may also invest up to 25% of its assets
in foreign
securities.
For hedging purposes, the Fund may engage in the options and
futures
strategies described under "Certain Investment Strategies and Policies."
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for
the Fund was 108%. [The portfolio turnover rate exceeded 100% due to
the need to
make significant changes in the structure of the portfolio's mortgage and
corporate
bond holdings. The portfolio turnover rate for the Fund may vary from year
to year. A
high portfolio turnover rate may result in greater brokerage costs to the
Fund.]
Investment Grade Income Fund
Investment Objective: The Investment Grade Income Fund seeks as high a
level of
total return, which includes capital appreciation as well as income, as is
consistent with
prudent investment management.
Sub-Adviser: AAM serves as Sub-Adviser to the Investment Grade
Income Fund. See
"Equity Index Fund" for more information about AAM.
Investment Policies: The Fund will invest its assets in the following money
market
instruments and debt securities.
Money Market Instruments:
(a) Obligations issued or guaranteed by the United States
Government, its
agencies, or instrumentalities;
(b) Commercial paper rated Prime-1 by Moody's; or A-1 by
S&P; or
unrated, but determined by the Sub-Adviser to be of comparable
quality;
(c) Bankers acceptances or negotiable certificates of deposit
issued by the
25 largest U.S. banks (in terms of deposits); and
(d) Cash and cash equivalents.
Debt Securities:
(a) Obligations issued or guaranteed by the United States
Government, its
agencies or instrumentalities;
(b) Debt securities which are rated Aaa, Aa, A, or Baa by
Moody's;
AAA, AA, A, or BBB by S&P; or unrated but determined by the Sub-
Adviser to be of
comparable quality;
(c) Obligations (payable in U.S. dollars) of, or guaranteed by,
the
Government of Canada or of a Province of Canada or any instrumentality
or political
subdivision thereof.
The Fund may engage in the options and futures strategies
described under
"Certain Investment Strategies and Policies."
The debt securities in which the Fund may invest are considered
"investment
grade" in that they generally are suitable for purchase by prudent investors.
However,
the lowest category of investment grade securities (rated Baa by Moody's
or BBB by
S&P) may have speculative characteristics, such that changes in economic
conditions or
other circumstance are more likely to lead to a weakened capacity to make
principal and
interest payments than is the case of debt securities with higher ratings. The
portfolio of
the Fund is managed actively by AAM, as Sub-Adviser, in order to
anticipate events
leading to price or ratings changes. If the rating of a security falls below
investment
grade, or an unrated security is deemed to have fallen below investment
grade, AAM
analyzes relevant economic and market data in making a determination of
whether to
retain or dispose of the investment. The performance of the securities in the
portfolio is
monitored continuously, and they are purchased and sold as conditions
warrant and
permit.
The Fund may not invest in foreign securities other than obligations
issued by
the Government of Canada and political sub-divisions thereof.
For the fiscal year ended December 31, 1996, the portfolio turnover
rate for
the Fund was 108%. The portfolio turnover rate exceeded 100% due to
mortgage rolls.
The portfolio turnover rate for the Fund may vary greatly from year to
year. A high
portfolio turnover rate may result in greater brokerage costs to the Fund.
See the Appendix to the Prospectus for an explanation of the
ratings of
Moody's and S&P.
Government Bond Fund
Investment Objective: The Government Bond Fund seeks high income,
preservation of
capital, and maintenance of liquidity primarily through investments in debt
instruments
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities ("U.S.
Government securities") and in related options, futures, and repurchase
agreements.
Under normal conditions, at least 80% of the Fund's assets will be invested
in U.S.
Government securities.
Sub-Adviser: AAM serves as Sub-Adviser to the Government Bond
Fund. See "Equity
Index Fund" for more information about AAM.
Investment Policies: Some U.S. Government securities, such as Treasury
bills, notes,
and bonds, which differ only in their interest rates, maturities, and times of
issuance,
are supported by the full faith and credit of the United States. Other U.S.
Government
securities are supported by (i) the right of the issuer to borrow from the
U.S. Treasury,
(ii) discretionary authority of the U.S. Government to purchase the
obligations of the
agency or instrumentality, or (iii) only the credit of the instrumentality
itself. No
assurances can be given that the U.S. Government would provide financial
support to
U.S. Government sponsored instrumentalities if it is not obligated to do so
by law. The
Fund may invest in mortgage-backed government securities, including
pass-through
securities and participation certificates of the Government National
Mortgage
Association ("Ginnie Mae"), the Federal Home Loan Mortgage
Corporation ("Freddie
Mac"), and the Federal National Mortgage Association ("Fannie Mae").
The Government Bond Fund may invest in any other security or
agreement
collateralized or otherwise secured by U.S. Government securities. The
Fund also may
invest in separately-traded principal and interest components of securities
guaranteed or
issued by the U.S. Treasury if such components are traded independently
under the
Separate Trading of Registered Interest and Principal of Securities
Program. The Fund
may enter into repurchase agreements and, from time to time, may have
temporary
investments in short-term debt obligations (including certificates of deposit,
bankers
acceptances, and commercial paper) pending the making of other
investments or for
liquidity purposes.
The Government Bond Fund may engage in several active
management
strategies, including the lending of portfolio securities, forward
commitment purchases
of securities, writing covered call and covered put options on U.S.
Government
securities, purchasing such call and put options, and entering into closing
purchase and
sale transactions. The Fund may engage in the options and futures
strategies described
under "Certain Investment Strategies and Policies."
U.S. Government securities may be purchased or sold without
regard to the
length of time they have been held to attempt to take advantage of short-
term
differentials in yields, with the objective of seeking income while
conserving capital.
While short-term trading increases portfolio turnover, the Government
Bond Fund
incurs little or no brokerage costs for U.S. Government
Money Market Fund
Investment Objective: The Money Market Fund seeks to obtain maximum
current
income consistent with preservation of capital and liquidity.
Sub-Adviser: AAM serves as Sub-Adviser to the Money Market Fund.
See "Equity
Index Fund" for more information about AAM.
Investment Policies: The Fund seeks to achieve its objective by investing
in the
following high quality money market instruments:
(a) Obligations issued or guaranteed by the United States
Government, its
agencies, or instrumentalities;
(b) Commercial paper which meets the ratings requirements as
set forth in
the paragraph below;
(c) Obligations of banks or savings and loan associations (such
as bankers
acceptances and certificates of deposit, including dollar-denominated
obligations of
foreign branches of U.S. banks ("Eurodollars") and U.S. branches of
foreign banks if
such U.S. branches are subject to state banking requirements and Federal
Reserve
reporting requirements) which at the date of the investment have deposits
of at least
$1 billion as of their most recently published financial statements;
(d) Repurchase agreements with respect to obligations
described under
(a) above (such obligations subject to repurchase agreement may bear
maturities of
more than one year). For more information concerning repurchase
agreements, see
"Certain Investment Strategies and Policies"); and
(e) Cash and cash equivalents.
The Money Market Fund will not purchase any security unless (i)
the security
has received the highest quality rating by at least two nationally recognized
statistical
rating organizations ("NRSROs") or by one NRSRO if only one has rated
the security
or (ii) the security is unrated and in the opinion of AAM, as Sub-Adviser,
in
accordance with guidelines adopted by the Trustees, is of a quality
comparable to the
highest rating of an NRSRO. These standards must be satisfied at the time
an
investment is made. If the quality of the investment later declines, the Fund
may
continue to hold the investment, but the Trustees will evaluate whether the
security
continues to present minimal credit risks. See the Appendix for an
explanation of
NRSRO ratings.
The Fund will limit its portfolio investments to securities with a
remaining
maturity of 397 days or less as of the time of purchase, in accordance with
the Trustees'
guidelines. The portfolio will be managed so as to maintain a dollar-
weighted maturity
of 90 days or less. In order to maximize the yield on its assets, the Fund
intends to be
as fully invested at all times as is reasonably practicable. There is always
the risk that
the issuer of an instrument may be unable to make payment upon maturity.
MANAGEMENT FEES AND EXPENSES
Under its Management Agreement with the Trust, the Manager is
obligated to
perform certain administrative and management services for the Trust;
furnishes to the
Trust all necessary office space, facilities, and equipment; and pays the
compensation,
if any, of officers and Trustees who are affiliated with the Manager. Other
than the
expenses specifically assumed by the Manager under the Management
Agreement, all
expenses incurred in the operation of the Trust are borne by the Trust,
including fees
and expenses associated with the registration and qualification of the
Trust's shares
under the Securities Act of 1933 (the "1933 Act"); other fees payable to
the Securities
and Exchange Commission; independent accountant, legal, and custodian
fees;
association membership dues; taxes; interest; insurance premiums;
brokerage
commissions; fees and expenses of the Trustees who are not affiliated with
the
Manager; expenses for proxies, prospectuses, and reports to shareholders;
Fund
recordkeeping expenses; and other expenses. The Manager has agreed
voluntarily to
absorb any charges and expenses associated with Fund recordkeeping that
exceed
0.10% of a Fund's average net assets.
For the services to the Funds, the Manager receives fees computed
daily at an
annual rate based on the average daily net asset value of each Fund as set
forth below.
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___________
(1) The Manager's fee for the Small-Mid Cap Value Fund, computed
daily at an
annual rate based on the average daily net assets of the Fund, is based on
the following
schedule:
Assets
Fee Rate
First $100 Million
1.00%
Next $150 Million
0.85%
Next $250 Million
0.80%
Next $250 Million
0.75%
Over $750 Million
0.70%
The Manager voluntarily has agreed to limit its fees to an annual rate of
0.90% of
average daily net assets.
(2) The Manager's fees for the Growth Fund, Equity Index Fund,
Investment
Grade Income Fund, and Money Market Fund, computed daily at an annual
rate based
on the average daily net assets of each Fund, are based on the following
schedule:
Assets
G
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F
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0
.
6
0
%
0
.
3
5
%
0
.
5
0
%
0
.
3
5
%
Next $200 Million
0
.
5
0
%
0
.
3
0
%
0
.
3
5
%
0
.
2
5
%
Over $250 Million
0
.
3
5
%
0
.
2
5
%
0
.
2
5
%
0
.
2
0
%
The Manager is responsible for the payment of all fees to the Sub-
Advisers.
The Manager pays each Sub-Adviser fees computed daily at an annual rate
based on the
average daily net asset value of each Fund as set forth below. In certain
Funds,
Sub-Adviser fees vary according to the level of assets in such Funds, which
will reduce
the fees paid by the Manager as Fund assets grow but will not reduce the
operating
expenses of such Funds.
S
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(
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)
(
4
)
(
5
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(
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(
7
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2
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0
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2
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0
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0
%
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1
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%
___________
(3) For its services, JCC will receive a fee computed daily at an annual
rate based
on the average daily net assets of the Select Capital Appreciation Fund,
under the
following schedule:
Assets
R
a
t
e
First $100 Million
0
.
6
0
%
Over $100 Million
0
.
5
5
%
(4) For its services, CRM will receive a fee computed daily at an annual
rate based
on the aggregate assets of the Small-Mid Cap Value Fund, under the
following
schedule:
Assets
R
a
t
e
First $100 Million
0
.
6
0
%
Next $150 Million
0
.
5
0
%
Next $250 Million
0
.
4
0
%
Next $250 Million
0
.
3
7
5
%
Over $750 Million
0
.
3
5
%
(5) For its services, BIAM will receive a fee computed daily at an
annual rate
based on the aggregate assets of the Select International Equity Fund,
under the
following schedule:
Assets
R
a
t
e
First $50 Million
0
.
4
5
%
Next $50 Million
0
.
4
0
%
Over $100 Million
0
.
3
0
%
(6) For its services, Putnam will receive a fee computed daily at an
annual rate
based on the average daily net assets of the Select Growth Fund, under the
following
schedule:
Assets
R
a
t
e
First $50 Million
0
.
5
0
%
Next $100 Million
0
.
4
5
%
Next $100 Million
0
.
3
5
%
Next $100 Million
0
.
3
0
%
Over $350 Million
0
.
2
5
%
(7) For its services, MAS will receive a fee based on the aggregate
assets of the
Growth Fund and certain other accounts of the Manager and its affiliates
which are
managed by MAS, under the following schedule:
Assets
R
a
t
e
First $50 Million
0
.
5
0
%
$50 Million to $100 Million
0
.
3
7
5
%
$100 Million to $500 Million
0
.
2
5
%
$500 Million to $850 Million
0
.
2
0
%
Over $850 Million
0
.
1
5
%
(8) For its services, JAL will receive a fee computed daily at an annual
rate based
on the average daily net assets of the Select Growth and Income Fund,
under the
following schedule:
Assets
R
a
t
e
First $100 Million
0
.
4
0
%
Next $200 Million
0
.
2
5
%
Over $300 Million
0
.
3
0
%
For the fiscal year ended December 31, 1996, the Funds paid the
Manager
gross fees before reimbursement at a rate based on the Fund's average daily
net assets,
under the following schedule:
Fund
R
a
t
e
Select Aggressive Growth Fund
1
.
0
0
%
Select Capital Appreciation Fund
1
.
0
0
%
Small-Mid Cap Value Fund
0
.
8
5
%
Select International Equity Fund
1
.
0
0
%
Select Growth Fund
0
.
8
5
%
Growth Fund
0
.
4
4
%
Equity Index Fund
0
.
3
2
%
Select Growth and Income Fund
0
.
7
5
%
Select Income Fund
0
.
6
0
%
Investment Grade Income Fund
0
.
4
0
%
Government Bond Fund
0
.
5
0
%
Money Market Fund
0
.
2
8
%
The following table shows voluntary expense limitations which the
Manager
has declared for each Fund and the operating expenses incurred for the
fiscal year ended
December 31, 1996 for each Fund:
Percentage of Average
Daily Assets
Fund
V
o
l
u
n
t
a
r
y
E
x
p
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n
s
e
L
i
m
i
t
a
t
i
o
n
s
O
p
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r
a
t
i
n
g
E
x
p
e
n
s
e
s
+
Select Aggressive
Growth Fund
1
.
3
5
%
1
.
0
8
%
Select Capital
Appreciation Fund
1
.
3
5
%
1
.
1
3
%
Small-Mid Cap Value
Fund
1
.
2
5
%
0
.
9
5
%
Select International
Equity Fund
1
.
5
0
%
1
.
2
0
%
Select Growth Fund
1
.
2
0
%
0
.
9
2
%
Growth Fund
1
.
2
0
%
0
.
4
8
%
Equity Index Fund
0
.
6
0
%
0
.
4
6
%
Select Growth and
Income Fund
1
.
1
0
%
0
.
8
0
%
Select Income Fund
1
.
0
0
%
0
.
7
4
%
Investment Grade
Income Fund
1
.
0
0
%
0
.
5
2
%
Government Bond Fund
1
.
0
0
%
0
.
6
6
%
Money Market Fund
0
.
6
0
%
0
.
3
4
%
___________
+Including reductions
The Manager will voluntarily reimburse its fees and any expenses
above the
expense limitations. The expense limitations are voluntary and may be
removed at any
time after a Fund's first fiscal year of operations without prior notice to
existing
shareholders. The Manager reserves the right to recover from a Fund any
fees, within
a current fiscal year period, which were reimbursed in that same year to the
extent that
total annual expenses did not exceed the applicable expense limitation.
Non-recurring
and extraordinary expenses generally are excluded in the determination of
expense
ratios of the Funds for purposes of determining any required expense
reimbursement.
Quotations of yield or total return for any period when an expense
limitation is in effect
will be greater than if the limitation had not been in effect.
FUND MANAGER INFORMATION
The following individuals are primarily responsible for the day-to-
day
management of the particular Funds as indicated below:
The following individuals have served as members of a committee
of fund
managers for the Select Aggressive Growth Fund since March 1994, with
the exception
of Mr. Nicholas who has served as a fund manager since the Fund's
inception in
August 1992:
Lawrence S. Speidell is a Partner and Director of Global/Systematic
Portfolio
Management and Research at NACM. Prior to joining NACM in 1994, Mr.
Speidell
spent ten years with Batterymarch Financial Management. He was also
Senior Vice
President and Portfolio Manager at Putnam Management Company from
1971 to 1983.
John J. Kane, Senior Portfolio Manager, U.S. Systematic at
NACM, has
twenty-eight years of economic/investment experience. Prior to joining
NACM in
1994, Mr. Kane was employed by ARCO Investment Management
Company and
General Electric Company.
Mark W. Stuckelman, Portfolio Manager U.S. Systematic, joined
NACM in
1995. Prior to joining NACM, he was employed for five years with Wells
Fargo
Bank's Investment Management Group, Fidelity Management Trust Co.,
and BARRA.
The following individual has served as fund manager for the Select
Capital
Appreciation Fund since the Fund's inception in April 1995:
James P. Goff joined JCC in 1988. He has managed the Janus
Enterprise
Fund since 1992 and co-managed the Janus Venture Fund from December
1993 to
January 1997. Mr. Goff is a Chartered Financial Analyst.
The following individuals have served as fund managers for the
Small-Mid
Cap Value Fund since January 1, 1997:
Ronald H. McGlynn, Chief Executive Officer and President of
Cramer
Rosenthal, has been with Cramer Rosenthal since 1973 and CRM since its
founding in
1995.
Jay B. Abramson, who is an Executive Vice President, Director of
Research,
and Co-Chief Investment Officer, has been with Cramer Rosenthal since
1985 and
CRM since its founding in 1995.
The following portfolio managers are involved in the investment
process
utilized for the Select International Equity Fund:
Christopher Reilly, Chief Investment Officer, joined Bank of Ireland
in 1980
and has had overall responsibility for asset management since 1985.
Previously, he
worked in the United Kingdom in stockbroking and investment
management.
Denis Donovan, Director-Portfolio Management, received an MBA
from
University College Dublin. Prior to joining Bank of Ireland in 1985, he
spent more
than thirteen years in the money market and foreign exchange operations of
the Central
Bank of Ireland, the Irish equivalent of the U.S. Federal Reserve. He has
overall
responsibility for the portfolio management function for all of BIAM's
client base.
John O'Callaghan is a graduate of Trinity College, Dublin and is a
Chartered
Financial Analyst. He joined Bank of Ireland in 1987.
Peter Wood joined Bank of Ireland in 1985 after spending five
years with
another leading investment management firm. He is responsible for
portfolio
construction.
The following individuals have served as members of a committee
of fund
managers for the Select Growth Fund since July 1, 1996:
Carol C. McMullen, Managing Director, has been an investment
professional
with Putnam since 1995. Prior to 1995, Ms. McMullen was Senior Vice
President of
Baring Asset Management.
Beth Cotner, Senior Vice President, has been with Putnam since
1995. Prior
to 1995, Ms. Cotner was Executive Vice President at Kemper Financial
Services.
Manual Weiss, Senior Vice President, has been an investment
professional
with Putnam since 1987.
The following individuals serve as members of a committee of fund
managers
for the Growth Fund:
Gary G. Schlarbaum, Equity Portfolio Manager, joined MAS in
1987 and has
served on the committee since 1993. Prior to 1987, Mr. Schlarbaum was
employed by
First Chicago Investment Advisors from 1984 to 1987. Prior to First
Chicago,
Mr. Schlarbaum held teaching positions at Purdue University and the
University of
Pennsylvania.
Arden C. Armstrong, Partner at MAS, joined the firm in 1985.
Prior to
joining MAS, Mr. Armstrong was employed by Evans Economics, Inc. He
is a
Chartered Financial Analyst.
Nicholas Kovich, Equity Portfolio Manager, joined MAS in 1988
and has
served on the committee since the Fund's inception in April 1988. Prior to
MAS,
Mr. Kovich was employed by Waddell & Reed Asset Management
Company from 1982
to 1988 as an Investment Research Analyst and as Assistant Vice President
and
Portfolio Manager.
Robert J. Marcin is a partner at MAS. Prior to joining MAS in
1988, Mr.
Marcian ws an Account Executive at Smith Barney Harris Upham and
Company, Inc.
He is also a Chartered Financial Analyst.
Kurt A. Feuerman, Mamaging Director, joined MAS in 1994. Prior
to joining
MAS, Mr. Feuerman was a Managing Director at Morgan Stanley Asset
Management.
Mr. Feuerman was also employed by Morgan Stanley & Company from
1990-1992.
James J. Jolinger, Equity Portfolio Manager, joined MAS in 1994
and has
served on the committe since 1997. Prior to 1994, Mr. Jolinger was
employed by
Openheimer Capital as an Equity Analyst from 1987-1994.
Timothy G. Connors, Equity Portfolio Manager, joined MAS in
1994 and has
served on the committee since 1977. Prior to 1994, Mr. Connors was
employed by
Corestates Investment Advisers from 1980 to 1994 as a Senior Vice
President and
Managing Director.
The following individuals have served as members of a committee
of fund
managers for the Select Growth and Income Fund since September 1994:
John A. Levin, President, has been with JAL since 1982 and has
thirty-two
years of investment experience.
Melody L. Prenner Sarnell, Executive Vice President, has been
with JAL
since 1984. Prior to joining JAL, Ms. Sarnell was employed by John M.
Blewer, Inc.
Jeffrey A. Kigner, Executive Vice President, has been with JAL
since 1984.
Prior to 1984, Mr. Kigner was employed by Cralin & Co.
The following individuals have served as members of a committee
of fund
managers for the Select Income Fund since the Fund's inception in August
1992:
Edward H. Ladd, Chairman and Managing Director, joined SAW in
1962 and
is the firm's economist. He also assists clients in establishing investment
strategies.
Mr. Ladd is a Director of the Federal Reserve Bank of Boston, New
England Electric
System, Greylock Management, and Harvard Management Corporation
and a member
of SAW's Executive Committee.
George W. Noyes, President and Managing Director, joined SAW
in 1970 and
directs bond policy formulation and manages institutional bond portfolios
at SAW.
Mr. Noyes is Vice Chairman of the ICFA Research Foundation and serves
on SAW's
Executive Committee.
Dolores S. Driscoll, Managing Director, joined SAW in 1974 and
manages
fixed-income portfolios with specific emphasis on mortgage pass-throughs
and original
issue discount bonds. Ms. Driscoll also serves on SAW's Executive
Committee.
Richard C. Doll, Manager, joined SAW in 1984 and is a portfolio
manager
with research responsibilities in convertible bonds. Prior to joining SAW,
Mr. Doll
was a Vice President with the Bank of New England.
Maria D. Furman, Vice President and Director, joined SAW in
1976. She is
head of the tax-exempt area and manages insurance and pension fund
accounts.
Ms. Furman currently serves on SAW's Executive Committee.
The following individual has served as fund manager for the
Investment Grade
Bond Fund since May 1994:
Lisa M. Coleman, Vice President of AAM, was a Deputy
Manager/Portfolio
Manager in the global fixed income area for Brown Brothers Harriman &
Company in
New York prior to joining AAM in May 1994.
The following individual has served as fund manager for the
Government Bond
Fund since May 1995:
Richard J. Litchfield, Assistant Vice President of AAM, was a
mortgage-backed securities analyst and trader at Keystone Investments,
Inc. prior to
joining AAM in May 1995.
The following individual has served as fund manager for the Equity
Index
Fund and Money Market Fund since March 1995:
John C. Donohue, Assistant Vice President of AAM, was a
portfolio manager
at CS First Boston Investment Management prior to joining AAM in 1995.
HOW ARE SHARES VALUED?
The net asset value of the shares of each Fund is determined once
daily as of
the close of regular trading on the New York Stock Exchange (the
"Exchange") on each
day on which the Exchange is open for trading.
Equity securities are valued on the basis of their market value if
market
quotations are readily available. In other cases, they are valued at their fair
value as
determined in good faith by the Trustees, although the actual calculations
may be
performed by persons acting pursuant to the direction of the Trustees. Debt
securities
(other than short-term obligations) normally are valued on the basis of
valuations
formulated by a pricing service which utilizes data processing methods to
determine
valuations for normal, institutional-size trading units of such securities.
Such methods
include the use of market transactions for comparable securities and
various
relationships between securities which generally are recognized by
institutional traders.
All securities of the Money Market Fund are valued at amortized cost.
Debt obligations
in the other Funds having a remaining maturity of 60 days or less are
valued at
amortized cost when it is determined that amortized cost approximates fair
value.
Short-term obligations of the other Funds having a remaining maturity of
more than 60
days are marked to market based upon readily available market quotations
for such
obligations or similar securities.
Unlike the Money Market Fund which attempts to maintain a stable
net asset
value, the net asset value of the other Funds will fluctuate.
TAXES AND DISTRIBUTIONS TO SHAREHOLDERS
It is the policy of the Trust to comply with the provisions of the
Internal
Revenue Code applicable to regulated investment companies so that the
Trust will not
be subject to federal income tax on any net income and any capital gain to
the extent
they are distributed or are deemed to have been distributed to shareholders.
Dividends
out of net investment income will be declared and paid quarterly in the case
of the
Growth Fund, Equity Index Fund, Select Growth and Income Fund, Select
Income
Fund, Investment Grade Income Fund, and Government Bond Fund;
annually in the
case of the Select Aggressive Growth Fund, Select Capital Appreciation
Fund, Small-
Mid Cap Value Fund, Select International Equity, and Select Growth Fund;
and daily
in the case of the Money Market Fund. Distributions of net capital gain for
the year, if
any, are made annually. All dividends and capital gain distributions are
applied to
purchase additional Fund shares at net asset value as of the payment date.
Fund shares
are held by the Separate Accounts and any distributions are reinvested
automatically by
the Separate Accounts. Tax consequences to investors in the Separate
Accounts which
are invested in the Trust are described in the prospectuses for such
Accounts.
SALE AND REDEMPTION OF SHARES
Shares of the Funds are sold in a continuous offering and currently
may be
purchased only by Separate Accounts of First Allmerica or its subsidiaries.
The
Separate Accounts are the funding mechanisms for variable annuity
contracts. The
Separate Accounts invest in shares of one or more of the Funds. Shares of
each Fund
are sold at their net asset value as next computed after receipt of the
purchase order
without the addition of any selling commission or "sales load." The
Distributor,
Allmerica Investments, Inc., at its expense, may provide promotional
incentives to
dealers that sell variable annuity contracts for which the Funds serve as
investment
vehicles.
Shares of the Trust also are being issued currently under separate
prospectuses
to Separate Accounts of Allmerica Life, First Allmerica, and subsidiaries of
First
Allmerica which issue variable or group annuity policies or variable
premium life
insurance policies ("mixed funding"). Although neither Allmerica Life nor
the Trust
currently foresees any disadvantage, it is conceivable that in the future such
mixed
funding may be disadvantageous for variable or group annuity
policyowners or variable
premium life insurance policyowners ("Policyowners"). The Trustees of the
Trust
intend to monitor events in order to identify any conflicts that may arise
between such
Policyowners and to determine what action, if any, should be taken in
response thereto.
If the Trustees were to conclude that separate funds should be established
for variable
annuity and variable premium life separate accounts, Allmerica Life would
pay the
attendant expenses.
The Trust redeems shares of each Fund at its net asset value as next
computed
after receipt of the request for redemption. The redemption price may be
more or less
than the shareholder's cost. No fee is charged by the Trust on redemption.
The variable
contracts funded through the Separate Accounts are sold subject to certain
fees and
charges which may include sales and redemption charges as described in
the
Prospectuses for such Separate Accounts.
Redemption payments will be paid within seven days after receipt of
the
written request therefor by the Trust, except that the right of redemption
may be
suspended or payments postponed whenever permitted by applicable law
and
regulations.
HOW IS PERFORMANCE DETERMINED?
A Fund's performance may be quoted in advertising. A Fund's
performance
may be compared with the performance of other investments or relevant
indices. All
performance information is based on historical results and is not intended
to indicate
future performance.
For Funds other than the Money Market Fund, "yield" is calculated
by
dividing a Fund's annualized net investment income per share during a
recent 30-day
period by the net asset value per share on the last day of that period. For
the Money
Market Fund, "yield" represents an annualization of the change in value of
an
investment (excluding any capital changes) in the Fund for a specific seven-
day period;
"effective yield" compounds that yield for a year and is, for that reason,
greater than
the Fund's yield.
Total returns are based on the overall dollar or percentage change
in value of a
hypothetical investment in a Fund assuming all dividends and capital gain
distributions
are reinvested. Cumulative total return reflects the Fund's performance
over a stated
period of time. Average annual total return reflects the hypothetical,
annually-
compounded return that would have produced the same cumulative return
if the Fund's
performance had been constant over the entire period. Because average
annual returns
tend to smooth out variations in the Fund's return, they are not the same as
actual
year-by-year results.
Yields and total returns quoted for the Funds include the effect of
deducting
the Fund's expenses, but may not include charges and expenses attributable
to a
particular insurance product. Since shares of the Funds can be purchased
only through a
variable annuity contract or variable life contract, you should review
carefully the
prospectus for the Separate Accounts for information on relevant charges
and expenses.
Including these charges in the quotations of the Funds' yields and total
returns would
have the effect of decreasing performance. Performance information for the
Funds must
always be accompanied by, and be reviewed with, performance information
for the
Separate Accounts which invest in the Funds.
ORGANIZATION AND CAPITALIZATION OF THE TRUST
The Trust was established as a Massachusetts business trust under
the laws of
Massachusetts by an Agreement and Declaration of Trust dated October
11, 1984 (the
"Trust Declaration"). A copy of the Trust Declaration is on file with the
Secretary of
the Commonwealth of Massachusetts.
The Trust has an unlimited authorized number of shares of
beneficial interest
which may be divided into an unlimited number of series of such shares,
and which are
divided presently into twelve series of shares, one series underlying each
Fund. The
Trust's shares are entitled to one vote per share (with proportional voting
for fractional
shares). The rights accompanying Fund shares are vested legally in the
Separate
Accounts. As a matter of policy, however, holders of variable premium life
insurance
or variable annuity contracts funded through the Separate Accounts have
the right to
instruct the Separate Accounts as to voting Fund shares on all matters to
be voted on by
Fund shareholders. Voting rights of the participants in the Separate
Accounts are set
forth more fully in the prospectuses or offering circular relating to those
Accounts. See
"Organization of the Trust" in the SAI for the definition of a "majority
vote" of
shareholders.
The Trust is not required to hold annual meetings of shareholders.
The
Trustees or shareholders holding at least 10% of the outstanding shares
may call special
meetings of shareholders.
Fund Recordkeeping Agent
FDISG, a wholly-owned subsidiary of First Data Corporation,
calculates net
asset value per share and maintains general accounting records for each
Fund. FDISG
is entitled to receive an annual Fund recordkeeping fee based on Fund
assets and certain
out-of-pocket expenses.
Custodian
Bankers Trust Company, 130 Liberty Street, New York, New York
10006, is
the Custodian of the securities and other assets of the Trust.
INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions
which are
fundamental and may not be changed with respect to a Fund without
shareholder
approval. For a description of certain other investment restrictions,
reference should be
made to the SAI.
1. No Fund will concentrate its investments in particular
industries,
including debt obligations of foreign governments, but a Fund may invest
up to 25% of
the value of its total assets in a particular industry. The restriction does
not
apply to
investments in obligations issued or guaranteed by the United States of
America, its
agencies or instrumentalities, or to investments by the Money Market Fund
in securities
issued or guaranteed by domestic branches of U.S. banks.
2. As to 75% of the value of its total assets (100% for the
Money
Market Fund), no Fund will invest more than 5% of the value of its total
assets in the
securities of any one issuer (other than securities issued by or guaranteed as
to principal
or interest by the United States Government or any agency or
instrumentality thereof)
or acquire more than 10% of the voting securities of any issuer. The
remaining 25% of
assets (other than for the Money Market Fund) may be invested in the
securities of one
or more issuers without regard to such limitations.
These limitations apply as of the time of purchase. If through
market action the
percentage limitations are exceeded, the Fund will not be required to
reduce the amount
of its holdings in such investments.
CERTAIN INVESTMENT STRATEGIES AND POLICIES
Repurchase Agreements (applicable to all Funds) and Reverse Repurchase
Agreements
(applicable to the Select Capital Appreciation Fund)
Each Fund may invest in repurchase agreements, under which the
Fund
acquires ownership of a security (ordinarily U.S. Government securities)
but the seller
agrees at the time of sale to purchase the security at a mutually agreed
upon time and
price. Should any seller of a repurchase agreement fail to repurchase the
underlying
security, or should any seller become insolvent or involved in a bankruptcy
proceeding,
a Fund could incur costs and losses. Repurchase agreements maturing in
more than
seven days are subject to the 15% limit (10% for the Money Market Fund)
on illiquid
securities.
When the Select Capital Appreciation Fund invests in a reverse
repurchase
agreement, it sells a security to another party such as a banker or broker-
dealer in
return for cash and agrees to buy the security back at a future date and
price. Reverse
repurchase agreements may be used to provide cash to satisfy unusually
heavy
redemption requests or for other temporary or emergency purposes
without the
necessity of selling portfolio securities or to earn additional income on
portfolio
securities, such as treasury bills and notes.
"When-Issued" Securities (applicable to all Funds)
Each Fund may purchase securities on a when-issued or delayed
delivery basis.
Delivery and payment normally take place 15 to 45 days after the
commitment to
purchase. No income accrues on when-issued securities prior to delivery.
Purchase of
when-issued securities involves the risk that yields available in the market
when
delivery occurs may be higher than those available when the when-issued
order is
placed resulting in a decline in the market value of the security. There is
also the risk
that under some circumstances the purchase of when-issued securities may
act to
leverage the Fund.
Lending of Securities (applicable to all Funds)
For the purpose of realizing additional income, the Funds may lend
portfolio
securities to broker-dealers or financial institutions amounting to not more
than 30% of
their respective total assets taken at current value. While any such loan is
outstanding, a
Fund will continue to receive amounts equal to the interest or dividends
paid by the
issuer on the securities, as well as interest (less any rebates to be paid to
the
borrower)
on the investment of the collateral or a fee from the borrower. Each Fund
will have the
right to call each loan and obtain the securities. Lending portfolio securities
involves
certain risks, including possible delays in receiving additional collateral or
in the
recovery of the securities or possible loss of rights in the collateral should
the borrower
fail financially. Loans will be made in accordance with guidelines
established by the
Board of Trustees.
Foreign securities (applicable to each Fund except the Investment Grade
Income Fund,
Government Bond Fund, and Money Market Fund)
Investments in foreign markets involve substantial risks typically
not
associated with investing in the U.S. which should be considered carefully
by the
investor. Such risks may include political and economic instability, differing
accounting
and financial reporting standards, higher commission rates on foreign
portfolio
transactions, less readily available public information regarding issuers,
potentially
adverse changes in tax and exchange control regulations, and the potential
for
restrictions on the flow of international capital. Foreign securities also
involve currency
risks. Accordingly, the relative strength of the U.S. dollar may be an
important factor
in the performance of the Fund, depending on the extent of the Fund's
foreign
investments. Some foreign securities exchanges may not be as developed or
efficient as
those in the U.S. and securities traded on foreign securities exchanges
generally are
subject to greater price volatility. There is also the possibility of adverse
changes in
investment or exchange control regulations, expropriation or confiscatory
taxation, and
limitations on the removal of funds or other assets. Investments in
emerging countries
involve exposure to economic structures that are generally less diverse and
mature than
in the U.S., and to political systems which may be less stable. In addition,
securities of
issuers located in emerging countries may have limited marketability and
may be
subject to more abrupt or erratic price fluctuations.
The Funds may buy or sell foreign currencies and foreign currency
forward
contracts, options on foreign currencies, and foreign currency futures
contracts and
options thereon. Although such instruments may reduce the risk of loss due
to a decline
in the value of the currency that is sold, they also limit any possible gain
which might
result should the value of the currency increase. Such instruments will be
used
primarily to protect a Fund from adverse currency movements; however,
they also
involve the risk that anticipated currency movements will not be accurately
predicted,
thus adversely affecting a Fund's total return. See "Options and Futures
Transactions."
The Funds' investments may include ADRs. For many foreign
securities, there
are U.S. dollar-denominated ADRs which are traded in the United States
on exchanges
or over the counter. ADRs represent the right to receive securities of
foreign issuers
deposited in a domestic bank or a correspondent bank. An ADR may be
sponsored by
the issuer of the underlying foreign security, or it may be issued in
unsponsored form.
The holder of a sponsored ADR is likely to receive more frequent and
extensive
financial disclosure concerning the foreign issuer than the holder of an
unsponsored
ADR and generally will bear lower transaction charges. Each Fund may
invest in both
sponsored and unsponsored ADRs. The Select International Equity Fund
and the Select
Capital Appreciation Fund also may utilize EDRs, which are designed for
use in
European securities markets, and also may invest in GDRs.
Obligations in which the Select Income Fund may invest include
debt
obligations of supranational entities. 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. Obligations of supranational entities may be
supported by
appropriated but unpaid commitments of their member countries, and there
is no
assurance that these commitments will be undertaken or met in the future.
The Fund
may not invest more than 25% of its assets in debt obligations of
supranational entities.
The Investment Grade Income Fund may not invest in foreign
securities other
than obligations issued by the Government of Canada and political
subdivisions thereof.
Options and Futures Transactions (applicable to each Fund except the
Small-Mid Cap
Value Fund and Money Market Fund) and Forward Contracts and Swaps
(applicable to
the Select Capital Appreciation Fund)
Through the writing and purchase of put and call options on its
securities,
financial indices, and foreign currencies, and the purchase and sale of
futures contracts
and related options with respect to securities, financial indices, and (in the
case of the
Select Capital Appreciation Fund) foreign currencies in which it may
invest, each Fund
except the Small-Mid Cap Value Fund and Money Market Fund at times
may seek to
hedge against fluctuations in net asset value. Each Fund's ability to engage
in options
and futures strategies will depend on the availability of liquid markets in
such
instruments. It is impossible to predict the amount of trading interest that
may exist in
various types of options or futures contracts. Therefore, there is no
assurance that a
Fund will be able to utilize these instruments effectively for the purposes
stated above.
Additionally, the Select Capital Appreciation Fund may invest in
forward
contracts and swaps which may expose the Fund to additional investment
risks and
transaction costs.
Risks inherent in the use of futures, options, forward contracts, and
swaps
("derivative instruments") include (1) the risk that interest rates, securities
prices, and
currency markets will not move in the directions anticipated; (2) imperfect
correlation
between the price of derivative instruments and movements in the prices of
the
securities, interest rates, or currencies being hedged; (3) the fact that skills
needed to
use these strategies are different from those needed to select portfolio
securities; (4) the
possible absence of a liquid secondary market for any particular instrument
at any time;
and (5) the possible need to defer closing out certain hedged positions to
avoid adverse
tax consequences.
The Funds will purchase futures and options only on exchanges or
boards of
trade when there appears to be an active secondary market, but there can
be no
assurance that a liquid secondary market will exist for any future or option
at any
particular time.
In connection with transactions in futures and related options, the
Funds will
be required to deposit as "initial margin" an amount of cash and/or
securities.
Thereafter, subsequent payments are made to and from the broker to
reflect changes in
the value of the futures contract.
A more detailed explanation of futures, options, and other
derivative
instruments, and the risks associated with them, is included in the SAI.
Restricted Securities (applicable to the Select Aggressive Growth Fund,
Select Capital
Appreciation Fund, Small-Mid Cap Value Fund, Select International Equity
Fund,
Select Growth Fund, and Select Growth and Income Fund)
The Funds also may purchase fixed-income securities that are not
registered
under the 1933 Act ("restricted securities"), but can be offered and sold to
"qualified
institutional buyers" under Rule 144A of the 1933 Act. However, each
Fund will not
invest more than 15% of its assets in restricted securities (as defined in its
investment
restrictions) unless the Board of Trustees determines, based upon a
continuing review
of the trading markets for the specific restricted security, that such
restricted securities
are liquid. The Board of Trustees has adopted guidelines and delegated to
the Manager
the daily function of determining and monitoring liquidity of restricted
securities. The
Board, however, will retain sufficient oversight and be responsible
ultimately for the
determinations. Since it is not possible to predict with assurance exactly
how this
market for restricted securities sold and offered under Rule 144A will
develop, the
Board will monitor carefully a Fund's investments in securities, focusing on
such
important factors, among others, as valuation, liquidity, and availability of
information. This investment practice could have the effect of increasing
the level of
illiquidity in a Fund to the extent that qualified institutional buyers become
for a time
uninterested in purchasing these restricted securities. As a result, a Fund
might not be
able to sell these securities when its Sub-Adviser wishes to do so, or might
have to sell
them at less than fair value. In addition, market quotations are less readily
available.
Therefore, judgment at times may play a greater role in valuing these
securities than in
the case of unrestricted securities.
Investments in Money Market Securities (applicable to all Funds)
Any Fund may hold at least a portion of its assets in cash
equivalents or money
market instruments. There is always the risk that the issuer of a money
market
instrument may be unable to make payment upon maturity.
The Money Market Fund may hold uninvested cash reserves
pending
investment during temporary, defensive periods or if, in the opinion of the
Sub-Adviser, suitable securities are not available for investment. Securities
in which the
Money Market Fund may invest may not earn as high a level of current
income as
long-term, lower quality securities which, however, generally have less
liquidity,
greater market risk, and more fluctuation in market value.
Pursuant to an exemptive order granted by the Securities and
Exchange
Commission, the Select Capital Appreciation Fund and other funds advised
by JCC may
transfer daily uninvested cash balances into one or more joint trading
accounts. Assets
in the joint trading accounts are invested in money market instruments and
the proceeds
are allocated to the participating funds on a pro rata basis.
High Yield Securities (applicable to the Select Capital Appreciation Fund,
Select
Growth Fund, and Select Growth and Income Fund)
Corporate debt securities purchased by the Select Capital
Appreciation Fund,
the Select Growth Fund, and the Select Growth and Income Fund will be
rated at the
time of purchase B or better by Moody's or S&P, or equivalently rated by
another
NRSRO, or unrated but believed by the Sub-Adviser to be of comparable
quality under
the guidelines established for the Funds. The Select Growth Fund and the
Select
Growth and Income Fund may not invest more than 15% of their assets
and the Select
Capital Appreciation Fund may not invest more than 35% of its assets at
the time of
investment in securities rated below Baa by Moody's or BBB by S&P, or
equivalently
rated by another NRSRO, or unrated but believed by the Sub-Adviser to be
of
comparable quality. Securities rated B by Moody's or S&P (or equivalently
by another
NRSRO) are below investment grade and are considered, on balance, to be
predominantly speculative with respect to capacity to pay interest and
repay principal
and will generally involve more credit risk than securities in the higher
rating
categories.
Periods of economic uncertainty and changes can be expected to
result in
increased volatility of market prices of lower-rated securities, commonly
known as
"high yield" securities or "junk bonds," and of the asset value of the Select
Capital
Appreciation Fund, the Select Growth Fund, and the Select Growth and
Income Fund.
Many issuers of high yield corporate debt securities are leveraged
substantially at times,
which may impair their ability to meet debt service obligations. Also,
during an
economic downturn or substantial period of rising interest rates, highly
leveraged
issuers may experience financial stress.
The lack of a liquid secondary market in certain lower-rated
securities may
have an adverse impact on market price and the ability of a Fund to dispose
of
particular issues when necessary to meet its liquidity needs or in response
to a specific
economic event such as a deterioration in the credit-worthiness of the
issuer. In
addition, a less liquid market may interfere with the ability of a Fund to
value
accurately high yield securities and, consequently, value a Fund's assets.
Furthermore,
adverse publicity and investor perceptions may decrease the value and
liquidity of high
yield securities. It is reasonable to expect any recession to disrupt severely
the market
for high yield fixed-income securities, have an adverse impact on the value
of such
securities, and adversely affect the ability of the issuers of such securities
to
repay
principal and pay interest thereon. The market prices of lower-rated
securities are
generally less sensitive to interest rate changes than higher-rated
investments, but more
sensitive to adverse economic or political changes, or individual
developments specific
to the issuer. Periods of economic or political uncertainty and change can
be expected
to result in volatility of prices of these securities.
The Funds also may invest in unrated debt securities of foreign and
domestic
issuers. Unrated debt, while not necessarily of lower quality than rated
securities, may
not have as broad a market. Sovereign debt of foreign governments
generally is rated
by country. Because these ratings do not take into account individual
factors relevant to
each issue and may not be updated regularly, the Sub-Adviser may treat
such securities
as unrated debt. Unrated debt securities and securities with different ratings
from more
than one agency will be included in the 15% and 35% limits of the Funds as
stated
above, unless such Fund's Sub-Adviser deems such securities to be the
equivalent of
investment grade securities. See the Appendix for a description of the bond
ratings.
Asset-Backed Securities and Mortgage-Backed Securities (applicable to
the Select
Income Fund, Investment Grade Income Fund, and Government Bond
Fund)
The Funds may purchase asset-backed securities, which represent a
participation in, or are secured by and payable from, a stream of payments
generated by
particular assets, frequently a pool of assets similar to one another. Assets
generating
such payments include instruments such as motor vehicle installment
purchase
obligations, credit card receivables, and home equity loans. Payment of
principal and
interest may be guaranteed for certain amounts and time periods by a letter
of credit
issued by a financial institution unaffiliated with the issuer of the
securities.
The
estimated life of an asset-backed security varies with the prepayment
experience of the
underlying debt instruments. The rate of such prepayments, and hence the
life of the
asset-backed security, will be primarily a function of current market rates,
although
other economic and demographic factors will be involved. Under certain
interest rate
and prepayment rate scenarios, the Funds may fail to recoup fully their
investment in
asset-backed securities. The Investment Grade Income Fund and
Government Bond
Fund will not invest more than 20% of its total assets in asset-backed
securities. The
Select Income Fund will not invest more than 10% of its total assets in
asset-backed
securities.
The Funds also may invest in mortgage-backed securities which are
debt
obligations secured by real estate loans and pools of loans on single family
homes,
multi-family homes, mobile homes, and in some cases, commercial
properties. The
Funds may acquire securities representing an interest in a pool of mortgage
loans that
are issued or guaranteed by a U.S. government agency such as Ginnie Mae,
Fannie
Mae, and Freddie Mac.
Mortgage-backed securities are in most cases "pass-through"
instruments
through which the holder receives a share of all interest and principal
payments from
the mortgages underlying the certificate. Because the prepayment
characteristics of the
underlying mortgages vary, it is not possible to predict accurately the
average life or
realized yields of a particular issue of pass-through certificates. During
periods of
declining interest rates, prepayment of mortgages underlying mortgage-
backed
securities can be expected to accelerate. When the mortgage obligations
are prepaid, the
Funds reinvests the prepaid amounts in securities, the yield of which
reflects interest
rates prevailing at the time. Moreover, prepayment of mortgages that
underlie securities
purchased at a premium could result in losses.
The Funds also may invest in multiple class securities issued by
U.S.
government agencies and instrumentalities such as Fannie Mae, Freddie
Mac, and
Ginnie Mae, including guaranteed collateralized mortgage obligations
("CMOs") and
Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation
certificates, when consistent with the Funds' investment objective, policies,
and
limitations. A CMO is a type of bond secured by an underlying pool of
mortgages or
mortgage pass-through certificates that are structured to direct payment on
underlying
collateral to different series or classes of obligations. A REMIC is a CMO
that qualifies
for special tax treatment under the Internal Revenue Code and invests in
certain
mortgages principally secured by interests in real property and other
permitted
investments.
CMOs and guaranteed REMIC pass-through certificates ("REMIC
Certificates") issued by Fannie Mae, Freddie Mac, and Ginnie Mae are
types of
multiple pass-through securities. Investors may purchase beneficial interests
in
REMICs, which are known as "regular" interests or "residual" interests.
The Funds
currently do not intend to purchase residual interests in REMICs. The
REMIC
Certificates represent beneficial ownership interests in a REMIC trust,
generally
consisting of mortgage loans or Fannie Mae, Freddie Mac, or Ginnie Mae
guaranteed
mortgage pass-through certificates. The obligations of Fannie Mae, Freddie
Mac, or
Ginnie Mae under their respective guaranty of the REMIC Certificates are
obligations
solely of Fannie Mae, Freddie Mac, or Ginnie Mae, respectively.
Fannie Mae REMIC Certificates are issued and guaranteed as to
timely
distribution of principal and interest by Fannie Mae. In addition, Fannie
Mae will be
obligated to distribute the principal balance of each class of REMIC
Certificates in full,
whether or not sufficient funds are available otherwise.
For Freddie Mac REMIC Certificates, Freddie Mac guarantees the
timely
payment of interest and also guarantees the payment of principal as
payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs
represent undivided interests in specified residential mortgages or
participations therein
purchased by Freddie Mac and placed in a PC pool. With respect to
principal payments
on PCs, Freddie Mac generally guarantees ultimate collection of all
principal of the
related mortgage loans without offset or deduction. Freddie Mac also
guarantees timely
payment of principal on certain PCs referred to as "Gold PCs."
Ginnie Mae REMIC Certificates guarantee the full and timely
payment of
interest and principal on each class of securities (in accordance with the
terms of those
classes). This Ginnie Mae guarantee is backed by the full faith and credit
of the United
States of America.
REMIC Certificates issued by Fannie Mae, Freddie Mac, and
Ginnie Mae are
treated as U.S. government securities for purposes of investment policies.
There can be
no assurance that the United States Government will continue to provide
financial
support to Fannie Mae, Freddie Mac, or Ginnie Mae in the future.
Stripped Mortgage-Backed Securities (applicable to the Select Income
Fund, Investment
Grade Income Fund, and Government Bond Fund)
The Funds may invest in stripped mortgage-backed securities
("SMBS").
SMBS are derivative multiclass mortgage securities. SMBS may be 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, mortgage
banks,
commercial banks, investment banks, and special purpose entities of the
foregoing.
SMBS usually are structured with two classes that receive different
proportions
of the interest and principal distributions on a pool of mortgage assets. One
type of
SMBS will have one class receiving some of the interest and most of the
principal from
the mortgage assets, while the other class will receive most of the interest
and the
remainder of the principal. In some cases, one class will receive all of the
interest (the
interest-only an "IO" class) while the other class will receive all of the
principal (the
principal-only or "PO" class). The yield to maturity on a IO class is
extremely sensitive
to the rate of principal payments (including prepayment on the related
underlying
mortgage assets), and a rapid rate of principal payments may have a
material, adverse
effect on a portfolio yield to maturity from these securities. If the
underlying mortgage
assets experience greater than anticipated prepayments of principal, the
Funds may fail
to recoup fully their initial investment in these securities even if the
security
is in one of
the highest rating categories. Certain SMBS may be deemed "illiquid" and
subject to
the Funds' limitations on investment in illiquid securities. The market value
of the PO
class generally is unusually volatile in response to changes in interest rates.
The yields
on a class of SMBS that receives all or most of the interest from mortgage
assets
generally are higher than prevailing market yields in other mortgage-backed
securities
because their cash flow patterns are more volatile and there is a greater risk
that the
initial investment will not be recouped fully. The Sub-Adviser will seek to
manage
these risks (and potential benefits) by investing in a variety of such
securities and by
using certain hedging techniques.
Hedging Techniques and Investment Practices (applicable to the Select
Capital
Appreciation Fund and Select International Equity Fund)
The Select International Equity Fund and the Select Capital
Appreciation Fund
may employ certain strategies in order to manage exchange rate risks. For
example, the
Funds may hedge some or all of their investments denominated in a foreign
currency
against a decline in the value of that currency. The Funds may enter into
contracts to
sell that foreign currency for U.S. dollars (not exceeding the value of a
Fund's assets
denominated in or exposed to that currency) or by participating in options
on futures
contracts with respect to such currency ("position hedge"). The Funds also
could hedge
that position by selling a second currency that is expected to perform
similarly to the
currency in which portfolio investments are denominated for U.S. dollars
("proxy
hedge"). The Funds also may enter into a forward contract to sell the
currency in which
the security is denominated for a second currency that is expected to
perform better
relative to the U.S. dollar if their Sub-Adviser believes there is a reasonable
degree of
correlation between movements in the two currencies ("cross-hedge"). As
an
operational policy, the Funds will not commit more than 10% of their
assets to the
consummation of cross-hedge contracts and either will cover currency
hedging
transactions with liquid portfolio securities denominated in or whose value
is tied to the
applicable currency or segregate liquid assets in the amount of such
commitments. In
addition, when the Funds anticipate repurchasing securities denominated in
a particular
currency, the Funds may enter into a forward contract to purchase such
currency in
exchange for the dollar or another currency ("anticipatory hedge").
These strategies minimize the effect of currency appreciation as
well as
depreciation, but do not protect against a decline in the underlying value of
the hedged
security. In addition, such strategies may reduce or eliminate the
opportunity to profit
from increases in the value of the original currency and may have an
adverse impact on
a Fund's performance if its Sub-Adviser's projection of future exchange
rates is
inaccurate.
APPENDIX
Descriptions of Moody's Investors Service, Inc. ("Moody's") and
Standard &
Poor's Ratings Service, a division of McGraw-Hill Companies, Inc.
("S&P")
commercial paper and bond ratings:
Commercial Paper Ratings
Moody's employs three designations, all judged to be investment
grade, to
indicate the relative repayment capacity of rated issuers. The two highest
designations
are as follows:
Issuers rated Prime-1 (or related supporting institutions) have a
superior
capacity for repayment of short-term promissory obligations. Prime-1
repayment
capacity normally will be evidenced by the following characteristics:
- Leading market positions in well-established
industries.
- High rates of return on funds employed.
- Conservative capitalization structures with
moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed
financial
charges and high internal cash generation.
- Well-established access to a range of financial
markets and
assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong
capacity for repayment of short-term promissory obligations. This normally
will be
evidenced by many of the characteristics cited above, but to a lesser
degree. Earnings
trends and coverage ratios, while sound, will be subject more to variation.
Capitalization characteristics, while still appropriate, may be more affected
by external
conditions. Ample alternate liquidity is maintained.
S&P commercial paper ratings are graded into several categories,
ranging from
"A-1" for the highest quality obligations to "D" for the lowest. The two
highest rating
categories are described as follows:
A-1 - This highest category indicates that the degree of safety
regarding
timely payment is strong. Those issues determined to possess extremely
strong safety
characteristics are denoted with a plus (+) sign designation.
A-2 - Capacity for timely payment on issues with this designation
is
satisfactory. However, the relative degree of safety is not as high as for
issues
designated A-1.
Municipal Obligations
Moody's ratings for state and municipal and other short-term
obligations will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of
the differences between short-term credit risk and long-term risk. Factors
affecting the
liquidity of the borrower are uppermost in importance in the short-term
borrowing,
while various factors of the first importance in long-term borrowing risk
are of lesser
importance in the long run. Symbols used will be as follows:
MIG-1 - This designation denotes best quality. There is present
strong
protection by established cash flows, superior liquidity support or
demonstrated
broad-based access to the market for refinancing.
MIG-2 - This designation denotes high quality. Margins of
protection are
ample although not so large as in the preceding group.
A short-term rating also may be assigned on an issue having a
demand feature.
Such ratings will be designated as VMIG to reflect such characteristics as
payment upon
periodic demand rather than fixed maturity dates and payment relying on
external
liquidity. Additionally, investors should be alert to the fact that the source
of payment
may be limited to the external liquidity with no or limited legal recourse to
the issuer in
the event that demand is not met. VMIG-1 and VMIG-2 ratings carry the
same
definitions as MIG-1 and MIG-2, respectively.
Description of Moody's Bond Ratings
Aaa - Bonds that 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 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 that are rated Aa are judged to be of high quality by all
standards.
Together with the Aaa group, they comprise what are known generally as
high-grade
bonds. They are rated lower than the best bonds because margins of
protection may not
be as large as in Aaa securities or fluctuation of protective elements may be
of greater
amplitude or there may be other elements present which make the long-
term risks
appear somewhat larger than in Aaa securities.
A - Bonds that 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
that suggest
a susceptibility to impairment some time in the future.
Baa - Bonds that are rated Baa are considered to be 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 that are rated Ba are judged to have speculative
elements; their
future cannot be considered as well- assured. Often the protection of
interest and
principal payments may be very moderate and thereby not well safeguarded
during both
good and bad times over the future. Uncertainty of position characterizes
bonds in this
class.
B - Bonds that are rated B generally lack characteristics of a
desirable
investment. Assurance of interest and principal payments or maintenance of
other terms
of the contract over any long period of time may be small.
Those bonds within the Aa, A, Baa, Ba, and B categories that
Moody's
believes possess the strongest credit attributes within those categories are
designated by
the symbols Aa1, A1, Baa1, Ba1, and B1.
Description of S&P's Debt Ratings
AAA - Debt rated AAA has the highest rating assigned by S&P.
Capacity to
pay interest and repay principal is extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and
repay
principal and differs from AAA issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal,
although it is somewhat more susceptible to the adverse effects of changes
in
circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB is regarded as having an adequate capacity
to pay
interest and repay principal. Where as it normally exhibits 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 debt in
this category
than in higher rated categories.
BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC, or C is
regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and
repay principal. BB indicates the least degree of speculation and C the
highest. While
such debt will likely have some quality and protective characteristics, these
are
outweighed by large uncertainties or major exposures to adverse
conditions.
Plus (+) or (-): The ratings from AA to CCC may be modified by
the
addition of a plus or minus sign to show relative standing within the major
categories.
ALLMERICA INVESTMENT TRUST
STATEMENT OF ADDITIONAL INFORMATION
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI")
IS NOT A
PROSPECTUS. IT SHOULD BE READ IN CONJUNCTION WITH
THE
APPLICABLE PROSPECTUS OF ALLMERICA INVESTMENT
TRUST DATED
APRIL 29, 1997. THE APPLICABLE PROSPECTUS MAY
BE
OBTAINED FROM ALLMERICA INVESTMENT TRUST, 440
LINCOLN STREET,
WORCESTER, MASSACHUSETTS 01653, (508) 855-1000.
DATED: APRIL 29, 1997
TABLE OF CONTENTS
GENERAL INFORMATION
3
INVESTMENT OBJECTIVES AND POLICIES
3
INVESTMENT RESTRICTIONS
5
INVESTMENT TECHNIQUES
6
PORTFOLIO TURNOVER
1
4
PERFORMANCE
1
5
MANAGEMENT OF ALLMERICA INVESTMENT TRUST
1
9
CONTROL PERSON AND PRINCIPAL HOLDER OF SECURITIES
2
0
INVESTMENT MANAGEMENT AND OTHER SERVICES
2
0
BROKERAGE ALLOCATION
2
3
PURCHASE, REDEMPTION, AND PRICING OF SECURITIES BEING
OFFERED
2
4
ORGANIZATION OF THE TRUST
2
5
FINANCIAL STATEMENTS
2
6
GENERAL INFORMATION
Allmerica Investment Trust (the "Trust") is an open-end, diversified
series
investment company designed to provide the underlying investment vehicle
for various
separate investment accounts established by First Allmerica Financial Life
Insurance
Company ("First Allmerica") or Allmerica Financial Life Insurance and
Annuity
Company ("Allmerica Life"), an indirect, wholly-owned subsidiary of First
Allmerica.
Shares of the Trust are not offered to the general public but solely to such
separate
investment accounts ("Separate Accounts").
The Trust is a Massachusetts business trust established on
October 11,
1984. It currently is comprised of twelve different portfolios: Select
Aggressive
Growth Fund, Select Capital Appreciation Fund, Small-Mid Cap Value
Fund, Select
International Equity Fund, Select Growth Fund, Growth Fund, Equity
Index Fund,
Select Growth and Income Fund, Select Income Fund, Investment Grade
Income Fund,
Government Bond Fund, and Money Market Fund (each, a "Fund"). Not
all of the
Funds are offered to each Separate Account. The Trustees may create
additional funds
in the future.
INVESTMENT OBJECTIVES AND POLICIES
Select Aggressive Growth Fund seeks above-average capital
appreciation by
investing primarily in common stocks of companies which are believed to
have
significant potential for capital appreciation.
Select Capital Appreciation Fund seeks long-term growth of capital
in a
manner consistent with the preservation of capital. Realization of income is
not a
significant investment consideration and any income realized on the Fund's
investments
will be incidental to its primary objective.
Small-Mid Cap Value Fund seeks long-term growth of capital
by
investing primarily in a diversified portfolio of common stocks of small and
mid-size
companies, whose securities at the time of purchase are considered by the
Sub-Adviser
to be undervalued.
Select International Equity Fund seeks maximum long-term total
return (capital
appreciation and income) primarily by investing in common stocks of
established
non-U.S. companies.
Select Growth Fund seeks to achieve long-term growth of capital
by investing
in a diversified portfolio consisting primarily of common stocks selected on
the basis of
their long-term growth potential.
Growth Fund seeks to achieve long-term growth of capital through
investments
primarily in common stocks and securities convertible into common stocks
that are
believed to represent significant underlying value in relation to current
market prices.
Realization of current income, if any, is incidental to this objective.
Equity Index Fund seeks to achieve investment results that
correspond to the
aggregate price and yield performance of a representative selection of
common stocks
that are publicly traded in the United States.
Select Growth and Income Fund seeks a combination of long-term
growth of
capital and current income. The Fund will invest primarily in dividend-
paying common
stocks and securities convertible into common stocks.
Select Income Fund seeks a high level of current income. The Fund
will invest
primarily in investment grade, fixed-income securities.
Investment Grade Income Fund seeks as high a level of total return,
which
includes capital appreciation as well as income, as is consistent with
prudent investment
management.
Government Bond Fund seeks high income, preservation of capital,
and
maintenance of liquidity primarily through investments in debt instruments
issued or
guaranteed by the U.S. Government or its agencies or instrumentalities
("U.S.
Government securities") and in related options, futures, and repurchase
agreements.
Under normal conditions, at least 80% of the Fund's assets will be invested
in U.S.
Government securities.
Money Market Fund seeks to obtain maximum current income
consistent with
preservation of capital and liquidity.
A Fund's investment objective and its policies as listed above as
well as those
identified in the Prospectus as fundamental may not be changed without the
approval of
a majority in interest of the shareholders of that Fund. Except where
otherwise noted,
other investment policies and techniques of the Funds are not deemed
fundamental and
may be changed by the Trustees. There is no assurance that a Fund's
investment
objective will be realized.
For a description of the types of investments each Fund may
acquire and
certain investment techniques it may utilize, see "Investment Objectives and
Policies" in
the appropriate Prospectus for the underlying Funds of the applicable
Separate Account.
More Information about the Equity Index Fund
The Equity Index Fund will attempt to replicate the investment
results of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500")
while minimizing
transactional costs and other expenses. Stocks in the S&P 500 are ranked
in accordance
with their statistical weighting from highest to lowest. The method used to
select
investments for the Equity Index Fund involves investing in common stocks
in
approximately the order of their weighting in the S&P 500, beginning with
those
having the highest weighting. In addition, the Equity Index Fund purchases
stocks with
smaller weighting in order to represent other sectors of the S&P 500 for
diversification
purposes.
The Equity Index Fund will invest only in those stocks, and in such
amounts,
as its investment adviser determines to be necessary or appropriate for the
Equity Index
Fund to approximate the S&P 500. As the size of the Equity Index Fund
increases, the
Equity Index Fund may purchase a larger number of stocks included in the
S&P 500,
and the percentage of its assets invested in most stocks included in the S&P
500 will
approach the percentage that each such stock represents in the S&P 500.
However,
there is no minimum or maximum number of stocks included in the S&P
500 which the
Equity Index Fund will hold. Under normal circumstances, it is expected
that the
Equity Index Fund will hold between 300 and 475 different stocks included
in the S&P
500. The Equity Index Fund may compensate for the omission of a stock
that is
included in the S&P 500, or for purchasing stocks in other than the same
proportions
that they are represented in the S&P 500, by purchasing stocks which are
believed to
have characteristics which correspond to those of the omitted stocks.
The Equity Index Fund may invest in short-term debt securities to
maintain
liquidity or pending investment in stocks. Such investments will not be
made for
defensive purposes or in anticipation of a general decline in the market
price of stocks
in which the Equity Index Fund invests; investors in the Equity Index Fund
bear the
risk of general declines in the stock markets. The Equity Index Fund also
may take
advantage of tender offers, resulting in higher returns than are reflected in
the
performance of the S&P 500. In addition, the Equity Index Fund may hold
warrants,
preferred stocks, and debt securities, whether or not convertible into
common stock or
with rights attached, if acquired as a result of in-kind dividend distributions,
mergers,
acquisitions, or other corporate activity involving the common stocks held
by the
Equity Index Fund. Such investment transactions and securities holdings
may result in
positive or negative tracking error.
Although it does not intend presently to do so, the Equity Index
Fund at some
time in the future may purchase or sell futures contracts on stocks indexes
for hedging
purposes and in order to achieve a fully invested position while maintaining
sufficient
liquidity to meet possible net redemptions. The effectiveness of a strategy
of investing
in stock index futures contracts will depend upon the continued availability
of futures
contracts based on the S&P 500 or which tend to move together with
stocks included in
the S&P 500. The Equity Index Fund would not enter into futures
contracts on stock
indexes for speculative purposes.
Standard & Poor's Corporation is not in any way affiliated with the
Equity
Index Fund or the Trust. "Standard & Poor's," Standard & Poor's 500,"
and "500" are
trademarks of Standard & Poor's Corporation.
More Information about the Government Bond Fund
The Government Bond Fund will invest in obligations issued or
guaranteed by
the U.S. Government, its agencies and instrumentalities, and options and
futures
thereon, as described in the Prospectus. The securities in which the
Government Bond
Fund may invest include, but are not limited to, U.S. Treasury bills, notes,
and bonds,
and obligations of the following: Banks for Cooperatives, the Commodity
Credit
Corporation, the Federal Deposit Insurance Corporation, Federal Farm
Credit Banks,
the Federal Financing Bank, Federal National Mortgage Association, the
General
Insurance Fund, Government National Mortgage Association, Government
Services
Administration (GSA Public Building Trust Participation Certificates), the
Production
Credit Association, the Student Loan Marketing Association, the
Tennessee Valley
Authority, and the U.S. Postal Service.
The Government Bond Fund may invest in mortgage-backed
securities
(including pass-through securities and participation certificates) of the
Government
National Mortgage Association ("Ginnie Mae"), the Federal Home Loan
Mortgage
Corporation ("Freddie Mac"), and the Federal National Mortgage
Association ("Fannie
Mae").
Ginnie Mae certificates are mortgage-backed securities representing
part
ownership of a pool of mortgage loans. The mortgage loans are issued by
lenders such
as mortgage bankers, commercial banks, and savings and loan associations,
and are
either insured by the Federal Housing Administration or guaranteed by the
Veterans
Administration. After approval of the pool by Ginnie Mae, certificates in
the pool are
offered to investors by securities dealers. Once the pool has been approved
by Ginnie
Mae, the timely payment of interest and principal on the certificates is
guaranteed by
the full faith and credit of the U.S. Government. The certificates are "pass
through"
securities because a pro rata share of regular interest and principal
payments, as well as
unscheduled early prepayments, on the underlying mortgage pool is passed
through
monthly to the Fund.
Freddie Mac, a corporate instrumentality of the U.S. Government
created by
Congress to increase the availability of mortgage credit for residential
housing, issues
participation certificates representing undivided interests in Freddie Mac's
mortgage
portfolio. While Freddie Mac guarantees the timely payment of interest and
ultimate
collection of the principal of its participation certificates, the participation
certificates
are not backed by the full faith and credit of the U.S. Government. The
"pass-through"
characteristics of Freddie Mac participation certificates are similar to
Ginnie Mae
certificates, but Freddie Mac certificates differ from Ginnie Mae certificates
in that
Freddie Mac mortgages are primarily conventional residential mortgages
rather than
mortgages issued or guaranteed by a federal agency or instrumentality.
Fannie Mae is a federally chartered corporation owned by private
stockholders. Fannie Mae purchases both conventional and federally
insured or
guaranteed residential mortgages from various entities, and packages pools
of such
mortgages in the form of pass-through certificates. Fannie Mae guarantees
the timely
payment of principal and interest. Fannie Mae is authorized to borrow from
the U.S.
Treasury to meet its obligations, but the certificates are not backed by the
full faith and
credit of the U.S. Government.
The effective maturity of a mortgage-backed security may be
shortened by
unscheduled or early payments of principal and interest on the underlying
mortgages,
which may affect their effective yield. When the Government Bond Fund
receives the
monthly "pass-through" payments (which may include unscheduled
prepayments of
principal) it may be able to invest the payments only at a lower rate of
interest. During
periods of declining interest rates, such securities therefore may be less
effective as a
means of "locking in" attractive long-term interest rates and may have less
potential for
appreciation than conventional bonds with comparable stated maturities.
INVESTMENT RESTRICTIONS
The following is a description of certain restrictions on investments
of the
Funds (in addition to those described in the Prospectus). The investment
restrictions
numbered 1 through 7 are fundamental and may not be changed without
the approval of
a majority in interest of the shareholders of that Fund. The other
investment restrictions
are not deemed fundamental and may be changed by the Trustees. The
following
investment restrictions apply to each Fund, except as noted:
1. The Fund will not issue "senior securities" as defined in
Section
18(g) of the Investment Company Act of 1940.
2. The Fund will not borrow money, except for temporary
purposes
where the aggregate amount borrowed does not exceed 5% of the value of
the Fund's
total assets at the time such borrowing is made. In general, a borrowing
shall be
regarded as being for temporary purposes if it is repaid within 60 days and
is not
extended or renewed.
3. The Fund will not act as an underwriter except to the extent
that, in
connection with the disposition of portfolio securities, it may be deemed to
be an
underwriter under certain federal securities laws. The Fund (except for the
Select
Aggressive Growth Fund, Select Capital Appreciation Fund, Small-
Mid Cap
Value Fund, Select International Equity Fund, Select Growth Fund,
Select
Growth and Income Fund, and Select Income Fund) will not invest in
securities which
are restricted as to disposition under federal securities laws.
4. The Fund will not buy or sell real estate or interests in real
estate,
although it may purchase and sell (a) securities which are secured by real
estate and
(b) securities of companies which invest or deal in real estate.
5. The Fund will not engage in the purchase and sale of
commodities or
commodity contracts, except financial futures (including securities index
futures)
contracts and related options and in the case of the Select Capital
Appreciation Fund,
futures contracts on foreign currencies and related options. The Money
Market Fund
will not engage in transactions in financial futures or related options.
6. The Fund may make loans to other persons only through
repurchase
agreements and securities lending. For purposes of this paragraph, the
purchase of an
issue of publicly distributed bonds, debentures, or other debt securities,
whether or not
the purchase was made upon the original issue of the securities, is not to be
considered
the making of a loan by the Fund.
7. The Fund will not purchase securities on margin but may
obtain such
short-term credits as are necessary for clearance transactions, and (except
for the Money
Market Fund) may make margin payments in connection with financial
futures
(including securities index futures) contracts, and options on such future
contracts and
in the case of the Select Capital Appreciation Fund, futures contracts on
foreign
currencies and related options. The Fund will not participate on a joint or
joint and
several basis in any trading account in securities or effect a short sale of
securities.
8. The Fund does not intend to invest in companies for the
purpose of
exercising control or management.
9. The Fund may invest in the securities of one or more other
investment
companies. No such investment shall be made if as a result thereof the
Fund would own
more than 3% of the total outstanding voting stock of any one investment
company, or
more than 5% of the Fund's assets would be invested in any one investment
company,
or more than a total of 10% of the Fund's assets would be invested in
investment
company securities. Purchase of such securities will be made only in the
open market
where no commission or profit to a sponsor or dealer results from such
purchase other
than the customary broker's commission or as part of a merger,
consolidation, or plan
of reorganization.
10. The Fund intends to purchase securities for investment and
not to
purchase and sell them for trading purposes, except that the Select Capital
Appreciation
Fund and the Government Bond Fund may engage in short term trading of
U.S.
Government securities.
INVESTMENT TECHNIQUES
In managing its portfolios of investments, the Trust may make use
of the
following investment techniques:
Securities Lending
Each Fund may loan its portfolio securities to broker-dealers
pursuant to
agreements requiring that the loans be continuously secured by cash, cash
equivalents
or securities issued or guaranteed by the United States government or its
agencies, or
any combination of cash, cash equivalents and such securities as collateral
equal at all
times to at least the market value of the securities loaned. Such loans are
not made if, as
a result, the aggregate of all outstanding loans would exceed 30% of the
value of the
Fund's total assets taken at current value. The Fund continues to receive
interest or
dividends on the securities loaned, and simultaneously earns interest on the
investment
of the loan collateral in U.S. Treasury securities, certificates of deposit or
other
high-grade, short-term obligations or interest-bearing cash equivalents or
receives a fee
from the borrower. Although voting rights, or rights to consent, attendant
to securities
lent pass to the borrower, such loans may be called at any time and may be
called so
that the securities may be voted by the Fund if a material event affecting
the investment
is to occur. There may be risks of delay in recovery of the securities or
even loss of
rights in the collateral should the borrower of the securities fail financially.
However,
loans are made only to firms deemed by the Fund's sub-adviser to be of
good standing,
and when, in the judgment of the Fund's sub-adviser, the consideration
which can be
earned currently from such securities loans justifies the attendant risk.
Foreign Securities
The Select Aggressive Growth Fund, Select Capital Appreciation
Fund,
Small-Mid Cap Value Fund, Select International Equity Fund,
Select
Growth Fund, Growth Fund, Equity Index Fund, Select Growth and
Income Fund, and
Select Income Fund may purchase foreign securities. The Investment
Grade Income
Fund may not invest in foreign securities other than the obligations of the
Government
of Canada and political subdivisions thereof. Securities of foreign issuers,
particularly
non-governmental issuers, involve risks which are not associated ordinarily
with
investing in domestic issuers. These risks include changes in currency
exchange rates
and currency exchange control regulations. In addition, investments in
foreign countries
could be affected by other factors generally not thought to be present in the
United
States, including the unavailability of financial information or the difficulty
of
interpreting financial information prepared under foreign accounting
standards, less
liquidity and more volatility in foreign securities markets, the possibility of
expropriation, the possibility of heavy taxation, the impact of political,
social or
diplomatic developments, limitations on the removal of funds or other
assets of a Fund,
difficulties in evoking legal process abroad and enforcing contractual
obligations, and
the difficulty of assessing economic trends in foreign countries.
Forward Commitments
The Select Capital Appreciation Fund, Select Income Fund,
Investment Grade
Income Fund, and Government Bond Fund may enter into contracts to
purchase
securities for a fixed price at a specified future date beyond customary
settlement time
("forward commitments"). If the Funds do so, they will maintain cash or
other
liquid obligations having a value in an amount at all times sufficient to
meet the
purchase price. Forward commitments involve a risk of loss if the value of
the security
to be purchased declines prior to the settlement date. Although the Funds
generally will
enter into forward commitments with the intention of acquiring securities
for their
portfolio, they may dispose of a commitment prior to settlement if their
Sub-Adviser
deems it appropriate to do so. The Funds may realize short-term gains or
losses upon
the sale of forward commitments. The Sub-Adviser will monitor the
creditworthiness of
the parties to such forward commitments.
When-Issued Securities
Each Fund from time to time may purchase securities on a "when-
issued"
basis. Debt securities and municipal obligations often are issued on this
basis. The yield
of such securities is fixed at the time a commitment to purchase is made,
with actual
payment and delivery of the security generally taking place 15 to 45 days
later. During
the period between purchase and settlement, typically no payment is made
by a Fund
and no interest accrues to the Fund. The market value of when-issued
securities may be
more or less than the purchase price payable at settlement date. The Fund
will establish
a segregated account with the Custodian in which it will maintain cash
or liquid
securities at least equal to commitments for when-issued securities.
Repurchase Agreements and Reverse Repurchase Agreements
Each Fund may enter into repurchase agreements. Under a
repurchase
agreement, a Fund may purchase an obligation of or guaranteed by the
United States
Government, its agents or instrumentalities, with an agreement that the
seller will
repurchase the obligation at an agreed upon price and date. The repurchase
price
reflects an agreed-upon interest rate which is unrelated to the coupon rate
on the
purchased obligation. Repurchase agreements usually are for short periods,
such as
under one week, but may be as long as thirty days. No repurchase
agreement will be
effected if, as a result, more than 30% of a Fund's total assets taken at
current value
will be invested in repurchase agreements. No more than 15% (10%
for the
Money Market Fund) of a Fund's total assets taken at current value
will be
invested in repurchase agreements extending for more than seven days and
in other
securities which are not readily marketable.
If a seller defaults upon the obligation to repurchase, the Funds may
incur a
loss if the value of the purchased obligation (collateral) declines, and may
incur
disposition costs in liquidating the collateral. If bankruptcy proceedings are
commenced
with respect to a seller, realization upon the collateral by the Funds may be
delayed or
limited.
Prior to entering into a repurchase agreement, the Fund's Sub-
Adviser
evaluates the creditworthiness of entities with which the Fund proposes to
enter into the
repurchase agreement. The Trustees have established guidelines and
standards of review
for the evaluation of creditworthiness by the Funds' Sub-Advisers and
monitor such
Sub-Advisers' actions with respect to repurchase transactions.
The Select Capital Appreciation Fund also may enter into reverse
repurchase
agreements. In a reverse repurchase agreement, a fund sells a portfolio
security to
another party, such as a bank or broker-dealer, in return for cash and
agrees to
repurchase the instrument at a particular price and at a future date. While a
reverse
repurchase agreement is outstanding, the Fund will maintain cash and
appropriate liquid
assets in a segregated custodial account to cover its obligation under the
reverse
repurchase agreement. The Select Capital Appreciation Fund will enter into
reverse
repurchase agreements only with parties that its sub-adviser deems
creditworthy.
Writing Covered Options
Each Fund other than the Small-Mid Cap Value Fund and Money
Market Fund
may write call options and put options on securities which the Fund owns
as its
Sub-Adviser shall determine to be appropriate and to the extent permitted
by applicable
law. A call option gives the purchaser of the option the right to buy and a
writer the
obligation to sell the underlying security at the exercise price at any time
prior to the
expiration of the option, regardless of the market price of the security
during the option
period. A premium is paid to the writer as the consideration for
undertaking the
obligations under the option contract. The writer forgoes the opportunity
to profit from
an increase in the market price of the underlying security above the exercise
price
except insofar as the premium represents such a profit.
As the writer of a call option, a Fund receives a premium for
undertaking the
obligation to sell the underlying security at a fixed price during the option
period if the
option is exercised. So long as the Fund remains obligated as the writer of
a call, it
forgoes the opportunity to profit from increases in the market price of the
underlying
security above the exercise price of the option, except insofar as the
premium represents
such a profit, and retains the risk of loss should the value of the security
decline. The
Fund also may enter into "closing purchase transactions" in order to
terminate its
obligation as the writer of a call option prior to the expiration of the
option. There is no
assurance that a Fund will be able to effect such transactions at any
particular time or at
any acceptable price.
The writer of a put option is obligated to purchase specified
securities from the
option holder at a specified price at any time before the expiration date of
the option.
The purpose of writing such options is to generate additional income for
the Fund, but
the Fund accepts the risk that it will be required to purchase the underlying
securities at
a price in excess of the securities' market value at the time of purchase.
Option transactions may increase a Fund's transaction costs and
may increase
the portfolio turnover rate, depending on how many options written by the
Fund are
exercised in a particular year.
Purchasing Options
Each Fund other than the Small-Mid Cap Value Fund and Money
Market Fund
may purchase put and call options to the extent permitted by applicable
law. A Fund
will not purchase put or call options if after such purchase more than 5% of
its net
assets, as measured by the aggregate of the premiums paid for all such
options held by
the Fund, would be so invested. A Fund would also be able to enter into
closing sale
transactions in order to realize gains or minimize losses on exchange traded
options
purchased by the Fund.
A Fund normally would purchase call options in anticipation of an
increase in
the market value of securities. The purchase of a call option entitles the
Fund, in return
for the premium paid, to purchase specified securities at a specified price
during the
option period. If the value of such securities exceeded the sum of the
exercise price, the
premium paid, and transaction costs during the option period, the Fund
would
ordinarily realize a gain; if not, the Fund would realize a loss.
A Fund normally would purchase put options in anticipation of a
decline in the
market value of securities in its portfolio ("protective puts") or securities of
the type in
which it may invest. The purchase of a put option would entitle the Fund,
in exchange
for the premium paid, to sell specified securities at a specified price during
the option
period. Gains or losses on the purchase of put options would tend to be
offset by
countervailing changes in the value of underlying portfolio securities. A
Fund
ordinarily would realize a gain if, during the option period, the value of the
underlying
securities decreased below the exercise price sufficiently to cover the
premium and
transaction costs; otherwise, the Fund would realize a loss on the purchase
of the put
option.
There is no assurance that a liquid secondary market on an options
exchange
will exist for a particular option or at a particular time. The hours of
trading for options
on options exchanges may not conform to the hours during which the
underlying
securities are traded. To the extent that the option markets close before the
markets for
the underlying securities, significant price and rate movements can take
place in the
underlying securities markets that cannot be reflected in the option
markets. In
addition, the purchase of options is a highly specialized activity which
depends in part
on the Sub-Adviser's ability to predict future price fluctuations and the
degree of
correlation between the options and securities markets. A Fund pays
brokerage
commission or spread in connection with its options transactions as well as
for
purchases and sales of the underlying securities.
Financial Futures Contracts and Related Options
Each Fund (other than the Small-Mid Cap Value Fund and Money
Market
Fund) may invest in transactions in financial futures contracts and related
options for
hedging purposes. In addition, the Select Capital Appreciation Fund may
utilize futures
contracts on foreign currencies and related options. Through certain
hedging activities
involving such futures contracts and related options, it is possible to reduce
the effects
of fluctuations in interest rates and the market prices of securities which
may be
quite volatile. Hedging is a means of transferring a risk which an
investor does
not desire to assume during an uncertain interest rate or securities market
environment
to another investor who is willing to assume that risk.
The Select Capital Appreciation Fund may buy and write options
on foreign
currencies in a manner similar to that in which futures or forward contracts
on foreign
currencies will be utilized. For example, a decline in the U.S. dollar value
of a foreign
currency in which portfolio securities are denominated will reduce the U.S.
dollar value
of such securities, even if their value in the foreign currency remains
constant. In order
to protect against such diminutions in the value of portfolio securities, the
Select
Capital Appreciation Fund may buy put options on the foreign currency. If
the value of
the currency declines, the Fund will have the right to sell such currency for
a fixed
amount in U.S. dollars and will offset, in whole or in part, the adverse
effect on its
portfolio.
Conversely, when a rise in the U.S. dollar value of a currency in
which
securities to be acquired are denominated is projected, thereby increasing
the cost of
such securities, the Select Capital Appreciation Fund may buy call options
thereon. The
purchase of such options could offset, at least partially, the effects of the
adverse
movements in exchange rates. As in the case of other types of options,
however, the
benefit to the Fund from purchases of foreign currency options will be
reduced by the
amount of the premium and related transaction costs. In addition, if
currency exchange
rates do not move in the direction or to the extent desired, the Select
Capital
Appreciation Fund could sustain losses on transactions in foreign currency
options that
would require such Fund to forgo a portion or all of the benefits of
advantageous
changes in those rates.
The Select Capital Appreciation Fund also may write options on
foreign
currencies. For example, to hedge against a potential decline in the U.S.
dollar value of
foreign currency denominated securities due to adverse fluctuations in
exchange rates,
the Fund could write a call option on the relevant currency instead of
purchasing a put
option. If the expected decline occurs, the option will most likely not be
exercised and
the diminution in value of portfolio securities will be offset by the amount
of the
premium received.
Similarly, instead of purchasing a call option to hedge against a
potential
increase in the U.S. dollar cost of securities to be acquired, the Select
Capital
Appreciation Fund could write a put option on the relevant currency which,
if rates
move in the manner projected, will expire unexercised and allow the Fund
to hedge the
increased cost up to the amount of the premium. As in the case of other
types of
options, however, the writing of a foreign currency option will constitute
only a partial
hedge up to the amount of the premium. If exchange rates do not move in
the expected
direction, the option may be exercised and the Fund would be required to
buy or sell
the underlying currency at a loss which may not be offset by the amount of
the
premium. Through the writing of options on foreign currencies, the Select
Capital
Appreciation Fund also may lose all or a portion of the benefits which
might otherwise
have been obtained from favorable movements in exchange rates.
The Select Capital Appreciation Fund may write covered call
options on
foreign currencies. A call option written on a foreign currency by the Fund
is
"covered" if the Fund owns the underlying foreign currency covered by the
call or has
an absolute and immediate right to acquire that foreign currency without
additional cash
consideration (or for additional cash consideration held in a segregated
account by the
Fund's custodian) upon conversion or exchange of other foreign currency
held in its
portfolio. A call option also is covered if the Fund has a call on the same
foreign
currency and in the same principal amount as the call written if the exercise
price of the
call held (i) is equal to or less than the exercise price of the call written or
(ii) is greater
than the exercise price of the call written, if the difference is maintained by
the Fund in
cash or other liquid assets in a segregated account with the Fund's
custodian.
The Select Capital Appreciation Fund also may write call options
on foreign
currencies for cross-hedging purposes that would not be deemed to be
covered. A call
option on a foreign currency is for cross-hedging purposes if it is not
covered but is
designed to provide a hedge against a decline due to an adverse change in
the exchange
rate in the U.S. dollar value of a security that the Fund owns or has the
right to acquire
and that is denominated in the currency underlying the option. In such
circumstances,
the Select Capital Appreciation Fund collateralizes the option by
segregating cash or
other liquid assets in an amount not less than the value of the underlying
foreign
currency in U.S. dollars marked-to-market daily. The Select Capital
Appreciation Fund
may invest without limitation in foreign currency options.
General Information
A futures contract on a security is a standardized agreement under
which each
party is entitled and obligated either to make or to accept delivery, at a
particular time,
of securities having a specified face value and rate of return on foreign
currencies.
Currently, futures contracts are available on debt and equity securities and
on certain
foreign currencies.
Futures contracts are traded on exchanges that are licensed and
regulated by
the Commodity Futures Trading Commission ( "CFTC" ). A futures
contract on an
individual security may be deemed to be a commodities contract. A Fund
engaging in a
futures transaction initially will be required to deposit and maintain with its
Custodian,
in the name of its brokers, an amount of cash or U.S. Treasury bills equal
to a small
percentage (generally less than 5%) of the contract amount to guarantee
performance of
its obligations. This amount is known as "initial margin." Margin in a
futures
transaction is different from margin in a securities transaction, in that
financial futures
initial margin does not involve the borrowing of funds to finance the
transactions.
Unlike securities margin, initial margin in a futures transaction is in the
nature of a
performance bond or good faith deposit on the contract which is returned
to the fund
upon termination of the financial future, assuming all contractual
obligations have been
satisfied. As the price of the underlying security fluctuates, making the
position in the
financial futures more or less valuable, subsequent payments called
"maintenance
margin" or "variation margin" are made to and from the broker on a daily
basis. This
process is called "marking to market."
The purchase and sale of financial futures is for the purpose of
hedging against
changes in securities prices or interest rates. Hedging transactions serve as
a substitute
for transactions in the underlying securities and can effectively reduce
investment risk.
When prices are expected to rise, a fund, through the purchase of futures
contracts, can
attempt to secure better prices than might be later available in the stock
market when it
anticipates effecting purchases.
Similarly, when interest rates are expected to increase, a fund can
seek to
offset a decline in the value of its debt securities through the sale of futures
contracts.
Options on Financial Futures
The Funds other than the Small-Mid Cap Value Fund and Money
Market Fund
may use options on futures contracts in connection with hedging strategies.
The
purchase of put options on futures contracts is a means of hedging the
Fund's portfolio
against the risk of declining prices. The purchase of a call option on a
futures contract
represents a means of hedging against a market advance when a Fund is not
invested
fully. Depending on the pricing of the option compared with either the
futures contract
upon which it is based or upon the price of the underlying securities, the
option may or
may not be less risky than ownership of the futures contract or underlying
securities.
The writing of a call option on a futures contract may constitute a
partial hedge
against declining prices of the securities or currencies which are deliverable
upon
exercise of the futures contract. If the futures price at expiration is below
the exercise
price, a Fund will retain the full amount of the option premium, which
provides a
partial hedge against any decline that may have occurred in the Fund's
holding of
securities or currencies.
The writing of a put option on a futures contract is analogous to the
purchase
of a futures contract. If the option is exercised, the net cost to the Fund of
the securities
or currencies acquired by it will be reduced by the amount of the option
premium
received. If, however, market prices have declined, the Fund's purchase
price upon
exercise may be greater than the price at which the securities or currencies
might be
purchased in the cash market.
Limitations on Purchase and Sale of Futures and Related Options
A Fund generally will not engage in transactions in futures
contracts or related
options for speculation but only as a hedge against changes in the values of
securities or
currencies held in a Fund's portfolio or which it intends to purchase or
to
enhance return. A Fund may not purchase or sell a futures contract
for non-
hedging purposes if immediately thereafter the sum of the amount of
margin deposits
and amount of variation margins paid from time to time on the Fund's
existing futures
and related options positions and premiums paid for related options would
exceed 5%
of the market value of the Fund's total assets. In instances involving the
purchase of
futures contracts or call options thereon or the writing of put options
thereon by a
Fund, an amount of cash and cash equivalents, equal to the market value of
the futures
contracts and related options (less any related margin deposits), will be
deposited in a
segregated account with its custodian in the name of the broker to
collateralize the
position, and thereby insure that the use of such futures contracts and
options is
unleveraged.
The extent to which a Fund may enter into futures contracts and
options
transactions may be limited by the Internal Revenue Code's requirements
for
qualification as a regulated investment company. Such qualification
requires that the
Fund limit to 30% the portion of its gross income which is derived from the
sale or
other dispositions of investments held (or considered to have been held
under Internal
Revenue rules) for less than three months.
In implementing a Fund's overall risk management strategy, it is
possible that
its Sub-Adviser will choose not to engage in any futures transactions or
that appropriate
futures contracts or related options may not be available. A Fund will
engage in futures
transactions only for appropriate hedging or risk management purposes. A
Fund will
not enter into any particular futures transaction unless its Sub-Adviser
determines that
the particular transaction demonstrates an appropriate correlation with the
Fund's
investment objectives and portfolio securities.
Risks of Transactions in Futures
The sale and purchase of futures contracts is a highly specialized
activity which
involves investment techniques and risks different from those associated
with ordinary
portfolio securities transactions. There are several risks in connection with
the use of
financial futures by a Fund as a hedging device.
Successful use of financial futures by a Fund is subject to its Sub-
Adviser's
ability to predict movements in the direction of interest rates or securities
prices and to
assess other factors affecting markets for securities. For example, a Fund
may hedge
against the possibility of an increase in interest rates which would affect
adversely the
prices of debt securities held in its portfolio. If prices of the debt
securities
increase
instead, the Fund may lose part or all of the benefit of the increased value
of the hedged
debt securities because it may have offsetting losses in the futures
positions. In
addition, in this situation, if the Fund has insufficient cash, it may have to
sell
securities to meet daily maintenance margin requirements. These sales may
be, but will
not necessarily be, at increased prices to reflect the rising market. The Fund
may have
to sell securities at a time when it may be disadvantageous to do so.
Another risk arises because of the imperfect correlation between
movements in
the price of the financial future and movements in the price of the securities
or
currencies which are the subject of the hedge. First of all, the hours of
trading for
futures contracts may not conform to the hours during which the
underlying assets are
traded. To the extent that the futures markets close before the markets for
the
underlying assets, significant price and rate movements can take place in
the underlying
asset's market that cannot be reflected in the futures markets. But even
during identical
trading hours, the price of the future may move more than or less than the
price of the
assets being hedged. While a hedge will not be fully effective if the price of
the future
moves less that the price of the hedged assets, if the price of the hedged
assets has
moved in an unfavorable direction, the Fund would be in a better position
than if it had
not hedged at all. On the other hand, if the price of the hedged assets has
moved in a
favorable direction, this advantage may be offset partially by the price
movement of the
futures contract. If the price of the future moves more than the price of the
asset, the
Fund will experience either a loss or a gain on the futures contract which
will not be
completely offset by movements in the prices of the assets which are the
subject of the
hedge.
In addition to the possibility that there may be an imperfect
correlation, or no
correlation at all, between movements in the futures and the portion of the
portfolio
being hedged, the market prices of futures may be affected by certain other
factors.
First, all participants in the futures market are subject to margin deposit
and
maintenance requirements. Rather than meeting additional margin deposit
requirements,
investors may close futures through offsetting transactions, which could
distort the
normal relationship between the securities or currencies and futures
markets. Secondly,
from the point of view of speculators, the deposit requirements in the
futures market are
less onerous than margin requirements in the securities market. Therefore,
increased
participation by speculators in the futures market also may cause temporary
price or
currency distortions. Due to the possibility of price distortion in the futures
market and
because of the imperfect correlation between movements in the prices of
securities or
currencies and movements in the prices of futures, a correct forecast of
interest rate
trends or market price movements by the Sub-Adviser still may not result
in a
successful hedging transaction over a short time frame.
Positions in futures contracts may be closed out only on an
exchange or board
of trade which provides a secondary market for such futures. Although the
Funds
intend to purchase or sell futures only on exchanges or boards of trade
where there
appears to be an active secondary market, there is no assurance that a
liquid secondary
market on an exchange or board of trade will exist for any particular
contract or at any
particular time. Thus, it may not be possible to close a futures position,
and, in the
event of adverse price movements, the Fund would continue to be required
to make
daily cash payments of maintenance margin. However, in the event futures
have been
used to hedge portfolio positions, such underlying assets will not be sold
until the
futures can be terminated. In such circumstances, an increase in the price of
the
underlying assets, if any, may offset partially or completely losses on the
future.
Risks of Transactions in Options on Futures
There are several special risks relating to options on futures. First,
the ability
to establish and close out positions in options is subject to the maintenance
of a liquid
secondary market. A Fund will not purchase options on futures on any
exchange or
board of trade unless, in the opinion of its Sub-Adviser, the market for such
options is
developed sufficiently so that the risks in connection with options on
futures
transactions are not greater than the risks in connection with futures
transactions.
Compared with the purchase or sale of futures, the purchase of call or put
options on
futures involves less potential risk to the Fund because the maximum
amount at risk is
the premium paid for the options (plus transaction costs). However, there
may be
circumstances when the purchase of a call or put option on futures would
result in a
loss to the Fund when the purchase or sale of a future would not, such as
when there is
no movement in the price of the underlying securities. The writing of an
option on a
futures contract involves risks similar to those risks relating to the sale of
futures
contracts, as described above under "Risks of Transactions in Futures."
An option position may be closed out only on an exchange or board
of trade
which provides a secondary market for an option of the same series.
Although a Fund
generally will purchase only those options for which there appears to be an
active
secondary market, there is no assurance that a liquid secondary market will
exist for
any particular option or at any particular time. It might not be possible to
effect closing
transactions in particular options, with the result that the Fund would have
to exercise
its options in order to realize any profit and would incur transaction costs
upon the sale
of financial futures pursuant to the exercise of put options.
Because of the risks and the transaction costs associated with
hedging
activities, there can be no assurance that a Fund's portfolio will perform as
well as or
better than a comparable fund that does not invest in futures contracts or
related
options.
Forward Contracts on Foreign Currencies
A forward contract is an agreement between two parties in which
one party is
obligated to deliver a stated amount of a stated asset at a specified time in
the future and
the other party is obligated to pay a specified invoice amount for the assets
at the time
of delivery. The Select Capital Appreciation Fund may enter into forward
contracts to
purchase and sell government securities, foreign currencies, or other
financial
instruments. Forward contracts generally are traded in an interbank market
conducted
directly between traders (usually large commercial banks) and their
customers. Unlike
futures contracts which are standardized contracts, forward contracts can
be drawn
specifically to meet the needs of the parties that enter into them. The
parties to a
forward contract may agree to offset or terminate the contract before its
maturity, or
may hold the contract to maturity and complete the contemplated
exchange. The
following discussion summarizes the Select Capital Appreciation Fund's
principal uses
of forward currency exchange contracts ("forward currency
contracts").The Fund may
enter into a forward currency contract with the stated contract value of up
to the value
of the Fund's assets. A forward currency contract is an obligation to buy or
sell an
amount of a specified currency for an agreed price (which may be in U.S.
dollars or a
foreign currency). The Select Capital Appreciation Fund will exchange
foreign
currencies for U.S. dollars and for other foreign currencies in the normal
course of
business and may buy and sell currencies through forward currency
contracts in order
to fix a price for securities it has agreed to buy or sell ("transaction
hedge"). The Select
Capital Appreciation Fund also may hedge some or all of its investments
denominated
in foreign currency against a decline in the value of that currency relative to
the U.S.
dollar by entering into forward currency contracts to sell an amount of that
currency (or
a proxy currency whose performance is expected to replicate or exceed the
performance
of that a currency relative to the U.S. dollar) approximating the value of
some or all of
its portfolio securities denominated in that currency ("position hedge") or
by
participating in options or futures contracts with respect to the currency.
The Fund also
may enter into a forward currency contract with respect to a currency
where the Fund is
considering the purchase or sale of investments denominated in that
currency but has
not yet selected the specific investments ("anticipatory hedge").
In any of these circumstances, the Select Capital Appreciation Fund
may enter
alternatively into a forward currency contract to purchase or sell one
foreign currency
for a second currency that is expected to perform more favorably relative
to the U.S.
dollar if its Sub-Adviser believes there is a reasonable degree of correlation
between
movements in the two currencies ("cross-hedge").
These types of hedges minimize the effect of currency appreciation
as well as
depreciation, but do not eliminate fluctuations in the underlying U.S. dollar
equivalent
value of the proceeds of or rates of return on such Fund's foreign currency
denominated
portfolio securities. The matching of the increase in value of a forward
contract and the
decline in the U.S. dollar equivalent value of the foreign currency
denominated asset
that is the subject of the hedge generally will not be precise. Shifting the
Fund's
currency exposure from one foreign currency to another removes the
Fund's
opportunity to profit from increases in the value of the original currency
and involves a
risk of increased losses to the Fund if its Sub-Adviser's projection of future
exchange
rates is inaccurate. Proxy hedges and cross-hedges may result in losses if
the currency
used to hedge does not perform similarly to the currency in which hedged
securities are
denominated. Unforeseen changes in currency prices may result in poorer
overall
performance for the Select Capital Appreciation Fund than if it had not
entered into
such contracts.
The Select Capital Appreciation Fund will cover outstanding
forward currency
contracts by maintaining liquid portfolio securities denominated in or
whose
value is tied to the currency underlying the forward contract or the
currency
being hedged. To the extent that the Select Capital Appreciation Fund is
not able to
cover its forward currency positions with underlying portfolio securities,
the Fund's
custodian will segregate cash or liquid assets having a value equal to the
aggregate
amount of its commitments under forward contracts entered into with
respect to
position hedges, cross-hedges, and anticipatory hedges. If the value of the
securities
used to cover a position or the value of segregated assets declines, the
Select Capital
Appreciation Fund will find alternative cover or segregate additional cash
or liquid
assets on a daily basis so that the value of the covered segregated assets
will be equal to
the amount of the Fund's commitments with respect to such contracts. As
an alternative
to segregating assets, the Select Capital Appreciation Fund may buy call
options
permitting it to buy the amount of foreign currency being hedged by a
forward sale
contract or the Fund may buy put options permitting it to sell the amount
of foreign
currency subject to a forward buy contract.
While forward contracts currently are not regulated by the CFTC,
the CFTC
may in the future assert authority to regulate forward contracts. In such
event, the
Select Capital Appreciation Fund's ability to utilize forward contracts may
be
restricted. In addition, the Select Capital Appreciation Fund may not
always be able to
enter into forward contracts at attractive prices and may be limited in its
ability to use
these contracts to hedge portfolio assets.
Swap and Swap-Related Products
The Select Capital Appreciation Fund may enter into interest rate
swaps, caps,
and floors on either an asset-based or liability-based basis, depending upon
whether it is
hedging its assets or its liabilities, and will usually enter into interest rate
swaps on a
net basis (i.e., the two payment streams are netted out with the Fund
receiving or
paying, as the case may be, only the net amount of the two payments).
Interest rate
swaps involve the exchange by the Fund with another party of their
respective
commitments to pay or receive interest; for example, an exchange of
floating rate
payments for fixed rate payments with respect to a notional amount of
principal. A
currency swap is an agreement to exchange cash flows on a notional
amount of two or
more currencies based on the relative value differential among them. An
index swap is
an agreement to swap cash flows on a notional amount based on changes in
the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive
payments on a notional principal amount from the party selling such cap to
the extent
that a specified index exceeds a predetermined interest rate or amount. The
purchase of
a floor entitles the purchaser to receive payments on a notional principal
amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount.
The net amount of the excess, if any, of the Fund's obligations over
its
entitlement with respect to each interest rate swap will be calculated on a
daily basis
and an amount of cash or other liquid assets having an aggregate net asset
value at least
equal to the accrued excess will be maintained in a segregated account by
the Fund's
custodian. If the Fund enters into an interest rate swap on other than a net
basis, it will
maintain a segregated account in the full amount accrued on a daily basis of
its
obligations with respect to the swap. The Fund will not enter into any
interest rate
swap, cap, or floor transaction unless the unsecured senior debt NRSRO or
the
claims-paying ability of the other party thereto is rated in one of the three
highest rating
categories of at least one nationally recognized statistical rating
organization at the time
of entering into such transaction. The Sub-Adviser will monitor the
creditworthiness of
all counterparties on an ongoing basis. If there is a default by the other
party to such a
transaction, the Fund will have contractual remedies pursuant to the
agreement related
to the transaction.
The swap market has grown substantially in recent years with a
large number
of banks and investment banking firms acting both as principals and as
agents utilizing
standardized swap documentation. As a result, the swap market has
become relatively
liquid. Caps and floors are more recent innovations for which standardized
documentation has not yet been developed and, accordingly, they are less
liquid than
swaps. To the extent the Fund sells (i.e., writes) caps and floors, it will
segregate cash
or high-grade liquid assets having an aggregate net asset value at least
equal to the full
amount on a daily basis of its obligations with respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions
that may be
entered into by the Fund. These transactions may in some instances involve
the delivery
of securities or other underlying assets to the Fund or its counterparty to
collateralize
obligations under the swap. Under the documentation currently used in
those markets,
the risk of loss with respect to interest rates swaps is limited to the net
amount of the
payments that the Fund is obligated contractually to make. If the other
party to an
interest rate swap that is not collateralized defaults, the Fund would risk
the loss of the
net amount of the payments that it contractually is entitled to receive. The
Fund may
buy and sell (i.e., write) caps and floors without limitation, subject to the
segregation
requirement described above.
Additional Risks of Options on Foreign Currencies, Forward Contracts,
and Foreign
Instruments
Unlike transactions entered into by the Funds in futures contracts,
options on
foreign currencies and forward contracts are not traded on contract
markets regulated by
the CFTC or (with the exception of certain foreign currency options) by
the SEC. To
the contrary, such instruments are traded through financial institutions
acting as
market-makers, although foreign currency options also are traded on
certain exchanges,
such as the Philadelphia Stock Exchange and the Chicago Board Options
Exchange,
subject to SEC regulation. Similarly, options on currencies may be traded
over-the-counter. In an over-the-counter trading environment, many of the
protections
afforded to exchange participants will not be available. For example, there
are no daily
price fluctuation limits, and adverse market movements therefore could
continue to an
unlimited extent over a period of time. Although the buyer of an option
cannot lose
more than the amount of the premium plus related transaction costs, this
entire amount
could be lost. Moreover, an option writer and a buyer or seller of futures or
forward
contracts could lose amounts substantially in excess of any premium
received or initial
margin or collateral posted due to the potential additional margin and
collateral
requirements associated with such positions.
Options on foreign currencies traded on exchanges are within the
jurisdiction
of the SEC, as are other securities traded on such exchanges. As a result,
many of the
protections provided to traders on organized exchanges will be available
with respect to
such transactions. In particular, all foreign currency option positions
entered into on an
exchange are cleared and guaranteed by the Office of the Comptroller of
the Currency
("OCC"), thereby reducing the risk of counterparty default. Further, a
liquid secondary
market in options traded on an exchange may be more readily available
than in the
over-the-counter market, potentially permitting a Fund to liquidate open
positions at a
profit prior to exercise or expiration, or to limit losses in the event of
adverse market
movements.
The purchase and sale of exchange-traded foreign currency options,
however,
is subject to the risks of the availability of a liquid secondary market
described above,
as well as the risks regarding adverse market movements, margining of
options written,
the nature of the foreign currency market, possible intervention by
governmental
authorities and the effects of other political and economic events. In
addition,
exchange-traded options on foreign currencies involve certain risks not
presented by the
over-the-counter market. For example, exercise and settlement of such
options must be
made exclusively through the OCC which has established banking
relationships in
applicable foreign countries for this purpose. As a result, the OCC, if it
determines that
foreign government restrictions or taxes would prevent the orderly
settlement of foreign
currency option exercises or would result in undue burdens on the OCC or
its clearing
member, may impose special procedures on exercise and settlement, such
as technical
changes in the mechanics of delivery, the fixing of dollar settlement prices,
or
prohibitions on exercise.
In addition, options on U.S. Government securities, futures
contracts, options
on futures contracts, forward contracts, and options on foreign currencies
may be
traded on foreign exchanges and over-the-counter in foreign countries.
Such
transactions are subject to the risk of governmental actions affecting
trading in or the
prices of foreign currencies or securities. The value of such positions also
could be
adversely affected by (i) other complex foreign political and economic
factors,
(ii) lesser availability than in the United States of data on which to make
trading
decisions, (iii) delays in a Fund's ability to act upon economic events
occurring in
foreign markets during non-business hours in the United States, (iv) the
imposition of
different exercise and settlement terms and procedures and margin
requirements from
those in the United States, and (v) low trading volume.
PORTFOLIO TURNOVER
The portfolio turnover rate for a Fund is calculated by dividing the
lesser of
purchases or sales of portfolio securities by the Fund for a given year by
the monthly
average of the value of the Fund's portfolio securities for that year. The
purchase or
sale of all securities whose maturities or expiration dates at the time of
acquisition are
less than 12 months and of money market funds of amounts too small to
invest in
short-term obligations are not included in the portfolio turnover rate.
While the rate of portfolio turnover is not a limiting factor
when
changes in the portfolio are deemed appropriate, it is anticipated that under
normal
circumstances the annual portfolio turnover rate would not exceed 200%
with respect to
the Select Capital Appreciation Fund. In any particular year, however,
conditions could
result in portfolio activities at a greater rate than anticipated. In any case,
a
higher
turnover rate does not in and of itself indicate a variation from the stated
investment
policy. To a limited extent, the Select Capital Appreciation Fund may
engage in
short-term trading. A higher portfolio turnover rate may involve
corresponding greater
brokerage commissions and other transaction costs, which would be borne
directly by
the Fund, as well as additional realized gains and/or losses to shareholders.
The
turnover rates for the Select Aggressive Growth Fund for the two most
recent fiscal
years ended December 31, 1995 and 1996 were 113% and 104%,
respectively. The
turnover rates for the Select Capital Appreciation Fund for the period
ended December
31, 1995 and the fiscal year ended December 31, 1996 were 98% and 95%,
respectively. The turnover rates for the Small-Mid Cap Value Fund, Select
International Equity Fund, Select Growth Fund, Growth Fund, Equity
Index Fund,
Select Growth and Income Fund, Select Income Fund, Investment Grade
Income Fund,
and Government Bond Fund for the two most recent fiscal years ended
December 31,
1995 and 1996 were 20% and 17%; 18% and 24%, 159% and 51%; 72%
and 64%;
12% and 8%; 78% and 112%; 108% and 131%; 108% and 126%; and
112% and
180%, (for explanation, see the Prospectus), respectively.
PERFORMANCE
The Trust may advertise performance information for the Funds and
may
compare performance of the Funds with other investment or relevant
indices. The
Funds may also advertise "yield", total return" and other non-standardized
total return
data. For the non-money market funds, "yield," is calculated differently
than for the
Money Market Fund. The Money Market Fund may advertise "yield" or
"effective
yield," All performance figures are based on historical earnings and are not
intended to
indicate future performance. A Fund's share price, yield, and total return
may fluctuate
in response to market conditions and other factors, and the value of Fund
shares when
redeemed may be more or less than their original cost.
Yields and total returns quoted for the Funds include the effect of
deducting
the Funds' expenses, but may not include charges and expenses attributable
to a
particular insurance product. Since shares of the Funds can be purchased
only through a
variable annuity or variable life contract, you should review carefully the
prospectus of
the insurance product you have chosen for information on relevant charges
and
expenses. Including these charges in the quotations of the Funds' yields and
total
returns would have the effect of decreasing performance. Performance
information for
the insurance product must always accompany, and be reviewed with, any
performance
information quoted for the Funds.
Yields of the Funds Other than the Money Market Fund
The 30-day (or one month) standard yields of the Funds other than
the Money
Market Fund are calculated as follows:
Y
I
E
L
D
=
2
[
(
a
- -
b
c
d
+
1
)
6
- -
1
)
]
W
h
e
r
e
:
a
=
dividends and interest earned by a Fund during the period;
b
=
expenses accrued for the period (net of reimbursements);
c
=
average daily number of shares outstanding during the period entitled to
receive
dividends; and
d
=
maximum offering price per share on the last day of the period.
For the purpose of determining net investment income earned
during the
period (variable "a" in the formula), dividend income on equity securities
held by a
Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each
day that the security is in the Fund. Except as noted below, interest earned
on debt
obligations held by a Fund is calculated by computing the yield to maturity
of each
obligation based on the market value of the obligation (including actual
accrued
interest) at the close of business on the last business day of each month, or,
with respect
to obligations purchased during the month, the purchase price (plus actual
accrued
interest) and dividing the result by 360 and multiplying the quotient by the
market
value of the obligation (including actual accrued interest) in order to
determine the
interest income on the obligation for each day of the subsequent month that
the
obligation is held by the Fund. For purposes of this calculation, it is
assumed that each
month contains 30 days. The maturity of an obligation with a call provision
is the next
call date on which the obligation reasonably may be expected to be called
or, if none,
the maturity date. With respect to debt obligations purchased at a discount
or premium,
the formula generally calls for amortization of the discount or premium.
The
amortization schedule will be adjusted monthly to reflect changes in the
market value of
such debt obligations. Expenses accrued for the period (variable "b" in the
formula)
include all recurring fees charged by a Fund to all shareholder accounts in
proportion to
the length of the base period and the Fund's mean (or median) account size.
Undeclared
earned income will be subtracted from the offering price per share (variable
"d" in the
formula).
Money Market Fund - Yield and Effective Yield
The yield of the Money Market Fund refers to the net income
generated by an
investment in the Fund over a stated seven-day period, expressed as an
annual
percentage rate. Yield is computed by determining the net change
(exclusive of capital
changes) in the value of a hypothetical pre-existing account having a
balance of 1 (one)
share at the beginning of a seven-day calendar period, dividing the net
change in
account value by the value of the account at the beginning of the period,
and
multiplying the return over the seven-day period by 365/7. Thus the income
is
"annualized:" the amount of income generated by the investment during
the seven-day
period is assumed to be generated each week over a 52-week period and is
shown as a
percentage of the investment. For purposes of the calculation, net change
in account
value reflects the value of additional shares purchased with dividends from
the original
share and dividends declared on both the original share and any additional
shares, but
does not reflect realized gains or losses or unrealized appreciation or
depreciation.
The effective yield is calculated similarly, but the income earned by
an
investment in the Money Market Fund is assumed to be reinvested. The
"effective
yield" will be slightly higher than the "yield" because of this compounding
effect.
Total Return
The Funds may advertise total return. The total return shows what
an
investment in each Fund would have earned over a specific period of time
(one, five, or
ten years or since commencement of operations, if less) assuming that all
distributions
and dividends by the Fund were reinvested, and less all recurring fees.
From time to time, the Fund may state its total return in
advertisements and
investor communications. Total return may be stated for any relevant
period as
specified in the advertisement or communication. Any statement of total
return or other
performance data on the Fund will be accompanied by information on the
Fund's
average annual total return over the most recent four calendar quarters and
the period
from the Fund's inception of operations. The Fund also may advertise
aggregate annual
total return information over different periods of time.
A Fund's average annual total return is determined by reference to a
hypothetical $1,000 investment that includes capital appreciation and
depreciation for
the stated period, according to the following formula:
P(1+T)n = ERV
W
h
e
r
e
:
P
=
A hypothetical initial purchase of $1,000
T
=
average annual total return
n
=
number of years
E
R
V
=
Ending Redeemable Value of the hypothetical purchase at the end of the
period
Total return quoted in advertising reflects all aspects of the Fund's
return,
including the effect of reinvesting dividends and capital gains distributions,
and any
change in the Fund's net asset value per share over the period.
Average Annual Returns are calculated by determining the change
in value of a
hypothetical investment in the Fund over a stated period, and calculating
the annually
compounded percentage rate that would have produced the same result if
the rate of
growth or decline in value has been constant over the period. Average
annual returns
covering periods of less than one year are calculated by determining the
Fund's total
return for the period, extrapolating that return for a full year, and stating
the result as
an annual return. Because this method assumes that performance will
remain constant
for the entire year when in fact it is unlikely that performance will remain
constant,
average annual returns for a partial year must be viewed as strictly
theoretical
information.
Investors also should be aware that a Fund's performance is not
constant over
time, but varies from year to year. Average annual return represents
averaged figures
as opposed to the actual performance of the Fund.
A Fund also may quote cumulative total returns which reflect the
simple
change in value of an investment over a stated period. Average annual total
returns and
cumulative total returns may be quoted as a percentage or as a dollar
amount. They may
be calculated for a single investment, for a series of investments, or for a
series of
redemptions over any time period. Total returns may be broken down into
their
components of income and capital in order to show their respective
contributions to
total return. Performance information may be quoted numerically or in a
table, graph,
or similar illustration.
Other Performance Information
Performance information for a Fund may be compared with: (1) the
S&P 500,
Dow Jones Industrial Average, Shearson Lehman Aggregate Bond Index,
Russell 2000,
Russell 3000, Beta Adjusted Russell 3000, Shearson Lehman Government
corporate
and 90 day Treasury Bills, Solomon High Yield Bond Index, Bank Rate
Monitor,
NASDAQ Index, or other unmanaged indices so that investors may
compare a Fund's
results with those of a group of unmanaged securities widely regarded by
investors as
representative of the securities markets in general; (2) other registered
investment
companies or other investment products tracked (a) by Lipper Analytical
Services,
Morningstar, Inc., and IBC/Donoghue, Inc., all widely used independent
research
firms which rank mutual funds and other investment companies by overall
performance,
investment objectives, and assets, or (b) by other services, companies,
publications, or
persons who rank such investment companies on overall performance or
other criteria;
(3) or the Consumer Price Index (a measure for inflation) to assess the real
rate of
return from an investment in the Fund. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for
administrative and
management costs and expenses.
Performance information reflects only the performance of a
hypothetical
investment during the particular time period on which the calculations are
based.
Performance information should be considered in light of the investment
objectives and
policies, characteristics and quality of the Fund, and the market conditions
during the
given time period. Yield and total return information may be useful for
reviewing the
performance of the Fund and for providing a basis for comparison with
other
investment alternatives. However, unlike bank deposits or other
investments which pay
a fixed yield for a stated period of time, the yield and total return do
fluctuate.
Performance Information for Period Ended December 31, 1996
Set forth below is total return information for the Select
Aggressive
Growth Fund, Select Capital Appreciation Fund, Small-Mid Cap Value
Fund, Select
International Equity Fund, Select Growth Fund, Growth Fund, Equity
Index Fund,
Select Growth and Income Fund, Select Income Fund, Investment Grade
Income Fund,
Government Bond Fund, and Money Market Fund for the 1 year, 5 year,
10 year
and/or since inception (the Trust began operations on April 29, 1985)
periods ended
December 31, 1996, yields for the Select Income Fund, Investment Grade
Income
Fund, and Government Bond Fund for the 30-day period ended December
31, 1996 and
yield and effective yield information for the Money Market Fund for the
seven-day
period ended December 31, 1996.
Total Returns for Periods Ended December 31, 1996
(Unaudited)
S
e
l
e
c
t
A
g
g
r
e
s
s
i
v
e
G
r
o
w
t
h
F
u
n
d
S
e
l
e
c
t
C
a
p
i
t
a
l
A
p
p
r
e
c
i
a
t
i
o
n
F
u
n
d
S
m
a
l
l
- -
M
i
d
C
a
p
V
a
l
u
e
F
u
n
d
S
e
l
e
c
t
I
n
t
e
r
n
a
t
i
o
n
a
l
E
q
u
i
t
y
F
u
n
d
S
e
l
e
c
t
G
r
o
w
t
h
F
u
n
d
G
r
o
w
t
h
F
u
n
d
1
- -
y
e
a
r
p
e
r
i
o
d
1
8
.
5
5
%
8
.
8
0
%
2
8
.
5
3
%
2
1
.
9
4
%
2
2
.
0
2
%
2
0
.
1
9
%
5
- -
y
e
a
r
p
e
r
i
o
d
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
1
2
.
8
0
%
1
0
- -
y
e
a
r
p
e
r
i
o
d
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
- -
1
4
.
7
9
%
S
i
n
c
e
i
n
c
e
p
t
i
o
n
1
9
.
7
7
%
2
8
.
3
4
%
1
4
.
8
6
%
1
3
.
6
8
%
1
2
.
6
5
%
1
5
.
7
7
%
E
q
u
i
t
y
I
n
d
e
x
F
u
n
d
S
e
l
e
c
t
G
r
o
w
t
h
a
n
d
I
n
c
o
m
e
F
u
n
d
S
e
l
e
c
t
I
n
c
o
m
e
F
u
n
d
I
n
v
e
s
t
m
e
n
t
G
r
a
d
e
I
n
c
o
m
e
F
u
n
d
G
o
v
e
r
n
m
e
n
t
B
o
n
d
F
u
n
d
M
o
n
e
y
M
a
r
k
e
t
F
u
n
d
1
- -
y
e
a
r
p
e
r
i
o
d
2
2
.
3
0
%
2
1
.
2
6
%
3
.
3
2
%
3
.
5
6
%
3
.
5
1
%
5
.
3
6
%
5
- -
y
e
a
r
p
e
r
i
o
d
1
4
.
6
1
%
- -
- -
- -
- -
- -
- -
7
.
2
9
%
5
.
8
6
%
4
.
3
8
%
1
0
- -
y
e
a
r
p
e
r
i
o
d
- -
- -
- -
- -
- -
- -
- -
- -
- -
8
.
3
1
%
- -
- -
- -
- -
- -
- -
S
i
n
c
e
i
n
c
e
p
t
i
o
n
1
7
.
7
6
%
1
3
.
7
8
%
5
.
9
1
%
9
.
0
1
%
6
.
9
1
%
5
.
9
0
%
<
/
R
>
The Growth Fund, Investment Grade Income Fund and the Money
Market
Fund all began business operations on April 29, 1985. The Equity Index
Fund began
operations on September 28, 1990. The Government Bond Fund began
operations on
August 26, 1991. The Select Aggressive Growth Fund, Select Growth
Fund, Select
Growth and Income Fund and Select Income Fund began operations on
August 21,
1992. The Small-Mid Cap Value Fund began operations on April 30, 1993.
The Select
International Equity Fund began operations on May 2, 1994. The Select
Capital
Appreciation Fund began operations on April 28, 1995.
Yields for 30-day Periods ended December 31, 1996
(Unaudited)
S
e
l
e
c
t
I
n
c
o
m
e
F
u
n
d
I
n
v
e
s
t
m
e
n
t
G
r
a
d
e
I
n
c
o
m
e
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o
v
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r
n
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e
n
t
B
o
n
d
F
u
n
d
<
R
>
6
.
1
0
%
6
.
2
5
%
5
.
6
7
%
Yield and Effective Yield for the Money Market Fund
for the Seven-Day Period ended December 31, 1996
(Unaudited)
5
.
0
5
%
5
.
1
8
%
<
/
R
>
Y
i
e
l
d
E
f
f
e
c
t
i
v
e
Y
i
e
l
d
MANAGEMENT OF ALLMERICA INVESTMENT TRUST
The Trust is managed by a Board of Trustees. The affairs of the
Trust are
conducted in accordance with the Bylaws adopted by the Trustees.
Name, Address
and Age
Positi
on
and
Offic
es
with
the
Trust
Present Position and Principal
Occupations During the Past 5 Years
Russell E.
Fuller (70)
730 Main Street
Boylston,
Massachusetts
Trus
tee
Chairman, REFCO, Inc.
(distributor of tools and abrasives)
Gordon Holmes
(58)
205 Broadway
Cambridge,
Massachusetts
Trus
tee
Certified Public Accountant,
Tofias, Fleishman, Shapiro & Co.
(Accountants)
Bruce E.
Langton (65)
99 Jordan Lane
Stamford,
Connecticut
Trus
tee
Member, First Allmerica Manager
Evaluation Team; Director,
Competitive Technologies, Inc.
(technology transfer); Trustee,
Bankers Trust mutual funds;
Member, Investment Committee,
TWA Pilots Trust Annuity Plan;
Member, Investment Committee,
Unilever United States - Pension &
Thrift plans
*John F.
O'Brien (53)
440 Lincoln
Street
Worcester,
Massachusetts
Trus
tee
and
Chai
rman
of
the
Boar
d
Director, President and Chief
Executive Officer, First Allmerica;
Director and Chairman of the
Board, Allmerica Life
Attiatt F. Ott
(61)
950 Main Street
Worcester,
Massachusetts
Trus
tee
Professor of Economics and
Director of the Institute for
Economic Studies, Clark
University
Ranne P.
Warner (52)
7 Water Street
Boston,
Massachusetts
Trus
tee
President, Centros Properties,
USA; Owner, Ranne P. Warner
and Company; Director,
Wainwright Bank & Trust Co.
(commercial bank)
*John P.
Kavanaugh (42)
440 Lincoln
Street
Worcester,
Massachusetts
Trus
tee
and
Vice
Presi
dent
President, Allmerica Asset
Management, Inc.; Vice President,
First Allmerica and Allmerica Life
*Richard M.
Reilly (58)
440 Lincoln
Street
Worcester,
Massachusetts
Presi
dent
and
Trus
tee
President, Allmerica Life since
1995; Vice President, First
Allmerica and President, Allmerica
Investment Management Company,
Inc.
Thomas P.
Cunningham
(51)
440 Lincoln
Street
Worcester,
Massachusetts
Vice
Presi
dent
and
Trea
surer
Investment Product Manager, First
Allmerica since March 1996; Vice
President, First Data Investor
Services Group, Inc., 1994-1995;
Vice President, Fidelity
Investments, 1990-1993
George Boyd
(52)
440 Lincoln
Street
Worcester,
Massachusetts
Secr
etary
Counsel, First Allmerica since
December 1996; Director, Mutual
Fund Administration - Legal and
Regulatory, Investors Bank & Trust
Company 1994-1995; Vice
President and Counsel, 440
Financial Group and First Data
Investor Services Group 1992-
1995.
*Asterisks indicate the Trustees who are "interested persons" of the Trust
as defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
The Trustees who are not directors, officers, or employees of the
Trust or any
investment adviser are reimbursed for their travel expenses in attending
meetings of the
Trust.
Listed below is the compensation paid to each Trustee by the Trust
and by all
fourteen funds in the complex for the fiscal year ended December 31, 1996.
The Fund
currently does not provide any pension or retirement benefits for its
Trustee or officers.
COMPENSATION TABLE
Name of Person
and Position
A
g
g
r
e
g
a
t
e
C
o
m
p
e
n
s
a
t
i
o
n
f
r
o
m
T
r
u
s
t
T
o
t
a
l
C
o
m
p
e
n
s
a
t
i
o
n
f
r
o
m
T
r
u
s
t
C
o
m
p
l
e
x
(
i
n
c
l
u
d
e
s
2
o
t
h
e
r
i
n
v
e
s
t
m
e
n
t
c
o
m
p
a
n
i
e
s
)
P
a
i
d
t
o
T
r
u
s
t
e
e
s
Russell E.
Fuller
$
8
,
0
7
5
.
6
4
$
8
,
5
0
0
.
0
0
Gordon Holmes
$
8
,
5
4
4
.
8
4
$
9
,
0
0
0
.
0
0
Attiat F. Ott
$
8
,
0
7
5
.
6
4
$
8
,
5
0
0
.
0
0
Ranne P. Warner
$
8
,
1
0
5
.
8
4
$
8
,
5
0
0
.
0
0
Thomas S. Zocco
$
8
,
5
4
4
.
8
4
$
9
,
0
0
0
.
0
0
John P.
Kavanaugh
0
0
Richard M.
Reilly
0
0
John F. O'Brien
0
0
John D. Hunt*
$
1
,
8
7
6
.
8
0
$
2
,
0
0
0
.
0
0
Bruce E.
Langton**
$
5
,
7
2
9
.
2
6
$
6
,
0
0
0
.
0
0
* John D. Hunt resigned as Trustee effective February 7, 1996.
** Bruce E. Langton was appointed Trustee on February 6,
1996.
The Trust Declaration provides that the Trust will indemnify its
Trustees and
officers against liabilities and expenses incurred in connection with
litigation in which
they may be involved because of their offices with the Trust, except if it is
determined
in the manner specified in the Trust Declaration that they have not acted in
good faith
in the reasonable belief that their actions were in the best interests of the
Trust or that
such indemnification would relieve any officer or Trustee of any liability to
the Trust or
its shareholders by reason of willful misfeasance, bad faith, gross
negligence, or
reckless disregard of his or her duties.
In addition to their positions with the Trust, Mr. O'Brien and Mr.
Kavanaugh
are Directors of Allmerica Investments, Inc. ("Allmerica"), a broker-dealer
affiliate of
First Allmerica. Mr. Reilly is President and Director of Allmerica
Investment
Management Company, Inc.
CONTROL PERSON AND PRINCIPAL HOLDER OF SECURITIES
Allmerica Asset Management, Inc., with its principal office at
440
Lincoln Street, Worcester, Massachusetts 01653, is the Sub-Adviser of
certain Funds of
the Trust. Allmerica Investment Management Company, Inc., a wholly-
owned
subsidiary of First Allmerica, is the Manager of the Trust. The Separate
Accounts of
First Allmerica or its affiliates are the shareholders of the Trust. In
addition,
as of the
date of this SAI, Allmerica Life, an indirect, wholly-owned subsidiary of
First
America, owned beneficially in excess of 8.7% of Equity Index Fund, and
in excess of
5.3% of Select Capital Appreciation Fund.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Allmerica Investment Management Company, Inc. (the "Manager")
serves as
investment manager of the Trust pursuant to a management agreement
between the
Trust and the Manager (the "Management Agreement"). The Manager has
entered into
sub-adviser agreements with different investment advisory firms (the "Sub-
Advisers")
to manage each of the Funds.
The methods of computing the advisory and sub-advisory fees are
set forth in
the Prospectuses under "Management Fees and Expenses."
The total gross fees (before reimbursement) paid to the Manager
under the
Management Agreement for each of the last three fiscal years ended
December 31, 1996
were as follows:
F
i
s
c
a
l
Y
e
a
r
1
9
9
6
F
i
s
c
a
l
Y
e
a
r
1
9
9
5
F
i
s
c
a
l
Y
e
a
r
1
9
9
4
Select Aggressive Growth
Fund
$
3
,
3
0
2
,
3
4
9
$
1
,
9
4
3
,
9
5
3
$
1
,
0
4
8
,
6
6
7
Select Capital Appreciation
Fund
$
9
0
2
,
6
0
0
$
1
3
3
,
7
2
3
- -
0
- -
Small-Mid Cap Value Fund
$
7
2
6
,
9
9
2
$
4
5
3
,
2
1
5
$
2
4
0
,
1
2
2
Select International Equity
Fund
$
1
,
7
0
1
,
9
4
2
$
6
7
2
,
7
7
0
$
1
5
1
,
7
1
8
Select Growth Fund
$
1
,
5
0
8
,
8
6
1
$
1
,
0
1
7
,
3
0
3
$
6
1
0
,
0
8
8
Growth Fund
$
2
,
1
6
3
,
3
7
4
$
1
,
7
9
6
,
6
7
7
$
1
,
6
0
0
,
8
5
9
Equity Index Fund
$
3
7
5
,
6
1
9
$
2
3
4
,
2
0
7
$
1
6
8
,
9
2
4
Select Growth and Income
Fund
1
,
7
7
8
,
8
3
2
$
1
,
1
2
4
,
3
2
3
$
6
5
6
,
9
6
6
Select Income Fund
$
3
9
8
,
5
2
2
$
2
9
7
,
4
3
4
$
2
0
1
,
5
6
4
Investment Grade Income
Fund
5
9
6
,
3
0
8
$
5
1
1
,
9
9
7
$
4
5
9
,
7
7
0
Government Bond Fund
$
2
3
5
,
3
5
9
$
2
0
6
,
1
9
7
$
2
9
6
,
6
2
6
Money Market Fund
$
5
1
0
,
2
5
8
$
3
8
9
,
5
4
2
$
2
5
2
,
5
4
4
The Select Capital Appreciation Fund began business operations on
April 28,
1995. The Select International Equity Fund began business operations on
May 2,
1994.
The total dollar amounts paid to Nicholas-Applegate Capital
Management as
Sub-Adviser for the Select Aggressive Growth Fund for each of the last
three fiscal
years ended December 31, 1996, 1995, and 1994 were $1,986,838,
$1,166,372 and
$629,200, respectively.
The total dollar amounts paid to Janus Capital Corporation as Sub-
Adviser for
the Select Capital Appreciation Fund for the fiscal year ended December
31, 1996 and
for the period April 28, 1995 (commencement of operations) through
December 31,
1995 were $538,873 and $79,987, respectively.
The total dollar amounts paid to David L. Babson & Co., Inc. for
the Small-
Mid Cap Value Fund for each of the last three fiscal years ended December
31, 1996,
1995, and 1994 were $428,814, $266,597, and $140,900, respectively.
The total dollar amounts paid to Provident Investment Counsel
("PIC") as
sub-adviser for the Select Growth Fund for the period January 1, 1996
through June
30, 1996 and the fiscal years ended December 31, 1995 and 1994 were
$372,442,
$563,572, and $347,988, respectively. PIC was replaced by Putnam
Investment
Management, Inc. ("Putnam") as sub-adviser for the Select Growth Fund
on July 1,
1996. The total dollar amount paid to Putnam for the period July 1, 1996
through
December 31, 1996 was $432,378.
The total dollar amounts paid to Miller, Anderson & Sherrerd as
Sub-Adviser
for the Growth Fund and for advisory services provided to certain other
accounts of
First Allmerica, for each of the last three fiscal years ended December 31,
1996, 1995,
and 1994 were $_________, $2,307,461, and $2,164,488 respectively.
The total dollar amounts paid to John A. Levin & Co., Inc. ("JAL")
as
Sub-Adviser for the Select Growth and Income Fund for the fiscal years
ended
December 31, 1996 and 1995 and for the period October 1, 1994 through
December
31, 1994 were $684,181, $524,774 and $130,936, respectively. For the
period
January 1, 1994 through September 30, 1994, the Fund's previous Sub-
Adviser,
Newbold's Asset Management, Inc., was paid $226,287 for the advisory
services
provided to the Select Growth and Income Fund and certain other accounts
of First
Allmerica.
The total dollar amounts paid to Standish, Ayer & Wood as Sub-
Adviser for
the Select Income Fund for each of the last three fiscal years ended
December 31, 1996,
1995, and 1994 were $133,205, $99,145, and $67,188, respectively.
Each of the Management Agreement and sub-advisory agreements
provides
that it may be terminated as to any Fund at any time by a vote of a majority
in interest
of the shareholders of such Fund, by the Trustees, or by the investment
adviser to such
Fund without payment of any penalty on not more than 60 days' written
notice;
provided, however, that the agreement will terminate automatically in the
event of its
assignment. Each of the agreements will continue in effect as to any Fund
for a period
more than two years from the date of its execution only so long as such
continuance is
approved specifically at least annually by the Trustees or by vote of a
majority in
interest of the shareholders of such Fund. In either event, such continuance
also must
be approved by vote of a majority of the Trustees who are not parties to
the agreement
or interested persons of the Trust, the Manager, or any sub-adviser, cast in
person at a
meeting called for the purpose of voting such approval. The terms of each
agreement
cannot be changed as to any Fund without the approval of a majority in
interest of the
shareholders of that Fund. Under such agreements, any liability of either
the Manager
or a sub-adviser is limited to situations involving its willful misfeasance,
bad faith,
gross negligence, or reckless disregard of its obligations and duties.
A listing of John A. Levin & Co., Inc.'s current representative clients is as
follows:
- Allied Signal, Inc.
- - New York City Teachers
Retirement Fund
- Johns Hopkins
University
- - New York Philharmonic Society
- Joseph E.
Seagram & Sons, Inc.
- - Thiokol, Inc.
- Morton
International
- - USAIR
A listing of Putnam Investment Management, Inc.'s current representative
clients is as
follows:
- Ameritech
Corporation
- - New York Philharmonic Orchestra
- Bacardi
Corporation
- - Parker-Hannifan Corporation
- Betzdearborn Inc.
- - Textron, Inc.
- Los Angeles
County Employees Retirement
Association
- - The Robert Wood Johnson
Foundation
- Matsushia Electric
Corporation of America
- - United Steelworkers of America
A listing of Nicholas-Applegate Capital Management's current
representative clients is
as follows:
- Champion
International Corp.
- - Southwestern Bell Corporation
- Eastman Kodak
- - San Francisco City and County
- Johnson &
Johnson
- - Unisys Corporation
- Screen Actors
Guild-Producers
- - University of Notre Dame
- Pension and
Health Plan
- - University of Southern California
A listing of Standish, Ayer & Wood's current representative clients is as
follows:
- Archdiocese of
Boston
- - New York Public Library
- BankAmerica
- - Northeastern University
- Harcourt General
- - NYNEX
- General Cinema
- - Workers Compensation
- City of Houston
- - Reinsurance Association
A listing of CRM Advisors, LLC's current representative clients is as
follows:
- Amherst College
Endowment
- - Indiana University Foundation
- The Carnegie
Institute
- - Maine State Retirement
- Central States
Teamsters
- - National Basketball Association
Players Pension
- Georgia Pacific
Corporation
- - Niagara Mohawk Power Corp.
- College of Holy
Cross
- - University of Illinois Foundation
A listing of Bank of Ireland Asset Management (U.S.) Limited's current
representative
clients is as follows:
- CALSTRS
- - Pfizer. Retirement Annuity Plan
- City of Dallas
Employees' Retirement Fund
- - Maryland State Retirement System
- Loyola
Marymount University Endowment
Fund
- - Screen Actors Guild - Producers
Pension Plan
- LTV Steel
Corporation Pension Fund
- - Tuft's University Endowment Fund
-Major League
Baseball Players Benefit Plan
- - Worcester County Retirement
System
A listing of Miller Anderson & Sherrerd's current representative clients is
as follows:
- AT&T
- - International Paper
- Boeing Company
- - Montgomery Ward
- Federal Reserve
- - Philip Morris, Inc.
- J. Paul Getty Trust
- - Smithsonian Institution
- Goldman, Sachs &
Company
- - United Technologies Corporation
A listing of AAM's Current representative clients is as follows:
- First Allmerica
- - Worcester County Contributory
Retirement System
- Citizens
Insurance
- - Hannibal Regional Hospital
- Hanover
Insurance
- - Massachusetts Education and
Government Association
Workers Compensation
Trust
Under the terms of the Management Agreement, the Trust
recognizes the
Manager's control of the name "Allmerica Investment Trust." The Trust
agrees that its
right to use that name is non-exclusive and can be terminated by the
Manager at any
time.
Services Agreement
Under the terms of a Fund Accounting Services Agreement, First
Data
Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data
Corporation located at 440 Computer Drive, Westboro, MA 01581, serves
as the
Trust's fund recordkeeping services agent. FDISG provides certain
services, including
determination of the net asset value per share of each of the Funds and
maintenance of
the accounting records of the Trust. FDISG is entitled to receive an annual
fund
recordkeeping fee based on Fund assets and certain out-of-pocket
expenses. The Fund
Accounting Services Agreement may be renewed or amended by the
Trustees without a
shareholder vote. The Fund Accounting Services Agreement is terminable
by either
party on 90 days' written notice. The total fund recordkeeping fees paid to
FDISG for
the fiscal year ended December 31, 1996 and for the period April 1, 1995
through
December 31, 1995 were $544,206 and $319,658, respectively.
Prior to
March 31, 1995, fund accounting services were provided by 440 Financial
Group of
Worcester, Inc. ("440 Financial"), a wholly-owned subsidiary of State
Mutual Life
Assurance Company of America (now named First Allmerica). For the
fiscal years
ending December 31, 1994 and for the period January 1, 1995 through
March 31,
1995, 440 Financial received fees for fund accounting and other services of
$450,953
and $168,565, respectively.
Custodian
Bankers Trust Company acts as custodian of the cash and securities
of the
Trust. As such, it holds in custody the Trust's portfolio securities and
receives and
delivers them upon purchases and sales.
BROKERAGE ALLOCATION
In accordance with the Management Agreement and sub-advisory
agreements,
the respective Sub-Adviser has the responsibility for the selection of
brokers for the
execution of purchases and sales of the securities in a given Fund's
portfolio subject to
the direction of the Trustees. The Sub-Advisers place the Funds' portfolio
transactions
with brokers and, if applicable, negotiate commissions.
Broker-dealers may receive brokerage commissions on portfolio
transactions of
the Funds. The sub-advisers also may place portfolio transactions with such
broker-dealers acting as principal, in which case no brokerage commissions
are payable
but other transaction costs are incurred. The Funds have not dealt nor do
they intend to
deal exclusively with any particular broker-dealer or group of broker-
dealers. It is each
Fund's policy always to seek best execution. This means that each Fund's
portfolio
transactions will be placed where the Fund can obtain the most favorable
combination
of price and execution services in particular transactions or as provided on
a continuing
basis by a broker-dealer, and that the Fund will deal directly with a
principal market
maker in connection with over-the-counter transactions, except when it is
believed that
best execution is obtainable elsewhere. In evaluating the execution services
of a
broker-dealer, including the overall reasonableness of its brokerage
commissions paid,
consideration is given to the firm's general execution and operational
capabilities and to
its reliability, integrity, and financial condition. Subject to the practice of
always
seeking best execution, the Funds' securities transactions may be executed
by
broker-dealers who also provide research services (as defined below) to the
Funds, the
Sub-Advisers, and the other clients advised by the Sub-Advisers. The sub-
advisers may
use all, some, or none of such research services in providing investment
advisory
services to each of its investment companies and other clients, including the
Funds. To
the extent that such services are used, they tend to reduce the expenses of
the
Sub-Advisers. In the opinion of the Sub-Advisers it is impossible to assign
an exact
dollar value to such services.
Brokerage and Research Services
The agreements provide that, subject to such policies as the
Trustees may
determine, the Sub-Advisers may cause a given Fund to pay a broker-
dealer which
provides brokerage and research services an amount of commission for
effecting a
securities transaction for that Fund in excess of the amount of commission
which
another broker-dealer would have charged for effecting that transaction. As
provided in
Section 28(e) of the Securities Exchange Act of 1934, "brokerage and
research
services" include advice as to the value of securities; the advisability of
investing in,
purchasing, or selling securities; the availability of securities or purchasers
or sellers of
securities; furnishing analyses and reports concerning issuers, industries,
securities,
economic factors, and trends; portfolio strategy and performance of
accounts; and
effecting securities transactions and performing functions incidental thereto
(such as
clearance and settlement). The Sub-Advisers must determine in good faith
that such
greater commission is reasonable in relation to the value of the brokerage
and research
services provided by the executing broker-dealer viewed in terms of that
particular
transaction or the overall responsibilities of the sub-advisers to its
respective Funds and
all other clients. The Sub-Advisers also may consider sales by broker-
dealers of
variable and group annuity contracts and variable life insurance policies
that
contemplate the Funds as an investment option as a factor in the selection
of
broker-dealers to execute portfolio transactions.
The other investment companies and clients advised by the Sub-
Advisers
sometimes invest in securities in which the Funds also invest. A Sub-
Adviser also may
invest for its own account in the securities in which the Funds invest. If the
Funds,
such other investment companies, and other clients of the Sub-Advisers
desire to buy or
sell the same portfolio security at about the same time, the purchases and
sales normally
are made as nearly as practicable on a pro rata basis in proportion to the
amounts
desired to be purchased or sold by each. It is recognized that in some cases
this practice
could have a detrimental effect on the price or volume of the security as far
as the
Funds are concerned. In other cases, however, it is believed that this
practice may
produce better executions. It is the opinion of the Trustees that the
desirability of
retaining the Sub-Advisers as investment advisers to their respective Funds
outweighs
the disadvantages, if any, which might result from this practice.
Brokerage commissions for the Select Aggressive Growth
Fund were
$929,338 in 1996, $685,971 in 1995, and $374,677 in 1994. Brokerage
commissions
for the Select Capital Appreciation Fund were $240,295 in 1996 and
$94,679 in 1995.
Brokerage commissions for the Small-Mid Cap Value Fund were $101,743
in 1996,
$54,538 in 1995, and $66,517 in 1994. Brokerage commissions for the
Select
International Equity Fund were $360,263 in 1996 and $212,481 in 1995.
Brokerage
commissions for the Select Growth Fund were $450,238 in 1996, $147,728
in 1995,
and $128,621 in 1994. Brokerage commissions for the Growth Fund were
$838,998 in
1996, $577,791 in 1995, and $341,751 in 1994. Brokerage commissions
for the
Equity Index Fund were $63,013 in 1996, $28,468 in 1995, and $15,682 in
1994.
Brokerage commissions for the Select Growth and Income Fund were
$561,049 in
1996, $458,046 in 1995, and $370,133 in 1994. Brokerage commissions
for the Select
Income Fund were $0 in 1996, $0 in 1995, and $132,407 in 1994.
Brokerage
commissions for the Government Bond Fund were $0 in 1996, $16,759 in
1995, and $0
in 1994. The other Funds did not incur brokerage commissions in any of
these
years.
Directed Brokerage Program
The Sub-Advisers of certain Funds may consider payments
made to a
Fund or to other persons on behalf of the Fund for services provided to the
Fund for
which the Fund otherwise would be obligated to buy when such payments
are made by
brokers effecting transactions for such Fund. Some Funds have entered into
an
agreement with certain brokers whereby the brokers will rebate a portion
of
commissions. Such amounts earned by the Funds during 1996 under such
agreements
were as follows: Small-Mid Cap Value Fund, $19,715; Select International
Equity
Fund, $52,998; Select Growth Fund, $10,405; Growth Fund, $124,205;
and Select
Growth and Income Fund, $77,523.
PURCHASE, REDEMPTION, AND PRICING OF SECURITIES BEING
OFFERED
As described in the Prospectus, shares of each Fund are sold and
redeemed at
their net asset value as next computed after receipt of the purchase or
redemption order.
Each purchase is confirmed to the Separate Account in a written statement
of the
number of shares purchased and the aggregate number of shares currently
held.
The net asset value per share of each Fund is the total net asset
value of that
Fund divided by the number of shares outstanding. The total net asset value
of each
Fund is determined by computing the value of the total assets of that Fund
and
deducting total liabilities, including accrued liabilities. The net asset value
of the shares
of each Fund is determined once daily as of the close of the New York
Stock Exchange
on each day on which the Exchange is open for trading, and no less
frequently than
once daily on each other day (other than a day during which no shares of
the Fund were
tendered for redemption and no order to purchase or sell such shares was
received by
the Fund) in which there was a sufficient degree in trading in the Fund's
portfolio
securities that the current net asset value of the Fund's shares might be
affected
materially by changes in the value of such portfolio securities.
Debt securities for which market quotations are not readily
available are valued
at fair value by using valuation procedures approved in good faith by the
Trustees. As
authorized by the Trustees, debt securities (other than short-term
obligations) of the
Funds other than the Money Market Fund are valued on the basis of
valuations
furnished by a pricing service which utilizes data processing methods to
determine
valuations for normal, institutional-size trading units of such securities.
Such methods
include the use of market transactions for comparable securities and
various
relationships between securities which generally are recognized by
institutional traders.
Short-term obligations having remaining maturities of sixty (60) days or
less are valued
at amortized cost.
Short-term debt securities of the Funds other than the Money
Market Fund
having a remaining maturity of more than sixty (60) days will be valued
using a
"marking-to-market" method based upon either the readily available market
price or, if
reliable market quotations are not available, upon quotations by dealers or
issuers for
securities of a similar type, quality, and maturity. "Marking-to-market"
takes into
account unrealized appreciation or depreciation due to changes in interest
rates or other
factors which would influence the current fair value of such securities.
All portfolio securities of the Money Market Fund will be valued by
the
amortized cost method. The purpose of this method of calculation is to
attempt to
maintain a constant net asset value per share of $1.00. No assurance can
be given that
this goal can be attained. Amortized cost is an approximation of market
value
determined by increasing systematically the carrying value of a security
acquired at a
discount, or reducing systematically the carrying value of a security
acquired at a
premium, so that the carrying value is equal to maturity value on the
maturity date. It
does not take into consideration unrealized gains or losses. While the
amortized cost
method provides certainty and consistency in portfolio valuation, it may
result in
valuations of portfolio securities which are higher or lower than the prices
at which the
securities could be sold. During such periods, the yield to investors in a
Fund may
differ somewhat from that obtained if the Fund were to use mark-to-market
values for
its portfolio securities. For example, if the use of amortized cost resulted in
a lower
(higher) aggregate portfolio value on a particular day, a prospective
investor in the
Fund would obtain a somewhat higher (lower) yield than would result from
marked-to-market valuation, and existing investors would receive less
(more)
investment income.
The use of the amortized cost method of valuation by the Money
Market Fund
is subject to rules of the Securities and Exchange Commission. Under the
rules, the
Fund is required to maintain a dollar weighted average portfolio maturity
of 90 days or
less and to limit its investments to instruments which (1) its Sub-Adviser,
subject to the
guidelines established by the Trustees, determines present minimal credit
risks; (2) have
high quality ratings or are deemed comparable, such that they are "eligible
securities"
as defined below; and (3) have remaining maturity of thirteen months (397
days) or less
at the time of purchase, or are subject to a demand feature which reduces
the remaining
maturity to thirteen months or less.
The Money Market Fund may purchase only "First or Second Tier
eligible
securities" which are defined to include (1) securities which have received
the highest
or second highest rating by at least two nationally recognized statistical
rating
organizations ("NRSRO") or by only one NRSRO if only one has rated the
security and
(2) securities which are unrated, but, in the Sub-Adviser's opinion, are of
comparable
quality. The Money Market Fund may purchase securities which were
long-term at
issuance but have a remaining maturity of thirteen months or less at the
time of
purchase if (a) the issuer has comparable short-term debt securities
outstanding which
are eligible securities or (b) the issuer has no short-term rating and the
securities have
either no long-term rating or a long-term rating in one of the two highest
categories by
an NRSRO.
The above standards must be satisfied at the time an investment is
made. If the
quality of the investment later declines, the Fund (a) may dispose of the
security within
five business days of the Sub-Adviser becoming aware of the new rating, or
(b) may
continue to hold the investment, but the Trustees will evaluate whether the
security
continues to present minimal credit risks.
As a part of the overall duty of care they owe to the Fund's
shareholders, the
Trustees have established procedures reasonably designed to stabilize the
net asset value
per share of the Money Market Fund as computed for the purpose of
distribution and
redemption at $1.00 per share taking into account current market
conditions and the
Fund's investment objective. At such reasonable intervals as they deem
appropriate in
light of current market conditions, the Trustees will compare the results of
calculating
the net asset value per share based on amortized cost with the results based
on available
indications of market value. If a difference of more than 1.5 of 1% occurs
between the
two methods of valuation, the Trustees will take whatever steps they deem
necessary to
minimize any material dilution or other unfair results, such as shortening
the average
portfolio maturity or realizing gains or losses.
ORGANIZATION OF THE TRUST
The Agreement and Declaration of the Trust ("Trust Declaration")
provides
that all persons extending credit to, contracting with, or having any claims
against the
Trust or a particular Fund shall look only to the assets of the Trust or
particular Fund
for payment under such credit, contract, or claim, and neither the
shareholders,
Trustees, nor any of the Trust's officers, employees, or agents shall be
personally liable
thereof. Under Massachusetts law, shareholders could, under certain
circumstances, be
held liable for the obligations of the Trust. The Trust Declaration, however,
disclaims
shareholder liability for acts or obligations of the Trust and requires that
notice of such
disclaimer be given in each agreement, obligation, or instrument entered
into or
executed by the Trust or the Trustees. The Trust Declaration provides for
indemnification out of a Fund's property for all loss and expense of any
shareholder of
that Fund held liable on account of being or having been a shareholder.
Thus, the risk
of a shareholder incurring financial loss on account of shareholder liability
is limited to
circumstances in which the Fund of which he or she was a shareholder
would be unable
to meet its obligations.
Pursuant to the Trust Declaration, a Trustee is liable for his or her
own willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
involved in
the conduct of the office of Trustee, but is not liable for errors of judgment,
mistakes of
fact or law, any act or omission in accordance with the advice of counsel or
other
experts with respect to the meaning of the Trust Declaration, or for failing
to follow
such advice.
The Trust Declaration provides that, on any matter submitted to a
vote of the
shareholders, all shares shall be voted by individual series, except (1) when
required by
the 1940 Act, shares shall be voted in the aggregate and not by individual
series, and
(2) when the Trustees have determined that the matter affects only the
interests of one
or more series, then only the shareholders of such series shall be entitled to
vote
thereon. Shares are freely transferable, are entitled to dividends as declared
by the
Trustees and, on liquidation of the Trust, shareholders are entitled to
receive their pro
rata portion of the net assets of the Fund of which they hold shares, but not
of any
other Fund. Shareholders have no preemptive rights.
In the event that at any time less than a majority of the Trustees
then in office
were elected by the shareholders, the Trustees must call a meeting of
shareholders
promptly for the purpose of electing Trustees. Shareholders will be assisted
in
communicating with other shareholders in connection with removing a
Trustee as if
Section 16(c) of the 1940 Act applied to the Trust.
Matters subject to a vote by the shareholders include changes in the
fundamental policies of the Trust as described in the Prospectus and the
SAI, the
election or removal of Trustees, and the approval of agreements with
investment
advisers. A majority, for the purposes of voting by shareholders pursuant
to the 1940
Act, is 67% or more of the voting securities of an investment company
present at an
annual or special meeting of shareholders if 50% of the outstanding voting
securities of
such company are present or represented by proxy or more than 50% of
the outstanding
voting securities of such company, whichever is less.
Independent Accountants
Price Waterhouse LLP, 160 Federal Street, Boston, Massachusetts
02110,
serves as the Fund's independent accountants providing audit and
accounting services
including (i) examination of the annual financial statements, (ii) assistance
and
consultation with respect to the preparation of filings with the Securities
and Exchange
Commission, and (iii) preparation of annual income tax returns.
FINANCIAL STATEMENTS
The Trust's financial statements and related notes and the report of
the
independent accountants contained in the Trust's annual report for the
fiscal year ended
December 31, 1996 are incorporated by reference into this Statement of
Additional
Information.
* Putnam Investment Management, Inc. assumed sub-adviser
responsibilities from Provident Investment
Counsel on July 1, 1996.
* CRM Advisors LLC assumed sub-adviser responsibilities from David L.
Babson & Co. Inc.
on January 1, 1996.
** Putnam Investment Management, Inc. assumed sub-adviser
responsibilities from Provident
Investment Counsel on July 1, 1996.
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PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Financial Statements to be filed by
Amendment
Financial Highlights Tables
Financial Highlights Tables to be filed by
Amendment
b) Exhibits
Exhibit 1 Agreement and Declaration of Trust, dated
October 11, 1984, as amended May 12, 1992 was filed
previously in Post-effective Amendment No. 20 on May 14,
1992 and is incorporated herein by reference.
Exhibit 2 Bylaws as amended were filed previously in Post-
effective Amendment No. 20 on May 14, 1992 and are
incorporated herein by reference.
Exhibit 3 None
Exhibit 4 None
Exhibit 5(a) Management Agreement (the "Management
Agreement") between Registrant and Allmerica
Investment Management Company, Inc. (the "Manager") and
the Sub-Adviser Agreement between the Manager and
Nicholas-Applegate Capital Management, State Mutual Life
Assurance Company of America ("State Mutual") and Standish,
Ayer & Wood were filed previously in Post-effective
Amendment No. 20 on May 14, 1992 and are incorporated herein
by reference.
Exhibit 5(b) Statement of Assignment of Assumption of
Sub-Adviser Duties by Allmerica Investment Management
Company under Sub-Adviser Agreement between the Manager and
State Mutual dated July 15, 1993 was filed previously in
Post-effective Amendment No. 31 and is incorporated herein
by reference.
Exhibit 5(c) Form of Notice (Small-Mid Cap Value Fund)
was filed previously in Post-effective Amendment No. 24 on
February 25, 1993 and is incorporated herein by
reference.
Exhibit 5(d) Sub-Adviser Agreement between Manager and
Bank of Ireland Asset Management Limited with respect to the
Select International Equity Fund dated May 1, 1994 was
filed previously in Post-effective Amendment No. 31 on
February 27, 1996 and is incorporated herein by
reference.
Exhibit 5(e) Notice with respect to the Management
Agreement (the Select International Equity Fund) was filed
previously in Post-effective Amendment No. 27 on October 27,
1994 and is incorporated herein by reference.
Exhibit 5(f) Sub-Adviser Agreement between Manager and
John A. Levin & Co. Inc. with respect to the Select Growth
and Income Fund dated September 1, 1994 was filed
previously in Post-effective Amendment No. 27 on October 27,
1994 and is incorporated herein by reference.
Exhibit 5(g) Sub-Adviser Agreement between Janus
Capital Corporation and Manager with respect to the Select
Capital Appreciation Fund dated April 28, 1995 was filed
previously in Post-effective Amendment No. 31 on February
27, 1996 and is incorporated herein by reference.
Exhibit 5(h) Notice with respect to the Management
Agreement (Select Capital Appreciation Fund) was filed
previously in Post-effective Amendment No. 29 on April 28,
1995 and is incorporated herein by reference.
Exhibit 5(i) Sub-Advisor Agreement between Manager and
Miller, Anderson & Sherrerd, LLP with respect to the Growth
Fund dated January 3, 1996 was filed previously in Post-
effective Amendment No. 31 on February 27, 1996 and is
incorporated herein by reference.
Exhibit 5(j) Sub-Advisor Agreement between Manager
and Putnam Investment Management, Inc. with respect to the
Select Growth Fund dated July 1, 1996 is filed herein.
Exhibit 5(k) Sub-Advisor Agreement between Manager
and CRM Advisors, LLC with respect to the Small Cap Value
Fund dated December 31, 1996 is filed herein.
Exhibit 6 None
Exhibit 7 None
Exhibit 8 Custodian Agreement with Bankers Trust Company
dated October 25, 1995 was filed previously in Post-
effective Amendment No. 31 on February 27, 1996 and is
incorporated herein by reference.
Exhibit 9(a) Form of Fund Accounting Services Agreement
(the "Fund Accounting Services Agreement") was filed
previously Post-effective Amendment No. 20 on May 14, 1992
and is incorporated herein by reference.
Exhibit 9(b) Notice with respect to the Fund Accounting
Services Agreement (Small Cap Value Fund) was filed
previously in Post-effective Amendment No. 26 on March 2,
1994 and is incorporated herein by reference.
Exhibit 9(c) Notice with respect to the Fund Accounting
Services Agreement (Select International Equity Fund) was
filed previously in Post-effective Amendment No. 27 on
October 27, 1994 and is incorporated herein by reference.
Exhibit 9(d) Notice with respect to the Fund Accounting
Services Agreement (the Select Capital Appreciation Fund)
was filed previously in Post-effective Amendment No. 29 on
April 28, 1995 and is incorporated herein by reference.
Exhibit 9(e) Assignment of Contract and Consent to
Assignment with respect to the Fund Accounting Services
Agreement was filed previously in Post-effective Amendment
No. 29 on April 28, 1995 and is incorporated herein by
reference.
Exhibit 9(f) Administration Agreement between Manager
and The Shareholder Services Group, Inc. (now known as First
Data Investor Services Group, Inc.) dated March 31, 1995
was filed previously in Post-effective Amendment No. 31
on February 27, 1996 and is incorporated herein by
reference.
Exhibit 10 None
Exhibit 11 Consent of Independent Accountants is filed
herein.
Exhibit 12- None
Exhibit 13- Participation Agreement with SMA Life Assurance
Company dated February 7, 1990 was filed previously in Post-
effective Amendment No. 10 on February 22, 1990 and is
incorporated herein by reference.
Exhibit 14 None
Exhibit 15 None
Exhibit 16 Schedule for Computation of Performance
Quotations was filed previously in Post-effective
Amendment No. 31 on February 27, 1996 and is incorporated
herein by reference.
Exhibit 17 Financial Data Schedules to be filed by
Amendment.
Exhibit 18 None
Exhibit 19 Power of Attorney was filed previously in Post-
effective Amendment No. 29 on April 28, 1995 and is
incorporated herein by reference.
Item 25. Persons Under Common Control with Registrant
Registrant was organized by State Mutual Life Assurance
Company of America, now known as First Allmerica Financial
Life Insurance Company ("First Allmerica"), primarily for
the purpose of providing a vehicle for the investment of
assets received by various separate investment accounts
("Separate Accounts") established by First Allmerica and
life insurance company subsidiaries of First Allmerica
including Allmerica Life Insurance and Annuity Company
("Allmerica Life"). The assets in such Separate Accounts
are, under state law, assets of the life insurance companies
which have established such accounts. Thus at any time
First Allmerica and its life insurance company subsidiaries
will own such of Registrant's outstanding shares as are
purchased with Separate Account assets; however, where
required to do so, First Allmerica and its life insurance
company subsidiaries will vote such shares only in
accordance with instructions received from owners of the
contracts pursuant to which sums are placed in such Separate
Accounts.
Item 26. Number of Holders of Securities
As of the date of this filing, the Registrant has one
hundred sixty-two (162) shareholders. Seventy-seven (77)
shareholder accounts of First Allmerica separate accounts
own shares in the respective Funds and eighty-five (85)
shareholder accounts of Allmerica Life separate accounts own
shares in the respective Funds.
Item 27. Indemnification
Article VIII of Registrant's Agreement and Declaration
Trust, entitled "Indemnification," is incorporated herein by
reference to Exhibit 1 of this Registration Statement.
Article III, Section 12 of the Bylaws of First Allmerica
was filed previously in Post-effective Amendment No. 31 on
February 27, 1996 and is incorporated herein by reference.
Undertaking Pursuant to Rule 484
Article VIII of Registrant's Agreement and Declaration of
Trust provides that each of its Trustees and each Officer (
and his heirs, executors, and administrators) may be
indemnified against all liabilities and expenses arising out
of the defense or disposition of any action, suit, or other
proceeding in which such person may be or may have been
involved by reason of being or having been such a Trustee or
Officer, except with respect to any matter as to which such
person shall have been finally adjudicated not to have acted
in good faith in the reasonable belief that such action was
in the best interests of Registrant, and except that no
person shall be indemnified against any liability to
Registrant or to its shareholders to which such person
otherwise would be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.
Insofar as indemnification for liability arising under the
1933 Act may be permitted to Trustees, Officers and
Controlling Persons of Registrant pursuant to the foregoing
provisions, or otherwise, Registrant 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 indemnification against such
liabilities (other than the payment by Registrant of
expenses incurred or paid by a Trustee, officer or
controlling person of Registrant in the successful defense
of any action, suit or proceeding) is asserted by such
Trustee, Officer or Controlling Person in connection with
the securities being registered, Registrant 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 28. Business and Other Connections of Investment
Manager and Sub-Advisors
The following Schedule Ds of Form ADV are incorporated by
reference: Nicholas-Applegate Capital Management File No.
801-21442; Allmerica Asset Management, Inc., File No. 801-
44189; Allmerica Investment Management Company, Inc., File
No. 801-26516; Miller, Anderson & Sherrerd, File No. 801-
10437; Bank of Ireland Asset Management Limited, File No.
801-29606; John A. Levin & Co. Inc., File No. 801-18010;
Janus Capital Corporation, File No. 801-13991; Putnam
Investment Management, Inc., File No. 801-7974; and CRM
Advisors, LLC, File No. 801-49528.
Item 29. Principal Underwriters
Not applicable
Item 30. Location of Accounts and Records
Each account, book, or other document required to be
maintained by Registrant pursuant to Section 31(a) of the
Investment Company Act of 1940, as amended and Rules 31a-1
to 31a-3 thereunder are maintained by Registrant at 440
Lincoln Street, Worcester, Massachusetts 01653 or on behalf
of the Registrant by First Data Investor Services Group,
Inc., 53 State Street, Boston, Massachusetts 02109.
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) The Registrant undertakes to furnish, upon
request and without charge, a copy of the Registrant's
latest Annual Report to Shareholders to each person to whom
a Prospectus is delivered.
(b) Registrant hereby undertakes to call a meeting
of its shareholders for the purpose of voting upon the
question of removal of a trustee or trustees of Registrant
when requested in writing to do so by the holders of at
least 10% of Registrant's outstanding shares. Registrant
undertakes further, in connection with the meeting, to
comply with the provisions of Section 16(c) of the
Investment Company Act of 1940, as amended, relating to
communications with the shareholders of certain common-law
trusts.
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940, as amended, the
Registrant has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of
Worcester, and Commonwealth of Massachusetts on the 28th day
of February, 1997.
ALLMERICA
INVESTMENT TRUST
(Registrant)
By: /s/ Richard M.
Reilly
Richard M.
Reilly, President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the
date indicated.
Signature Title Date
/s/ John F. O'Brien Chairman of the Board February 28,
1997
John F. O'Brien and Trustee
/s/ Richard M. Reilly President, Chief Executive
February 28, 1997
Richard M. Reilly Officer, and Trustee
/s/ Thomas P. Cunningham Treasurer February 28, 1997
Thomas P. Cunningham (Principal Accounting Officer)
/s/ Russell E. Fuller Trustee February 28, 1997
Russell E. Fuller
/s/ Gordon Holmes Trustee February 28, 1997
Gordon Holmes
/s/ John P. Kavanaugh Trustee February 28, 1997
John P. Kavanaugh
/s/ Bruce E. Langton Trustee February 28, 1997
Bruce E. Langton
/s/ Attiat F. Ott Trustee February 28, 1997
Attiat F. Ott
/s/ Ranne P. Warner Trustee February 28, 1997
Ranne P. Warner
EXHIBIT INDEX
Number Description
5(j) Sub-Adviser Agreement between Manager and Putnam
Investment Management, Inc. with respect to the Select
Growth Fund dated July 1, 1996
5(k) Sub-Adviser Agreement between Manager and CRM
Advisors, LLC respect to the Small Cap Value Fund dated
December 31, 1996
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1
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EXHIBIT 5(k)
SUB-ADVISER AGREEMENT
SUB-ADVISER AGREEMENT executed as of December 31, 1996
between Allmerica Investment Management Company, Inc. (the
"Manager") and CRM Advisors, LLC (the "Sub-Adviser").
Witnesseth:
That in consideration of the mutual covenants herein
contained, it is agreed as follows:
1. SERVICES TO BE RENDERED BY SUB-ADVISER TO THE TRUST
(a) Subject always to the control of the Trustees of
Allmerica Investment Trust (the "Trust"), a Massachusetts
business trust, the Sub-Adviser, at its expense, will
furnish continuously an investment program for the following
series of shares of the Trust: the SMALL CAP VALUE FUND (the
"Fund") and such other series of shares as the Trust, the
Manager and the Sub-Adviser may from time to time agree on
(together, the "Funds"). The Sub-Adviser will make
investment decisions on behalf of the Funds and place all
orders for the purchase and sale of portfolio securities. In
the performance of its duties, the Sub-Adviser will comply
with the provisions of the Agreement and Declaration of
Trust and Bylaws of the Trust and the objectives and
policies of the Fund, as set forth in the current
Registration Statement of the Trust filed with the
Securities and Exchange Commission ("SEC") and any
applicable federal and state laws, and will comply with
other policies which the Trustees of the Trust (the
"Trustees") or the Manager, as the case may be, may from
time to time determine and which are furnished to the
Sub-Adviser. The Sub-Adviser shall make its officers and
employees available to the Manager from time to time at
reasonable times to review investment policies of the Fund
and to consult with the Manager regarding the investment
affairs of the Fund. In the performance of its duties
hereunder, the Sub-Adviser is and shall be an independent
contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for or represent
the Trust in any way or otherwise be deemed to be an agent
of the Trust.
(b) The Sub-Adviser, at its expense, will furnish (i) all
investment and management facilities, including salaries of
personnel necessary for it to perform the duties set forth
in this Agreement, and (ii) administrative facilities,
including clerical personnel and equipment necessary for the
conduct of the investment affairs of the Fund (excluding
brokerage expenses and pricing and bookkeeping services).
(c) The Sub-Adviser shall place all orders for the
purchase and sale of portfolio investments for the Fund with
issuers, brokers or dealers selected by the Sub-Adviser
which may include brokers or dealers affiliated with the
Sub-Adviser. In the selection of such brokers or dealers and
the placing of such orders, the Sub-Adviser always shall
seek best execution (except to the extent permitted by the
next sentence hereof), which is to place portfolio
transactions where the Fund can obtain the most favorable
combination of price and execution services in particular
transactions or provided on a continuing basis by a broker
or dealer, and to deal directly with a principal market
maker in connection with over-the-counter transactions,
except when it is believed that best execution is obtainable
elsewhere. Subject to such policies as the Trustees may
determine, the Sub-Adviser shall not be deemed to have acted
unlawfully or to have breached any duty created by this
Agreement or otherwise solely by reason of its having caused
the Trust to pay a broker or dealer that provides brokerage
and research services an amount of commission for effecting
a portfolio investment transaction in excess of the amount
of commission another broker or dealer would have charged
for effecting that transaction, if the Sub-Adviser
determines in good faith that such excess amount of
commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or
dealer, viewed in terms of either that particular
transaction or the overall responsibilities of the
Sub-Adviser and its affiliates with respect to the Trust and
to other clients of the Sub-Adviser as to which Sub-Adviser
or any affiliate of the Sub-Adviser exercises investment
discretion.
2. OTHER AGREEMENTS
It is understood that any of the shareholders, Trustees,
officers and employees of the Trust may be a shareholder,
partner, director, officer or employee of, or be otherwise
interested in, the Sub-Adviser, and in any person controlled
by or under common control with the Sub-Adviser, and that
the Sub-Adviser and any person controlled by or under common
control with the Sub-Adviser may have an interest in the
Trust. It is also understood that the Sub-Adviser and
persons controlled by or under common control with the
Sub-Adviser have and may have advisory, management service
or other contracts with other organizations and persons, and
may have other interests and businesses.
3. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUB-ADVISER
The Manager will pay to the Sub-Adviser as compensation
for the Sub-Adviser's services rendered a fee, determined as
described in Schedule A which is attached hereto and made a
part hereof. Such fee shall be paid by the Manager and not
by the Trust.
4. AMENDMENTS OF THIS AGREEMENT
This Agreement (including Schedule A attached hereto)
shall not be amended as to any Fund unless such amendment is
approved at a meeting by the affirmative vote of a majority
of the outstanding voting securities of the Fund, if such
approval is required under the Investment Company Act of
1940, as amended ("1940 Act"), and by the vote, cast in
person at a meeting called for the purpose of voting on such
approval, of a majority of the Trustees who are not
interested persons of the Trust or of the Manager or of the
Sub-Adviser.
5. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT
This Agreement shall be effective as of January 1, 1997,
and shall remain in full force and effect as to each Fund
continuously thereafter, until terminated as provided below:
(a) Unless terminated as herein provided, this Agreement
shall remain in full force and effect for a period of two
years and shall continue in full force and effect for
successive periods of one year thereafter, but only so long
as such continuance is specifically approved at least
annually (i) by the Trustees or by the affirmative vote of a
majority of the outstanding voting securities of the Fund,
and (ii) by a vote of a majority of the Trustees who are not
interested persons of the Trust or of the Manager or of any
Sub-Adviser, by vote cast in person at a meeting called for
the purpose of voting on such approval; provided, however,
that if the continuance of this Agreement is submitted to
the shareholders of the Fund for their approval and such
shareholders fail to approve such continuance of this
Agreement as provided herein, the Sub-Adviser may continue
to serve hereunder in a manner consistent with the 1940 Act
and the rules and regulations thereunder.
(b) This Agreement may be terminated as to any Fund
without the payment of any penalty by the Manager, subject
to the approval of the Trustees, by vote of the Trustees, or
by vote of a majority of the outstanding voting securities
of such Fund at any annual or special meeting or by the
Sub-Adviser, in each case on sixty days' written notice.
(c) This Agreement shall terminate automatically,
without the payment of any penalty, in the event of its
assignment or in the event that the Management Agreement
with the Manager shall have terminated for any reason.
(d) In the event of termination of this Agreement, the
Fund will no longer use the name "Cramer Rosenthal McGlynn,
Inc." or "CRM Advisors, LLC" in materials relating to the
Fund except as may be required by the 1940 Act and the rules
and regulations thereunder.
6. CERTAIN DEFINITIONS
For the purposes of this Agreement, the ''affirmative vote
of a majority of the outstanding voting securities" means
the affirmative vote, at a duly called and held meeting of
shareholders, (a) of the holders of 67% or more of the
shares of the Fund present (in person or by proxy) and
entitled to vote at such meeting, if the holders of more
than 50% of the outstanding shares of the Fund entitled to
vote at such meeting are present in person or by proxy, or
(b) of the holders of more than 50% of the outstanding
shares of the Fund entitled to vote at such meeting,
whichever is less.
For the purposes of this Agreement, the terms "control",
"interested person" and "assignment" shall have their
respective meanings defined in the 1940 Act and rules and
regulations thereunder, subject, however, to such exemptions
as may be granted by the SEC under said Act; the term
"specifically approve at least annually" shall be construed
in a manner consistent with the 1940 Act and the rules and
regulations thereunder; and the term "brokerage and research
services" shall have the meaning given in the Securities
Exchange Act of 1934 and the rules and regulations
thereunder.
7. NON-LIABILITY OF SUB-ADVISER
The Sub-Adviser shall be under no liability to the Trust,
the Manager or the Trust' s Shareholders or creditors for
any matter or thing in connection with the performance of
any of the Sub-Adviser's services hereunder or for any
losses sustained or that may be sustained in the purchase,
sale or retention of any investment for the Funds of the
Trust made by it in good faith; provided, however, that
nothing herein contained shall be construed to protect the
Sub-Adviser against any liability to the Trust by reason of
the Sub-Adviser's own willful misfeasance, bad faith or
gross negligence in the performance of its duties or by
reason of its reckless disregard of its obligations and
duties hereunder.
8. LIMITATIONS OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS
A copy of the Trust's Agreement and Declaration of Trust
is on file with the Secretary of the Commonwealth of
Massachusetts, and notice is hereby given that this
instrument is executed by the Trustees as Trustees and not
individually and that the obligations of this instrument are
not binding upon any of the Trustees, officers or
shareholders individually but are binding only upon the
assets and property of the appropriate Fund.
IN WITNESS WHEREOF, ALLMERICA INVESTMENT MANAGEMENT
COMPANY, INC. has caused this instrument to be signed in
duplicate on its behalf by its duly authorized
representative and CRM ADVISORS, LLC has caused this
instrument to be signed in duplicate on its behalf by its
duly authorized representative, all as of the day and year
first above written.
ALLMERICA INVESTMENT MANAGEMENT
COMPANY, INC.
By:
Its:
CRM ADVISORS, LLC
By:
Its:
Accepted and Agreed to as of the day and year first above
written:
ALLMERICA INVESTMENT TRUST
By:
Its:
SCHEDULE A
The Manager will pay to the Sub-Adviser as full compensation
for the Sub-Adviser's services rendered, a fee, computed and
paid quarterly at an annual rate of .50% of the average
daily net assets of the Fund. The fee for each quarter shall
be payable within ten (10) business days after the end of
the quarter.
The average daily net assets of the Fund shall be
determined by taking an average of all of the determinations
of net asset value during each month at the close of
business on each business day during such month while this
Agreement is in effect.
If the Sub-Adviser shall serve for any period less than a
full month, the foregoing compensation shall be prorated
according to the proportion which such period bears to a
full month.
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