As filed with the Securities and Exchange
Commission on April 26, 1996
File Nos. 33-40443
and
811-6308
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. 9
[ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[ X]
Amendment No. 11
ALLMERICA FUNDS
(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:)
Patricia L. Bickimer Peter
MacDougall, Esq.
First Data Investor Services Group, Inc.
Ropes & Gray
53 State Street One
International Place
Boston, MA 02109 Boston,
Massachusetts 02110
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on April 29, 1996 pursuant to paragraph (b)
____ 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, the Registrant has registered an indefinite amount of
securities under the Securities Act of 1933. Pursuant to paragraph
(b)(2) of Rule 24f-2, the Registrant was not required to file a Rule
24f-2 Notice for the fiscal year ended December 31, 1995 because it
did not sell any securities pursuant to such declaration during such
fiscal year.
ALLMERICA FUNDS
Cross-Reference Sheet
Item No. of Form N-1A Prospectus Caption
1 Prospectus Cover Page
2 Expense Information
3 Financial Highlights
4 (a) Prospectus Cover Page; What are the Investment
Objective and Policies? Organization and Capitalization of the
Trust; Investment Restrictions
4(b) and (c) What are the Investment Objectives and
Policies?; Investment Restrictions; Certain Investment Strategies;
Policies and Risk Considerations
5(a) How are the Funds Managed?
5 (b) and (c) How is the Fund Managed?; Management Fees and
Expenses
5(d) and (e) Organization and Capitalization of the Trust;
Back Cover
5(f) Not Applicable
6(a) and (b) Organization and Capitalization of the Trust
6(c) and (d) Not Applicable
6(e) Shareholder Manual
6(f) and (g) Shareholder Manual; What is the Effect of
Federal Income Tax on my Investment?
7 Shareholder Manual
7(a) Cover Page; Back Cover
7(b) How are Shares Valued?
7(c) Shareholder Manual
7(d) Shareholder Manual
7(e) and (f) Not Applicable
8(a) - (d) Shareholder Manual
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 Organization and Capitalization of the Trust
13(a) Investment Objectives and Policies
13(b) Investment Restrictions
13(c) Investment Techniques
13(d) Portfolio Turnover
14(a) - (c) Management of Allmerica Funds
15 Control Person and Principal Holder of Securities
16 Investment Management and Other Services
17 Brokerage Allocation
18 Organization and Capitalization of the Trust
19 Purchase, Redemption and Pricing of Securities Being
Offered
20 Taxes
21 Brokerage Allocation
22 Performance
23 Financial Statements; Independent Accountants
ALLMERICA FUNDS
INVESTMENT GRADE INCOME FUND
440 Lincoln Street, Worcester, MA 01653
THE INVESTMENT GRADE INCOME FUND (the "Fund") is a diversified
investment portfolio of Allmerica Funds (the "Trust"), a
professionally managed open-end investment company. The investment
objective of the Fund is to seek a high level of current income by
investing primarily in investment grade, fixed-income securities.
THIS PROSPECTUS SETS FORTH CONCISELY THE INFORMATION ABOUT THE TRUST
THAT A PROSPECTIVE INVESTOR OUGHT TO KNOW BEFORE INVESTING. A
STATEMENT OF ADDITIONAL INFORMATION ("SAI"), DATED APRIL 29, 1996,
CONTAINING CERTAIN ADDITIONAL INFORMATION ABOUT THE FUND HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS INCORPORATED
HEREIN BY REFERENCE AND IS AVAILABLE UPON REQUEST AND WITHOUT CHARGE
FROM THE DISTRIBUTOR OF THE FUND, ALLMERICA INVESTMENTS, INC.
("DISTRIBUTOR"), 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653,
1-800-828-0540 EXT. 2500.
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, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C>
EXPENSE INFORMATION 3
FINANCIAL HIGHLIGHTS 4
HOW IS THE FUND MANAGED? 6
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES? 6
MANAGEMENT FEES AND EXPENSES 7
HOW ARE THE SHARES VALUED? 8
WHAT IS THE EFFECT OF FEDERAL INCOME TAX ON MY INVESTMENT? 8
HOW IS PERFORMANCE DETERMINED? 9
ORGANIZATION AND CAPITALIZATION OF THE TRUST 9
SHAREHOLDER MANUAL 10
INVESTMENT RESTRICTIONS 15
CERTAIN INVESTMENT STRATEGIES, POLICIES AND RISK CONSIDERATIONS 15
APPENDIX 19
</TABLE>
<TABLE>
<CAPTION>
EXPENSE INFORMATION
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 4.5%
Sales Charge Imposed on Reinvested Dividends None
Deferred Sales Charge (1)
Redemption Fee None
Exchange Fee None
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee 0.60%
12b-1 Fee None
Other Expenses 2.44%
Total Operating Expenses 3.04%
</TABLE>
(1) See "Shareholder Manual" for a description of the contingent
deferred sales charge that may be imposed on certain redemptions,
within 12 months of purchase, of shares initially acquired without a
sales charge.
The purpose of this table is to assist the investor in understanding
the various costs and expenses that an investor will bear directly or
indirectly. For more information, see "Management Fees and
Expenses."
EXAMPLE
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:
1 Year 3 Years 5 Years 10 Years
$75 $135 $197 $364
THE EXAMPLES ARE BASED ON ASSUMED PERFORMANCE LEVELS AND SHOULD NOT
BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. ACTUAL
EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The following Financial Highlights have been audited by the
independent accountants to the Trust, as indicated in their report
appearing in the Annual Report to Shareholders ("Annual Report").
The Financial Highlights are given below for the Investment Grade
Income Fund from August 21, 1992, the day the Fund commenced
operations, through December 31, 1995. This information should be
read in conjunction with the financial statements and notes thereto
which appear in the Annual Report for the year ended December 31,
1995 and which are incorporated by reference in the Trust's SAI.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
INVESTMENT GRADE INCOME FUND
For a Share Outstanding Throughout Each Period
Year Ended December 31,
1995 1994 1993 1992(A)
<S> <C> <C> <C> <C>
Net Asset Value,beginning of period $ 9.12 $ 10.10 $ 9.69 $ 10.00
Income from Investment Operations:
Net investment income (B) 0.42 0.54 0.63 0.22
Net realized and unrealized gain (loss)
on investments 0.91 (0.98) 0.41 (0.31)
Total from Investment Operations 1.33 (0.44) 1.04 (0.09)
Less Distributions:
Dividends from net investment income (0.42) (0.54) (0.63) (0.22)
Net increase (decrease) in net asset value 0.91 (0.98) 0.41 (0.31)
Net Asset Value, End of Period $ 10.03 $ 9.12 $10.10 $ 9.69
Total Return (C) 14.82% (4.46)% 10.86% (0.72)%**(D)
Ratios/Supplemental Data:
Net Assets, end of year (000's) $ 6,038 $ 5,260 $ 12,245 $ 5,458
Ratios to average net assets
Net investment income 4.38% 5.69% 6.11% 6.70%*
Operating expenses (B) 3.04% 1.29% 1.20% 1.20%*
Gross management fee 0.60% 0.60% 0.60% N/A
Net management fee 0.60% 0.00% 0.00% N/A
Portfolio Turnover Rate 135% 129% 102% 130%
</TABLE>
* Annualized
** Not annualized
(A) The Fund commenced operations on August 21, 1992.
(B) Net investment income per share and the operating expense
ratios before reimbursement of fees by the investment adviser for the
years ended December 31, 1994, 1993 and 1992 were $0.47 and 1.97%,
$0.53 and 2.16%, and $0.17 and 2.70% (annualized), respectively.
(C) Total returns do not include the one time sales charge.
(D) Unaudited
See Notes to Financial Statements
HOW IS THE FUND MANAGED?
The overall responsibility for supervision of the affairs of the
Trust vests in the Board of Trustees. 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 a 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 a wholly-owned subsidiary of First Allmerica Financial
Life Insurance Company (formerly named State Mutual Life Assurance
Company of America) ("First Allmerica"), a life insurance company,
which was organized in Massachusetts in 1844. The Manager, organized
on August 19, 1985, also serves as manager of the Allmerica
Investment Trust, an open-end investment company. The Manager and
First Allmerica are located at 440 Lincoln Street, Worcester,
Massachusetts 01653.
Allmerica Asset Management, Inc. ("AAM") is Sub-Adviser to the Fund.
AAM, a wholly-owned subsidiary of First Allmerica, was incorporated
in 1993 and is located at 440 Lincoln Street, Worcester,
Massachusetts 01653. AAM serves as investment adviser to First
Allmerica General Account and to a number of affiliated insurance
companies and other affiliated accounts, and as one of several Sub-
Advisers for Allmerica Investment Trust, an open-end diversified
investment management company. As of December 31, 1995, AAM had
approximately $10.85 billion in assets under management. Lisa M.
Coleman, Vice President of AAM, is primarily responsible for the day-
to-day management of the Fund. Ms. Coleman has been employed by AAM
since 1994. Prior to joining AAM, Ms. Coleman was a Deputy
Manager/portfolio manager in the global fixed income area for Brown
Brothers Harriman & Company.
The Sub-Adviser 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 Manager is
solely responsible for the payment of fees to the Sub-Adviser.
WHAT ARE THE INVESTMENT OBJECTIVE AND POLICIES?
The Fund has an investment objective designed to meet certain
investment and financial needs, as described below. There is no
assurance that the Fund will achieve its investment objective, which
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 Objective: The Fund seeks a high level of current income.
The Fund will invest primarily in investment grade fixed-income
securities.
Investment Policies: Under normal circumstances, at least 65% of the
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 Investors Service, Inc.
("Moody's") or by Standard & Poor's Ratings Service, a division of
McGraw-Hill Companies, Inc. ("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 or BBB by Moody's and S&P, respectively) are
considered to have some speculative characteristics. Bonds in these
categories normally exhibit adequate capacity to pay interest and
repay principal, but under adverse or changing economic conditions,
their protective elements may weaken more than bonds in higher-rated
categories. The Fund will not invest in debt securities rated below
investment grade (Ba/BB or lower) by both Moody's and S&P.
The Fund also may invest in commercial paper rated at the time of
purchase within the two highest grades by Moody's or 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); obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities and asset-backed securities and mortgage-backed
securities. For more information about asset-backed securities and
mortgage-backed securities see "Certain Investment Strategies,
Policies and Risk Considerations."
The Fund also may invest up to 25% of its assets 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.
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.
In addition, the Fund may invest up to 15% of its assets in
securities which are subject to restrictions on resale or for which
market quotations are not readily available. See "Certain Investment
Strategies, Policies and Risk Considerations."
The Fund's dollar weighted average 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 corporates and Treasuries, and with different
maturities. The dollar weighted average maturity of the portfolio,
excluding money market instruments, is expected to range between 5
and 15 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 will generally 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 may, for hedging purposes, engage in the options and futures
strategies described under "Certain Investment Strategies, Policies
and Risk Considerations."
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. Pursuant
to an administrative agreement, First Data Investor Services Group,
Inc. ("First Data") will assist the Manager in the performance of its
administrative responsibilities to the Trust. The Manager is solely
responsible for the payment of the administrative fee to First Data.
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 fees,
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, reports to shareholders, Fund
recordkeeping expenses and other expenses.
For its services to the Fund, the Manager receives a fee, computed at
an annual rate of 0.60% of the average daily net asset value of the
Fund. For its services to the Fund, the Sub-Adviser receives a fee,
computed at an annual rate of 0.20% of the average daily net asset
value of the Fund. The Manager is solely responsible for the payment
of fees to the Sub-Adviser.
HOW ARE THE SHARES VALUED?
The net asset value of the shares of the Fund is determined once
monthly as of the close of regular trading hours of the New York
Stock Exchange ("NYSE") on the last day of the month that the NYSE is
open for trading, with the exception that the net asset value of the
shares of the Fund will be determined once daily as of the close of
regular trading hours of the NYSE on each day that shares of the Fund
are tendered for redemption or an order for purchase of shares of the
Fund is received. 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 are generally recognized by
institutional traders. Debt obligations 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 Fund 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 per
share of the Fund will fluctuate as the value of its investment
portfolio changes.
WHAT IS THE EFFECT OF FEDERAL INCOME TAX ON MY INVESTMENT?
The discussion of tax consequences contained in this Prospectus and
in the SAI is based upon federal tax law in effect on the date of
this Prospectus. As tax laws may vary with individual circumstances,
you are urged to consult your own tax adviser on specific questions
of federal taxation and with respect to the applicability of state or
local taxation.
The Fund intends to remain qualified as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as
amended ("Code"). As a regulated investment company, the Fund will
not be subject to the federal income taxes on the net ordinary income
and capital gains that are distributed to shareholders or deemed to
have been distributed to shareholders.
Generally all dividend and capital gains distributions from the Fund
are subject (unless the shareholder is exempt from federal income
tax) to federal tax as ordinary income or long-term capital gains and
are taxable when declared whether taken in cash or reinvested in
additional shares. In addition to federal taxes, you may be subject
to state or local taxes on distributions by the Fund. Annual
statements as to the current federal tax status of distributions, if
applicable, are mailed to shareholders shortly after the end of the
taxable year.
State law varies on whether mutual fund dividends, which are derived
in whole or in part from interest on U.S. Government obligations, are
exempt from state income taxation. The Fund will provide
shareholders annually with information relating to the composition of
their distribution to permit shareholders to determine whether and to
what extent the dividend income they receive from the Fund may be
exempt from their state's income tax. Consult your tax adviser as to
whether any portion of the dividends you receive from the Fund is
exempt from state income taxes and on any other specific questions
concerning state or federal tax treatment.
At the time of opening an account, you will be asked to certify that
your Social Security or taxpayer identification number is correct.
If a correct and certified taxpayer identification number is not on
file, or if you have been notified by the Internal Revenue Service
that you are subject to backup withholding, the Fund may be required
to withhold a percentage of distributions otherwise payable to
individual shareholders.
HOW IS PERFORMANCE DETERMINED?
The Fund's performance may be quoted in advertising and may be
compared to other investments or relevant indices.
All performance information is based on historical results and is not
intended to indicate future performance. The Fund's "yield" is
calculated by dividing its 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 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.
See the SAI for more information concerning performance calculations.
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
June 4, 1990 (the "Trust Declaration"). A copy of the Trust
Declaration is on file with the Secretary of the Commonwealth of
Massachusetts.
The Trust, a diversified, open-end management investment company, 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. See "Organization and
Capitalization of the Trust" in the SAI for the definition of a
"majority vote" of shareholders.
As of April 15, 1996, Allmerica Investments, Inc. owned of record all
of the shares of the Fund. As a consequence, Allmerica Investments,
Inc. may be deemed to be a controlling person of the Fund under the
Investment Company Act of 1940.
FUND RECORDKEEPING AND TRANSFER AGENT
First Data, a wholly-owned subsidiary of First Data Corporation, is
the Trust's transfer and dividend paying agent and maintains the
Trust's shareholder records. It also calculates net asset value per
share and maintains general accounting records for the Fund. First
Data is entitled to receive a Fund recordkeeping fee and a transfer
agent fee based on Fund assets, and certain out-of-pocket expenses.
CUSTODIAN
Bankers Trust Company, 130 Liberty Street, New York, New York 10006
is Custodian of the investment securities and other assets of the
Trust.
SHAREHOLDER MANUAL
HOW DO I BUY SHARES?
To purchase shares of the Fund, you can open an account for $1,000 or
more by completing and returning an account application to your
registered representative. You may make additional investments for
as little as $250. For monthly automatic investments, payroll
savings programs, and tax-deferred retirement programs, there is a
$250 minimum initial investment per account and minimum additional
investment of $25 per account.
You may place your initial purchase order for shares of the Fund
through a broker or dealer that has a selling agreement with the
Distributor. You may also make your initial purchase by sending to
the Distributor your check payable to the Fund in which you are
investing and a completed application.
Additional purchases may be made in several ways:
1. By Mail - You may make additional purchases through the
Distributor by mailing your check, clearly indicating your name and
account number to: Allmerica Funds, 440 Lincoln Street, Worcester, MA
01653-0200. All payments should be in U.S. dollars and, to avoid
fees and delays, should be drawn only on U.S. banks.
2. By Wire - You may instruct your bank to wire immediately
available funds to the Custodian, Allmerica Funds Investment Grade
Income Fund, for purchases of shares in your name. To invest by
wire, you must first call the Transfer Agent at 1-800-828-7084 to
obtain instructions. The wire must include your account number and
the exact name of your account as registered with the Transfer Agent.
Neither the Trust nor the Transfer Agent will be liable for following
instructions communicated by telephone it reasonably believes are
genuine. You may not make telephone exchanges or redemptions without
first electing the option in your application or thereafter
submitting written instructions with a signature guarantee to the
Transfer Agent. The Trust will employ reasonable procedures to
confirm that telephonic instructions are genuine (since failure to do
so could cause the Trust to be liable for any losses due to
unauthorized or fraudulent instructions). These procedures may
include requiring shareholders to provide a form of personal
identification prior to the Trust acting upon telephonic
instructions, providing written confirmation of such transactions or
recording telephonic instructions.
The Transfer Agent will maintain a share account for the Fund. The
Trust does not issue certificates representing its shares but you
will receive a confirmation of each purchase transaction and every
other transaction that affects your account balance.
You may purchase shares of the Fund at the public offering price,
which is the net asset value next determined after receipt of a
purchase application in good order plus a sales charge. See "How are
the Shares Valued?" The sales charge is a percentage of the public
offering price and varies as shown in the following table:
<TABLE>
Dealers
Sales Charge Sales Charge Discount
as as as
Percentage Percentage Percentage
of Offering of Net Amount of Offering
Amount of Purchase Price Invested Price
<S> <C> <C> <C>
Less than $50,000 4.50% 4 71% 4.00%
$50,000 to less than $100,000 3.50% 3.63% 3.00%
$100,000 to less than $250.000 3.00% 3.09% 2.50%
$250,000 to less than $500,000 2.50% 2.56% 2.00%
$500,000 to less than $1,000,000 1.50% 1.51% 1.50%
$1,000,000 or more No sales -- --
charge*
</TABLE>
*The Trust has been granted an exemptive order from the Securities
and Exchange Commission ("SEC") which permits it to impose a 1.00%
contingent deferred sales charge ("CDSC") on redemptions, within 12
months of purchase, of shares initially acquired without a sales
charge as part of a purchase of $1,000,000 or more. The CDSC will be
equal to 1.00% of the lesser of (1) the net asset value of the shares
redeemed, or (2) the total cost of such shares when purchased. No
CDSC will be imposed when the investor redeems amounts derived from
increases in the value of the account above the total cost of shares
being redeemed due to increases in the net asset value per share of
the Fund or shares acquired through reinvestment of dividend income
and capital gains distributions. No CDSC will be imposed on periodic
redemptions made under the systematic withdrawal plan provided that
total annual withdrawals from assets that would otherwise be subject
to the CDSC made under the plan do not exceed 10% of such assets. No
CDSC will be imposed on shares purchased prior to February 23, 1993,
the date the order was granted. The CDSC will be waived on
redemptions in connection with distributions from retirement plans
qualified under Internal Revenue Code Section 401(a) when the
redemption is necessary to make distributions to plan participants.
The Distributor pays out of its assets a 1.00% sales fee to the
selling dealers. Proceeds from the CDSC are used to reimburse the
Distributor for the sales fee it pays to the dealers.
Shares are distributed through authorized dealers by the Distributor,
the Trust's principal underwriter. The Distributor is a wholly-owned
subsidiary of First Allmerica. The Distribution Agreement permits
the Distributor to reallow up to the full amount of the sales charge,
as shown in the preceding table, to dealers entering into dealer
agreements with the Distributor; accordingly, such dealers may be
deemed to be underwriters as the term is defined in the 1933 Act.
WHEN PURCHASES BECOME EFFECTIVE, AND OTHER TERMS OF SALES
The offering price of the Fund is the net asset value per share
determined as set forth above in "How are the Shares Valued?" plus
the applicable sales charge. This price applies to all purchase
orders for the Fund received by the Distributor or Transfer Agent
prior to 4:00 p.m., Eastern time or at an earlier time as made
necessary by an early closing of one or more of the national stock
exchanges. If you buy shares through your dealer who receives your
order before 4:00 p.m., Eastern time (or earlier under circumstances
specified above), and transmits it to the Distributor by its close of
business, you will receive the day's public offering price.
Transmission of orders is the responsibility of your dealer, who
should promptly transmit any order.
In the event that you cancel a purchase order or your check is not
collectible, you will be responsible for any loss or fees incurred by
the Fund or the Distributor. The Transfer Agent has the authority,
as your agent, to redeem shares in any of your accounts with the
Trust to reimburse the Fund or the Distributor for any loss incurred.
The Trust reserves the right to reject any order for the purchase of
shares for any reason.
RETIREMENT PLANS
Shares of the Fund may be used to fund Individual Retirement Accounts
("IRA"), Keogh plans and corporate retirement plans. Call or write
the Distributor for a Retirement Plan Application for an IRA,
Simplified Employee Pension Plan ("SEP") or 403(b) Plan.
The Bank of Boston will serve as trustee or custodian under IRAs and
retirement plans established pursuant to custodial account
arrangements sponsored by the Trust. At its discretion, the Bank of
Boston may also serve as trustee of individually designed Keogh
Plans. Alternatively, if you are an eligible individual, you may
establish your own account or plan, selecting your own trustee or
custodian, and have your contributions invested in shares of the
Fund.
The Bank of Boston charges certain fees to act as trustee or
custodian for these plans. The Transfer Agent may cause the
liquidation of shares in an account to pay such fees.
The Trust recommends that you consult a qualified tax adviser for
advice on the tax aspects of retirement plans.
AUTOMATIC INVESTMENT PLAN
If your bank is a member of the ACH Network, you may authorize
withdrawal of at least $25 monthly or $75 quarterly from your bank
checking, NOW or similar account, to be used to purchase shares of
the Fund. The initial investment minimum is $250 for participants in
the Automatic Investment Plan. Such withdrawal will occur on the 5th
day of the month (or, if the 5th is not a business day, on the next
business day). There is no obligation to make payments, and the
Automatic Investment Plan may be terminated by you at any time upon
30 days' written notice to the Transfer Agent. With respect to
certain cash management programs, the Automatic Investment Plan may
not be available.
QUANTITY DISCOUNTS
You may be eligible for a reduced sales charge if you qualify for the
cumulative quantity discount or have executed a letter of intent.
CUMULATIVE QUANTITY DISCOUNT
A person as defined below may add the value of his existing shares of
the Fund to the investment then being made in additional shares of
the Fund when determining whether a reduced sales charge applies. A
"person" includes (1) an individual, his spouse and their minor
children; (2) a fiduciary purchasing for a single account; (3) an
employee benefit plan qualified or non-qualified under Section 401 of
the Code; (4) a tax-exempt organization listed in the Code; or (5)
any other organized group of persons which has been in existence for
at least six months and has some purpose other than the purchase of
mutual fund shares at a discount.
LETTER OF INTENT
Reduced sales charges are applicable to investments made over a 13-
month period pursuant to a Letter of Intent on an application
provided by the Distributor or your broker. Sales charges applicable
to all amounts invested under the Letter of Intent are computed as if
the aggregate amount intended to be invested had been invested
immediately. If the aggregate amount is not actually invested over
the 13-month period, the difference in the sales charge actually paid
and the sales charge payable had the Letter of Intent not been in
effect is due. If the goal under the Letter of Intent is exceeded in
an amount which qualifies for a lower sales charge, a price
adjustment will be made by refunding to you the amount of excess
sales commissions, if any, paid during the 13-month period.
The Letter of Intent authorizes the Transfer Agent to hold in escrow
sufficient shares to make up any difference in sales charges. A
Letter of Intent is not a binding commitment by you to purchase or by
the Trust to sell additional shares, and may be terminated at any
time as to additional purchases or sales of shares.
For additional information, contact the Trust or your dealer.
PURCHASES AT NET ASSET VALUE
Sales charges do not apply to shares of the Fund purchased (1) as a
reinvestment of your dividends and capital gain distributions; (2) if
you are a Trustee, officer, full-time employee or sales
representative of the Trust, the Manager (or its affiliates), the
Sub- Adviser, the Distributor, and the NASD member firms that have
entered into dealer agreements with the Distributor; (3) by the
spouse of an employee or any child of such employee; (4) by Qualified
Plan participants if the employer has 100 or more employees and if
the plan permits participants to invest in the Fund; (5) by any
client of the Sub-Adviser; (6) in connection with any merger or
consolidation with, or acquisition of the assets of, any investment
company; (7) in accounts as to which a bank, trust company or
registered investment adviser charges an account management fee,
provided the bank, trust company or registered investment adviser has
an agreement with the Distributor; or (8) as a rollover from a
Qualified Plan for which First Allmerica or an affiliate acts as the
administrator or trustee.
HOW DO I REDEEM SHARES OF THE FUND?
You may redeem shares on any day the Fund is open for business, using
any of the methods of redemption described below. Shares of the Fund
will be redeemed at the net asset value next determined after receipt
of the redemption request in good order. A redemption request for
the Fund received prior to 4:00 p.m., Eastern time, will be processed
based on the net asset value determined that day. A redemption
request received after 4:00 p.m., Eastern time, will be processed
based on the net asset value determined on the next business day. If
shares of the Fund have been purchased by check and are being
redeemed, the shareholder will receive the net asset value next
determined after receipt in good form of the redemption request,
although the purchase check must be collected by the Transfer Agent
before the redemption proceeds can be distributed, which may take up
to 10 days or more.
The Trust may suspend redemptions or postpone payment for longer than
seven days during any period in which the NYSE is closed, trading on
the NYSE is restricted, or the SEC deems an emergency to exist as a
result of which disposal or valuation of portfolio securities is not
reasonably practicable.
Redemptions of shares are taxable events on which you may realize a
gain or a loss.
See "Shareholder Manual - How Do I Buy Shares?" for a description of
the contingent deferred sales charge that may be imposed on certain
redemptions, within 12 months of purchase, of shares initially
acquired without a sales charge.
METHODS OF REDEMPTION
By checking the appropriate boxes on the Application, you may use the
following methods to redeem shares of the Fund:
1. Redemption through a Service Provider. Your redemption request
may be handled by your securities dealer, bank, or financial
organization which is responsible for providing all necessary
documentation to the Transfer Agent. These entities may charge fees
for their services.
2. Redemption by Wire or Telephone. If you complete the Telephone
and Wire Withdrawals section of the Application, you may give
instructions to redeem Fund shares having a value of at least $1,000
by telephoning 1-800-828-7084 or wiring the redemption request to the
Transfer Agent. The proceeds of such a redemption will be wired on
the next business day to the bank account you designated on the
Application. The designated account must be at a domestic bank which
is either a member of the Federal Reserve System or a correspondent
of a member bank. Changes in instructions with regard to telephone
or wire redemptions must be made in writing to the Transfer Agent,
with your signature guaranteed by a bank, securities dealer, member
firm of a national securities exchange, credit union or savings
association. A separate fee may be charged for sending the wire.
3. By Mail. You may give instructions to redeem shares by mail. A
redemption request must be accompanied by a signature guaranteed by a
bank, securities dealer, member firm of a national securities
exchange, credit union or savings association. A signature guarantee
is not required for redemptions of $25,000 or less, requested by and
payable to the shareholders of record, to be sent to the address of
record for that account. Additional documentation may be required
from corporations, fiduciaries and institutional investors in order
to establish that a redemption request has been properly authorized.
SYSTEMATIC WITHDRAWAL PLAN
You may request withdrawal of a specified dollar amount (minimum
$100) on a monthly, quarterly or semi-annual basis. A minimum
starting account balance of $10,000 is required for participation.
Payments will be made on the 25th day of the month (or, if the 25th
is not a business day, on the next business day). If withdrawals
exceed purchases and dividends, the number of shares in your account
will be reduced and may eventually be depleted. You may terminate
the Systematic Withdrawal Plan at any time upon written notice to the
Transfer Agent (but not less than five days before a payment date).
There is presently no charge for this service. The Systematic
Withdrawal Plan may not be available for certain cash management
programs.
MINIMUM ACCOUNT BALANCE
If you want to keep your account open, you must leave shares with a
value of at least $500 in it. If your account balance falls below
$500 due to redemptions, your account may be closed and the proceeds
mailed to you at your record address. You will be given 60 days'
notice that your account will be closed unless you make an investment
to increase your account balance to the $500 minimum. Any
involuntary redemptions will be effected in accordance with the
regular pricing schedule of the Fund.
STATEMENTS AND REPORTS
You will receive a confirmation of transactions that affect your
account balance. At least twice a year you will receive copies of
the Trust's financial statements, with a summary of its investments
and performance. At least quarterly, you will receive a consolidated
statement of all of your holdings and transactions with the Fund. If
you would like to have certain or all of your accounts included in a
consolidated statement, please contact the Transfer Agent at 1-800-
828-7084.
WHAT SERVICES ARE PROVIDED TO SHAREHOLDERS?
To select from the shareholder services offered, complete the
appropriate sections on the Application. The Trust reserves the
right to modify or stop offering these services, or to impose service
charges. Current shareholders may obtain authorization forms for any
of these services by calling 1-800-828-7084.
WHAT DISTRIBUTIONS WILL I RECEIVE?
Shareholders will receive dividends and distributions arising from
the net income and capital gains, if any, earned on the investments
of the Fund as declared from time to time by the Trustees. Dividends
out of net investment income will be declared and paid monthly.
Distributions of net capital gains, if any, for the year are made
annually.
HOW MAY I RECEIVE MY DISTRIBUTIONS?
Dividend and capital gains distributions may be paid in one of three
ways (Systematic Withdrawal Plan accounts must use Option A):
A-The Share Option-Dividend and capital gain distributions are
reinvested in additional shares of the Fund. This option will be
automatically assigned if you do not specify another option.
B-The Income-Earned Option-Dividends are paid in cash; capital gain
distributions are reinvested in additional shares of the Fund .
C-The Cash Option-Both dividends and capital gain distributions are
paid in cash.
Income dividends and capital gains will be reinvested at the net
asset value in effect on the distribution payment date (with no sales
charge).
INVESTMENT RESTRICTIONS
The following is a description of certain investment restrictions
that are fundamental and may not be changed without the approval of a
majority of the outstanding shares of the Fund. For a description of
certain other investment restrictions, reference should be made to
the SAI. The restrictions do not apply to investments in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
The Fund will not invest more than 25% of the value of its total
assets in a particular industry, including the debt obligations of
supranational entities and foreign governments.
As to 75% of the value of its total assets, the Fund will not invest
more than 5% of the value of its total assets in the securities of
any one issuer or acquire more than 10% of the voting securities of
any issuer; the remaining 25% of the assets 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 holding in such
investments.
CERTAIN INVESTMENT STRATEGIES, POLICIES AND RISK CONSIDERATIONS
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. Under repurchase
agreements, the Fund may purchase an obligation of or guaranteed by
the U.S. Government, its agencies or instrumentalities, with an
agreement that the seller will repurchase the obligation at an agreed
upon price and date. No repurchase agreement will be effected if as
a result, more than 30% of the Fund's total assets taken at current
value would be subject to such repurchase agreements. No more than
15% of the 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 on the obligation to repurchase, the Fund may incur a
loss or costs.
FORWARD COMMITMENT, "WHEN-ISSUED" SECURITIES
The Fund also may enter into forward commitment agreements and
purchase "when-issued" securities. Forward commitments are contracts
to purchase securities for a fixed price at a specified future date
beyond customary settlement time with no interest accruing to the
Fund until the settlement date. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior
to the settlement date. Debt securities and municipal obligations
are often issued on a "when-issued" 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. The market value of when-issued
securities may be more or less than the purchase price payable at
settlement date. No income accrues on "when-issued" securities prior
to delivery. 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 fees from the
borrower. The Fund will have a 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
Investments in foreign markets involve substantial risks not
typically associated with investing in the U.S. that should be
carefully considered 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 stock exchanges are generally
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 Fund's investments may include American Depositary Receipts
("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 and are generally sponsored and issued by
domestic banks. 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 will generally bear lower transaction charges.
The Fund will invest in both sponsored and unsponsored ADRs.
Obligations in which the 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 other 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
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, the Fund may
at times seek to hedge against fluctuations in net asset value. The
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 Fund will be able to utilize these
instruments effectively for the purposes stated above.
Risks inherent in the use of futures and options 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 futures and options 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 where there appears to be an active secondary market,
but there can be no assurance that a liquid secondary market will
exist for any futures or options at any particular time.
In connection with transactions in futures and related options, the
Fund 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 and options transactions, and
the risks associated with them, is included in the SAI.
RESTRICTED SECURITIES
The Fund 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, the Fund will not invest more than 15% of its assets
in restricted securities (as defined in its investment restrictions)
unless the Trust's 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 ultimately responsible 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 carefully monitor the 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 the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted
securities. As a result, the Fund might not be able to sell these
securities when the 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 may at times play a
greater role in valuing these securities than in the case of
unrestricted securities.
INVESTMENTS IN MONEY MARKET SECURITIES
The 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.
ASSET-BACKED SECURITIES AND MORTGAGE-BACKED SECURITIES
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 with respect to
the underlying debt instruments. The rate of such prepayments is a
function of current market rates and other factors. The Fund will
not invest more than 10% of its total assets in asset-backed
securities.
The Fund may invest in mortgage-backed securities that represent
pools of mortgage loans offered for sale by various governmental
agencies and government-related organizations such as the Government
National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation.
Mortgage-backed securities generally provide a monthly payment
consisting of interest and principal payments. Additional payments
may be made out of unscheduled repayments of principal resulting from
the sale of the underlying residential property, refinancing or
foreclosure, net of any fees or expenses. Prepayments of principal
on mortgage-backed securities may increase from the refinancing of
mortgages as interest rates decline. To the extent that the Fund
purchases mortgage-backed securities at a premium, mortgage
foreclosures and prepayments of principal by mortgagors (which may be
made at any time without penalty) may result in some loss of the
Fund's principal investment to the extent of the premium paid. The
yield of a Fund that invests in mortgage-backed securities may be
affected by reinvestment of prepayments at higher or lower rates than
the original investment.
The Fund also may invest in collateralized mortgage obligations
("CMOs.") CMOs are 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 the obligations. To the extent that CMOs are considered
to be investment companies, investments in such CMOs will be subject
to the percentage limitations applicable to investments in such
companies.
STRIPPED MORTGAGE-BACKED SECURITIES
The Fund may invest in Stripped Mortgage-Backed Securities ("SMBS").
SMBS are derivative multi-class 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 are usually 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,
a portfolio may fail to fully recoup its 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 portfolio's
limitations on investment in illiquid securities.
APPENDIX
NRSRO RATINGS
Description 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 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.
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 more subject 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 FOUR CATEGORIES, RANGING
FROM "A" FOR THE HIGHEST QUALITY OBLIGATIONS TO "D" FOR THE LOWEST.
THE HIGHEST RATING IN THE "A" CATEGORIES ARE DESCRIBED AS FOLLOWS:
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
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 will be noted 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-Notes bearing this designation are of the 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-Notes bearing this designation are of high quality. Margins of
protection are ample although not as large in the preceding group.
A short-term rating may also 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 are generally
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 as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for
the present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Within each rating classification from Aa through B, Baa, Moody's has
assigned the numerical modifiers 1, 2 and 3. The modifier 1
indicates that a security ranks in the higher end of that rating
category, 2 in the midrange of a category and 3 in the lower end of
the category.
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.
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 rating categories.
Investment Manager:
Allmerica Investment Management Company, Inc.
Sub-Adviser:
Allmerica Asset Management, Inc.
Distributor:
Allmerica Investments. Inc.
Administrator, Fund Recordkeeping and Transfer Agent:
First Data Investor Services Group, Inc.
Independent Accountants:
Price Waterhouse LLP
Custodian:
Bankers Trust Company
ALLMERICA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
ALLMERICA FUNDS
STATEMENT OF ADDITIONAL INFORMATION
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS. IT
SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS OF THE ALLMERICA FUNDS
DATED APRIL 29, 1996 (THE "PROSPECTUS"). A PROSPECTUS MAY BE OBTAINED FROM
THE ALLMERICA FUNDS, 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653,
(800) 828-0540 EXT. 2500.
DATED April 29, 1996
TABLE OF CONTENTS
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GENERAL INFORMATION 3
INVESTMENT OBJECTIVE AND POLICIES 3
INVESTMENT RESTRICTIONS 3
INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS 4
PORTFOLIO TURNOVER. 9
PERFORMANCE 9
MANAGEMENT OF ALLMERICA FUNDS 12
CONTROL PERSON AND PRINCIPAL HOLDER OF SECURITIES 14
INVESTMENT MANAGEMENT AND OTHER SERVICES 15
BROKERAGE ALLOCATION 16
PURCHASE, REDEMPTION, AND PRICING OF SECURITIES BEING OFFERED 17
TAXES 18
ORGANIZATION AND CAPITALIZATION OF THE TRUST 19
FINANCIAL STATEMENTS 20
</TABLE>
GENERAL INFORMATION
The Allmerica Funds (the "Trust") constitute a Massachusetts business trust
established on June 4, 1990. The Trust is a no-load, open-end, diversified
series investment company currently offering one portfolio: the Investment
Grade Income Fund. The Trustees may create additional funds and classes of
shares in the future.
Allmerica Investment Management Company, Inc. is the investment manager of
the Trust ("Manager"). The Manager administers all aspects of the Trust's
day to day operations, subject to the supervision of the Trustees. Under the
terms of a Sub-Advisory Agreement with the Manager, Allmerica Asset
Management Inc. ("AAM"), as sub-adviser, manages the investment portfolio of
the Fund.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the INVESTMENT GRADE INCOME FUND is to seek a
high level of current income. The Fund will invest primarily in investment
grade, fixed-income securities.
There is no assurance that such investment objective will be realized. The
investment objective of the Fund is fundamental and may not be changed
without approval by the Fund's shareholders. Except where otherwise noted,
investment policies and techniques of the Fund are not deemed fundamental
and may be changed by the Trustees.
INVESTMENT RESTRICTIONS
The following is a description of certain restrictions on investments of the
Fund (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 the
Fund. The other investment restrictions are not deemed fundamental and may
be changed by the Trustees.
1. The Fund will not issue senior securities in contravention of the
requirements of the Investment Company Act 1940.
2. The Fund will not borrow money, except for temporary purposes where the
aggregate amount borrowed does not exceed 10% 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. The Fund will not purchase portfolio
securities while borrowings in excess of 5% of the Fund's net assets are
outstanding. The Fund may pledge up to 10% of the lesser of cost or value of
its total assets to secure such borrowings.
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.
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.
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 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 the clearance of transactions and,
may make margin payments in connection with financial futures (including
securities index futures) contracts and options on such futures contracts.
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 commissions 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. Such investments may involve the layering of certain
costs and expenses for services already provided by the Fund to its
shareholders.
10. The Fund intends to purchase securities for investment and not to
purchase and sell them for trading purposes.
In order to comply with certain "blue sky" restrictions, the Fund will not
as a matter of operating policy:
1. Invest in oil, gas or mineral leases or programs.
2. Invest more than 5% of its total assets in securities of companies having
a record, together with predecessors, of less than three years of continuous
operation. This limitation shall not apply to U.S. Government securities.
3 Purchase warrants if as a result the Fund would then have more than 5% of
its net assets (determined at the time of investment) invested in warrants.
Warrants will be valued at the lower of cost or market and the investment in
warrants which are not listed on the New York Stock Exchange or American
Stock Exchange will be limited to 2% of the Fund's net assets determined at
the time of investment. For the purpose of this limitation, warrants
acquired in units or attached to securities are deemed to be without value.
4. The Fund will not buy or sell real estate, including real estate limited
partnerships which are not readily marketable (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).
INVESTMENT TECHNIQUES AND RISK CONSIDERATIONS
In managing its portfolio of investments, the Fund may make use of the
following investment techniques:
SECURITIES LENDING
The 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 loaned 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 investment sub-adviser to be of good
standing, and when, in the judgment of the Fund's investment sub-adviser,
the consideration which can be earned currently from such securities loans
justifies the attendant risk.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. Under repurchase agreements,
the Funds 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. No repurchase agreement will
be effected if, as a result, more than 30% of the Fund's total assets taken
at current value would be subject to such repurchase agreements. No more
than 15% of the 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 on the obligation to repurchase, the Fund 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 Fund may be delayed or limited.
Prior to entering into a repurchase agreement the Fund's investment sub-
adviser evaluates the creditworthiness of entities with which the Fund
proposes to enter into repurchase agreements. The Trustees have established
guidelines, and standards of review for the evaluation of creditworthiness
and monitor the investment sub-adviser's actions with respect to repurchase
transactions.
FORWARD COMMITMENTS ON GOVERNMENT SECURITIES
The 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 Fund does so it will maintain cash or high-grade
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 Fund will generally enter into forward commitments with the intention of
acquiring securities for its portfolio, it may dispose of a commitment prior
to settlement if the investment sub-adviser deems it appropriate to do so.
The Fund may realize short-term gains or losses upon the sale of forward
commitments. The investment sub-adviser will monitor the creditworthiness of
the parties to such forward commitments.
WHEN-LSSUED SECURITIES
The Fund may from time to time purchase securities on a "when-issued" basis.
Debt securities and municipal obligations are often 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 the 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 its Custodian in which it will maintain cash or
high-grade debt obligations at least equal to commitments for when-issued
securities. Such segregated securities either will mature or, if necessary,
will be sold on or before the settlement date.
WRITING COVERED OPTIONS
The Fund may write call options and put options on securities which the Fund
owns as its investment 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, the 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 the 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 the 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
The Fund may purchase put and call options to the extent permitted by
applicable law. The 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.
The Fund also would be able to enter into closing sale transactions in order
to realize gains or minimize losses on exchange traded options purchased by
the Fund
The Fund would normally 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.
The Fund would normally 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 loss on
the purchase of put options would lend to be offset by countervailing
changes in the value of underlying portfolio securities. The Fund would
ordinarily 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
investment sub-adviser's ability to predict future price fluctuations and
the degree of correlation between the options and securities markets. The
Fund pays a 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
The Fund may invest in transactions in financial futures contracts and
related options for hedging purposes. 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 have become increasingly volatile in recent years.
Hedging is a means of transferring that 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.
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. Currently, futures contracts are available on debt securities and
equity securities.
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 futures transactions 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, the
Fund, through the purchase of futures contracts, can attempt to secure
better prices than might be later available in the market when it
anticipates effecting purchases.
Similarly, when prices are expected to increase, the Fund can seek to offset
a decline in the value of its securities through the sale of futures
contracts.
OPTIONS ON FINANCIAL FUTURES
The 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 the Fund is not fully invested.
Depending on the pricing of the option compared to 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 which are deliverable upon
exercise of the futures contract. If the futures price at expiration is
below the exercise price, the 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.
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 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 might be purchased in the cash market.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES AND RELATED OPTIONS
The Fund 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 held in the Fund's portfolio or which it intends to purchase. The
Fund may not purchase or sell futures contract 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 the 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 the 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 the Fund's overall risk management strategy, it is possible
that the investment sub-adviser will choose not to engage in any futures
transactions or that appropriate futures contracts or related options may
not be available. The Fund will engage in futures transactions only for
appropriate hedging or risk management purposes. The Fund will not enter
into any particular futures transaction unless the investment sub-adviser
determines that the particular transaction demonstrates an appropriate
correlation with the Fund's investment objective 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 futures by the Fund as a hedging
device.
Successful use of futures by the Fund is subject to the investment
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, the Fund may hedge against the possibility of an
increase in interest rates which would adversely affect 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 future and movements in the price of the securities
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 assets 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 than 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 securities has moved in a favorable direction, this advantage
may be partially offset 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 that 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 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 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 and movements in the prices of futures, a correct
forecast of interest rate trends or market price movements by the investment
sub-adviser may still 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 that provides a secondary market for such futures. Although
the Fund intends 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 partially or
completely offset losses on the future.
RISKS OF TRANSACTIONS IN OPTIONS ON FUTURES
There are several special risks relating to options on financial futures.
First, the ability to establish and close out positions in options is
subject to the maintenance of a liquid secondary market. The Fund will not
purchase options on futures on any exchange or board of trade unless, in the
opinion of its investment sub-adviser, the market for such options is
developed sufficiently that the risks in connection with options on futures
transactions are not greater than the risks in connection with futures
transactions. Compared to 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 assets. The writing of an option on a futures
contract involves risks similar to those risks relating to the sale of
futures contracts, described above under Risks of Transactions in Futures.
An option position may be closed out only on an exchange or board of trade
that provides a secondary market for an option of the same series. Although
the Fund will generally 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 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 the Fund's portfolio will perform
as well as or better than a comparable fund that does not invest in futures
contracts or related options.
PORTFOLIO TURNOVER
The portfolio turnover rate for the 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
amounts too small to invest in short-term obligations are not included in
the portfolio turnover rate.
The turnover rate for the Fund for the two most recent fiscal years ended
December 31, 1995 and 1994 was 135% and 129%, respectively.
<R/>
A high portfolio turnover rate may involve correspondingly greater
transaction costs, which would be borne by the Fund, as well as additional
realized gains and/or losses to shareholders.
PERFORMANCE
The Trust may make historical performance information available and may
compare performance of the Fund to other investment or relevant indices. The
Fund also may advertise "yield", "total return" and other nonstandardized
total return data. ALL PERFORMANCE FIGURES ARE BASED ON HISTORICAL EARNINGS
AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The Fund's yield and
total return 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.
YIELD
For purposes of yield quotations, income is calculated in accordance with
standardized methods applicable to all funds. Generally, capital gains and
losses are excluded from the calculation. Income calculated for the purposes
of determining the Fund's yield differs from income calculated for other
accounting purposes. Because of the different accounting methods used, and
because of the compounding assumed in yield calculations, the yield quoted
for the Fund may differ from the rate of distributions paid by the Fund over
the same period or the rate of income reported on the Fund's financial
statements.
The 30-day (or one month) standard yield for the Fund, is calculated as
follows:
YIELD = 2[( a-b +1)6 - 1)]
cd
Where: a = dividends and interest earned by the 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 the 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 the 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 the 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).
TOTAL RETURN
The Fund may advertise total return. The total return shows that an
investment in the Fund would have earned over a specific period of time
(one, five or tens 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
Where: P = A hypothetical initial purchase of $1,000
T = average annual total return
n = number of years
ERV = 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 THE 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.
The 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 the Fund may be compared to: ( 1 ) the Standard
& Poor's Composite Index of 500 Stocks (S&P 500), Dow Jones Industrial
Average, Shearson Lehman Aggregate Bond Index, Russell 2000, Russell 3000,
Beta Adjusted Russell 3000, 90-day Treasury Bill, Salomon High Yield Bond
Index, NASDAQ Index, Bank Rate Monitor, and Shearson Lehman
Government-Corporate or other unmanaged indices so that investors may
compare the 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/Donoghues, 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 of
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 objective 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 PERIODS ENDED DECEMBER 31, 1995
Set forth below is Total Return information and yield information for the
specified periods for the Fund, which commenced operations on August 21,
1992. The information reflects voluntary expense limitations in effect for
the Fund during the period covered.
TOTAL RETURN FOR PERIOD ENDED DECEMBER 31, 1995
(Unaudited)
One Year 14.82%
Since Inception 5.77%
Yield for 30 day period Ended December 31, 1995
(Unaudited)
3.44%
MANAGEMENT OF ALLMERICA FUNDS
The Trust is managed by a Board of Trustees elected by the shareholders of
the Trust. The affairs of the Trust are conducted in accordance with the
Bylaws adopted by the Trustees. The following are the Trustees and principal
officers of the Trust.
Trustees and Officers
<TABLE>
<CAPTION>
NAME (AGE AS OF 4-29-96) POSITIONS AND OFFICES PRESENT
AND ADDRESS WITH THE TRUST POSITION AND
PRINCIPAL OCCUPATION
DURING PAST 5 YEARS
<S> <C> <C>
Russell E. Fuller (69) Trustee Chairman,
REFCO, Inc. (distributor
730 Main Street of tools and
abrasives)
Boylston, Massachusetts
Gordon Holmes (57) Trustee Certified
Public Accountant, Tofias,
205 Broadway Fleishman,
Shapiro & Co.
Cambridge, Massachusetts (Accountants)
Bruce E. Langton (64) Trustee Member, First Allmerica
Manager 99
Jordan Lane
Evaluation Team; Director,
Stamford, Connecticut 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 &
Thriftplans
*John F. O'Brien (52) Trustee, Chairman of the Board
Director, President and Chief
440 Lincoln Street Executive
Officer, First Allmerica
Worcester, Massachusetts Life Insurance Company ("First Allmerica"); Director
and Chairman of the Board,
Allmerica Financial
Life Insurance and Annuity
Company ("Allmerica Life")
Attiat F. Ott (60) Trustee Professor of Economics and
950 Main Street Director of the Institute for
Worcester, Massachusetts Economic Studies, Clark
University
Ranne P. Warner (51) Trustee President, Centros Properties,
7 Water Street USA; Owner,
Ranne P. Warner and
Boston, Massachusetts Company;
Director, Wainwright
Bank & Trust Co.
(commercial bank)
Thomas S. Zocco (65) Trustee Retired; President and Director,
101 Summer Street Colonial Capital
Corp.; President,
Boston, Massachusetts Wainwright
Banking, 1987- 1991
* John P. Kavanaugh (41) Trustee, Vice President President,
Allmerica Asset
440 Lincoln Street Management, Inc.;
Vice President,
Worcester, Massachusetts First Allmerica and
Allmerica Life
* Richard M. Reilly (57) President and Trustee President, Allmerica Life
since
440 Lincoln Street 1995; Vice
President, First
Worcester, Massachusetts Allmerica
and Allmerica Investment Management
Company, Inc.
Thomas P. Cunningham (50) Treasurer Investment
Product Manager,
440 Lincoln Street First Allmerica
since March 1996;
Worcester, Massachusetts VicePresident,
First Data Investor
Services Group, Inc.,
1994 - 1995;
Vice President,
Fidelity Investments,
1990 - 1993
Joseph W. MacDougall, Jr. (52) Secretary Vice President,
Associate General
440 Lincoln Street Counsel,
First Allmerica
Worcester, Massachusetts
</TABLE>
*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 officers, or employees of the Trust or its
investment adviser are reimbursed for their travel expenses in attending
meetings of the Trustees.
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,
1995. The Fund does not currently provide any pension or retirement benefits
for its Trustees or Officers.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Name of Person Aggregate Compensation Total
from Trust Compensation from
Trust and Fund
Position Complex (2 other
investment companies)
Paid to Trustees
<S> <C> <C>
Russell E. Fuller $32 $8,000
Gordon Holmes $32 $8,000
John D. Hunt* $32 $8,000
Attiat F. Ott $32 $8,000
Ranne P. Warner $32 $8,000
Thomas S . Zocco $28 $7,000
John P. Kavanaugh 0 0
Richard M. Reilly 0 0
John F. O'Brien 0 0
</TABLE>
* Mr. Hunt retired from all positions with the Trust effective February 7,
1996. On February 6, 1996, the Trust elected Bruce E. Langton to fill the
vacancy created by Mr. Hunt's retirement.
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 is a Director of
Allmerica Investments, Inc. ("Allmerica"), a broker-dealer affiliate of
First Allmerica. Mr. Reilly is President and Director of Allmerica. In
addition, several assistant officers of the Trust hold similar positions
with Allmerica.
CONTROL PERSON AND PRINCIPAL HOLDER OF SECURITIES
Allmerica Asset Management, Inc., with its principal office at 440 Lincoln
Street, Worcester, Massachusetts 01653, a wholly-owned subsidiary of First
Allmerica, is the sub-adviser of the Fund of the Trust. Allmerica Investment
Management Company, Inc. a wholly-owned subsidiary of First Allmerica, is
the manager of the Trust.
<TABLE>
<S> <C> <C>
NAME AND ADDRESS OF PERCENTAGE OF OWNERSHIP OWNER OF
RECORD/
PRINCIPAL HOLDERS OF AS OF 04/15/96
BENEFICIALLY OWNED
SECURITIES
*Allmerica Investments, Inc. 100% Record and
beneficial owner
Attn: Carmen Wooden
440 Lincoln Street, N253
Worcester, MA 01653
</TABLE>
*Indicates a person who is deemed to control the Fund. Allmerica
Investments, Inc. is a wholly-owned subsidiary of First Allmerica and is a
Massachusetts corporation.
The officers and Trustees of the Trust as a group owned no shares of the
Fund as of April 15, 1996.
INVESTMENT MANAGEMENT AND OTHER SERVICES
The Manager serves as investment manager of the Trust pursuant to a
Management Agreement between the Trust and the Manager. For additional
discussion regarding the Management Agreement, see the Prospectus. AAM
serves as sub-adviser of the Fund under the terms of a Sub-Adviser Agreement
(the "Sub-Adviser Agreement") with the Manager. Under the Sub-Adviser
Agreement, AAM is authorized to engage in portfolio transactions on behalf
of the Fund, subject to such general or specific instruction as may be given
by the Trustees. As a result of voluntary expense limitations in effect for
the Fund, no fees were paid to the Manager by the Fund under the Management
Agreement from the date of inception of the Fund through December 31, 1994.
For the fiscal year ended December 31, 1995, the fees paid to the Manager by
the Fund totaled $33,868.
The Manager, subject to review by the Trustees, is responsible for the
actual management of the day-to-day affairs of the Trust. The Manager also
performs certain administrative and management services for the Trust,
monitors the entities providing services to the Trust, and 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 or AAM. Pursuant to an Administrative Agreement with the Manager ,
First Data Investor Services Group, Inc. ("First Data"), a wholly owned
subsidiary of First Data Corporation, performs administrative services for
the Trust and is entitled to receive an administrative fee and certain out-
of-pocket expenses. The Manager is solely responsible for the payment of the
administrative fee to First Data. 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. These include
organizational expenses, expenses for pricing of the Fund's shares and
bookkeeping services, fees and expenses associated with the registration and
qualification of the Trust's shares under the Securities Act of 1933 and the
securities laws of the states, other fees payable to the Securities and
Exchange Commission, fees of independent public accountants, 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 or AAM, expenses for proxies, prospectuses,
and reports to shareholders, and other expenses.
The Sub-Adviser Agreement provides that it may be terminated at any time by
a vote of a majority in interest of the shareholders of the Fund, by the
Trustees, or by AAM without payment of any penalty on not more than 60 days'
written notice; provided, however, that the Sub-Adviser Agreement will
terminate automatically in the event of its assignment. The Sub-Adviser
Agreement will continue in effect for a period more than two years from the
date of its execution, only so long as such continuance is specifically
approved at least annually by the Trustees or by vote of a majority of the
outstanding shares of the Fund. In either event such continuance also must
be approved by vote of a majority of the Trustees who are not parties to the
Sub-Adviser Agreement or interested persons of the Trust or AAM, cast in
person at a meeting called for the purpose of voting such approval. The
terms of the Sub-Adviser Agreement cannot be changed without the approval of
a majority of the outstanding shares of the Fund. For the fiscal year ended
December 31, 1995, the fees paid to the Sub-Adviser by the Fund totaled
$11,290.
Under the Sub-Adviser Agreement, any liability of AAM is limited to
situations involving its willful misfeasance, bad faith, gross negligence or
reckless disregard of its obligations and duties. Under the terms of the
Management Agreement, the Trust recognizes control of the name "Allmerica
Funds" by the Manager, and 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 Services Agreement (the "Services
Agreement"), First Data, 53 State Street, Boston, Massachusetts, serves as
the Trust's Transfer Agent and provides fund accounting services. First Data
provides certain services to the Trust, including the following: serving as
transfer agent and dividend disbursing agent; accumulating information for
and coordinating the preparation of reports to the Trust's shareholders and
the Securities and Exchange Commission; maintaining the registration or
qualification of the sufficient Fund shares for sale under state securities
laws; determining the net asset value per share of the Fund and maintaining
the accounting records of the Trust.
First Data is entitled to receive a fund accounting fee and a Transfer Agent
fee from the Trust, based on fund assets. The Trust also reimburses First
Data for certain out-of-pocket expenses. The Services Agreement is
terminable by either party on 60 days' written notice. The total fees paid
to First Data by the Fund for the period April 1, 1995 to December 31, 1995
were $56,097. Prior to March 31, 1995, fund accounting and shareholder
services were provided by 440 Financial Group of Worcester, Inc. ("440
Financial"), a wholly owned subsidiary of First Allmerica. For the period
January 1, 1995 to March 31, 1995, 440 Financial received fees of $27,518
for its services to the Fund.
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.
DISTRIBUTOR Allmerica Investments, Inc. (the "Distributor"), a registered
broker-dealer under the Securities Exchange Act of 1934 and a member of the
National Association of Securities Dealers, Inc. (NASD), serves as principal
underwriter and general distributor for the Trust pursuant to a contract
between the Distributor and the Trust. The Distributor, which is located at
440 Lincoln Street, Worcester, Massachusetts, 01653, was organized in 1969
as a wholly-owned subsidiary of First Allmerica and is, at present,
indirectly wholly-owned by First Allmerica. The Distributor pays the cost of
printing and distributing prospectuses to persons who are not shareholders
of the Trust (excluding preparation and printing expenses necessary for the
continued registration of the Trust's shares) and of preparing, printing,
and distributing all sales literature. There were no sales commissions for
the Fund paid to and retained by the Distributor during the fiscal year
ended December 31, 1995 .
BROKERAGE ALLOCATION
In accordance with the Management and Sub-Adviser Agreements, the
Manager and AAM, have the responsibility for the selection of brokers for
the execution of purchases and sales of the securities in the Fund's
portfolio subject to the direction of the Trustees. The Sub-Adviser places
the Fund's portfolio transactions with brokers and, if applicable,
negotiates commissions.
Broker-dealers may receive brokerage commissions on portfolio transactions
of the Fund. The Sub-Adviser 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 Fund has not
dealt nor does it intend to deal exclusively with any particular
broker-dealer or group of broker-dealers. It is the Fund's policy always to
seek best execution. This means that the 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 Fund's
securities transactions may be executed by broker-dealers who also provide
research services (as defined below) to the Fund's Sub-Adviser and the other
clients advised by Sub-Adviser. The Sub-Adviser may use all, some, or none
of such research services in providing investment advisory services to each
of its investment company and other clients, including the Fund. To the
extent that such services are used, they tend to reduce the expenses of the
Sub-Adviser. In the opinion of the Sub-Adviser it is impossible to assign an
exact dollar value to such services.
BROKERAGE AND RESEARCH SERVICES The Agreement provides that, subject to such
policies as the Trustees may determine, the Sub-Adviser may cause the Fund
to pay a broker-dealer which provides brokerage and research services an
amount of commission for effecting a securities transaction for the Fund in
excess of the amount of commission that 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 issues, 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-Adviser 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-Adviser and all other clients. The Sub-Adviser also may consider sales
of shares of the Fund by broker-dealers in the selection of broker-dealers
to execute portfolio transactions. The Sub-Adviser also may consider
payments made to the Fund, or on behalf of the Fund, by broker-dealers
effecting transactions for the Fund, for services provided to the Fund for
which the Fund would otherwise be obligated to pay.
Although the Trustees may authorize the Sub-Adviser to depart from the
present policy of always seeking best execution and to pay higher brokerage
commissions from time to time for the brokerage and research services
described above, the Trustees have not yet done so. The Trustees may do so,
however, in the future if developments in the securities markets indicate
that it would be in the interest of the Fund.
The other investment companies and clients advised by the Sub-Adviser
sometimes invest in securities in which the Fund also invests. The
Sub-Adviser also may invest for its own accounts in the securities in which
the Fund invests. If the Fund, such other investment companies and other
clients of the Sub-Adviser 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 Fund is 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 Manager and AAM, as
investment advisers to the Fund outweighs the disadvantages, if any, which
might result from this practice. There were no commissions paid by the Fund
during the three most recent fiscal years.
PURCHASE, REDEMPTION, AND PRICING
OF SECURITIES BEING OFFERED
As described in the Prospectus, shares of the Fund are sold and
redeemed at their net asset value as next computed after receipt and
effectiveness of the purchase or redemption order, plus a sales charge. Each
purchase is confirmed 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 the Fund is the total net asset value of the Fund divided
by the number of shares outstanding. The total net asset value of the Fund
is determined by computing the value of the total assets of the Fund and
deducting total liabilities, including accrued liabilities.
The net asset value of the shares of the Fund, is determined once monthly as
of the close of the New York Stock Exchange on the last day of the month on
which the Exchange is open for trading, with the exception that the net
asset value of the shares of the Fund shall be determined once daily as of
the close of regular trading hours of the Exchange on each such day that
shares of the Fund are tendered for redemption or an order for purchase is
received.
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 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 are
generally 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 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.
TAXES
The following discussion of tax consequences is based on United States
federal tax law in effect on the date of this SAI. Tax laws and regulations
are subject to change by legislation or judicial or administrative action.
Investors are urged to consult their own tax advisors with respect to
specific questions as to federal taxation and with respect to the
applicability of state or local taxation. Annual statements as to the
current tax status of distributions, if applicable, are mailed to
shareholders shortly after the end of the taxable year.
The Fund intends to remain qualified as a regulated investment company under
Sub-chapter M of the Code. In order to qualify as a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its
annual gross income from dividends, interest, payments with respect to
securities loans and gains from the sale or other disposition of stock or
securities or foreign currencies, or other income (such as gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies; (b) derive less than
30% of its annual gross income from the sale or other disposition of stock
or securities or options and futures contracts (and certain transactions
involving foreign currencies and foreign currency options, futures and
forward contracts not directly related to the principal business of
investing in stock or securities) held less than three months; (c) diversify
its holdings so that, at the end of each quarter of its taxable year, (i) at
least 50% of the market value of the Fund's assets is represented by cash
and cash items (including receivables), U.S. Government securities,
securities of other regulated investment companies and other securities
limited, in respect of any one issuer, to an amount not greater than 5% of
the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of the Fund's assets is
invested in the securities (other than government securities or the
securities of other regulated investment companies) if any one issuer; and
(d) distribute at least 90% of its taxable income (other than long term
capital gain) and its net tax-exempt income.
As a regulated investment company, the Fund will not be subject to federal
income taxes on the net investment income and capital gains distributed or
deemed to be distributed to shareholders. In addition, if certain minimum
distributions are made to shareholders, the Fund will not be subject to
federal excise tax. The Code requires each regulated investment company to
pay a nondeductible 4% excise tax to the extent that the company does not
distribute, during each calendar year, 98% of its ordinary income
(determined on a calendar year basis) and 98% of its capital gain net income
(determined, in general, on an October 31 year-end) plus certain
undistributed amounts from previous years. It is anticipated that the Fund
will make sufficient timely distributions to avoid imposition of the income
and excise taxes.
As long as the Fund qualifies as a regulated investment company, it will be
exempt from Massachusetts income tax.
DISTRIBUTIONS A distribution by the Fund will result in a reduction in the
Fund's net asset value per share. Such a distribution is taxable to the
shareholder as ordinary income or capital gain (as described below), even
though, from an investment standpoint, it may constitute a return of
capital. The net value of shares purchased at that time includes the amount
of the pending distribution. Even though the distribution economically
represents a return of capital, it will nonetheless be treated as a taxable
distribution. All distributions, whether received in cash or reinvested in
Fund shares, must be reported by each shareholder on his or her federal
income tax return. Ordinarily, dividends are taxable to shareholders in the
year in which they are received. However, dividends declared by the Fund in
October, November and December of any calendar year and payable to
shareholders of record in such a month, shall be deemed to have been
received by shareholders on December 31 on such calendar year, if such
dividend is actually paid in January of the following year.
Distributions of net ordinary income and realized short-term capital gains
in excess of net long-term capital losses are generally taxable to
shareholders as ordinary income. Distributions of this type to corporate
shareholders are in general not eligible for the dividends received
deduction.
A shareholder may realize a capital gain or capital loss on the sale or
redemption of shares of the Fund . The tax consequences of a sale or
redemption depend upon several factors, including the shareholder's tax
basis in the shares sold or redeemed and the length of time the shares have
been held. Basis in the shares may be the actual cost of those shares (net
asset value of Fund shares on purchase or reinvestment date) or, under
special rules, an average cost. Gain or loss realized on the sale of the
Fund's shares by a shareholder (who is not a dealer in securities) generally
will be treated as long-term capital gain or loss if the shares have been
held for more than one year, and otherwise as short-term capital gain or
loss. However, any loss realized by a shareholder upon the sale of shares in
the Fund held six months or less will be treated as a long term capital loss
to the extent of any long-term capital gains distributions received by the
shareholder with respect to such shares. A loss on sale or redemption of
Fund shares will be disallowed to the extent the shareholder purchases other
shares of the Fund (including under a reinvestment plan) within 30 days
before or after the date the shares are sold or redeemed.
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 June 4,
1990 (the "Trust Declaration "). A copy of the Trust Declaration, as may be
amended or restated from time-to-time, is on file with the Secretary of
State 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 by the Trustees. Presently, the Fund is the sole series of shares
offered. These shares are entitled to one vote per share (with proportional
voting for fractional shares). A series may issue its shares in two or more
classes with such preferences, privileges or rights as are not inconsistent
with the Trust Declaration. Shares are freely transferable, are entitled to
dividends as declared by the Trustees and, on liquidation of the Trust, are
entitled to receive the net assets of the Fund. Shareholders have no
preemptive rights.
The Trust is not required to hold annual meetings of shareholders. The
Trustees or shareholders may call special meetings of shareholders for
action by shareholder vote, including the removal of any or all of the
Trustees, as may be required or permitted by the Trust Declaration or the
1940 Act. Matters subject to a vote by the shareholders include a change in
the fundamental policies of the Fund as described in the Prospectus and the
SAI, the election of Trustees, the approval of investment advisers and
independent auditors selected by the Trustees. the termination of the Trust,
the amendment of the Trust Declaration, and the initiation of a derivative
suit. The Trust Declaration provides that on any matter submitted to a vote
of the shareholders, all shares shall be voted in the aggregate as a single
class without regard to series or class; except (1) when required by the
1940 Act, or when the Trustees shall have determined that the matter affects
one or more series or classes materially differently, shares shall be voted
by individual series or class, 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.
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 also provides that all persons extending credit to,
contracting with or having any claims against the Trust or the Fund shall
look only to the assets of the Trust or the Fund for payment under such
credit, contract, or claim, and neither the shareholders, Trustees, or any
of the Trust's officers, employees, or agents shall be personally liable
therefor.
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 the holders of
more than 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.
SHAREHOLDER LIABILITY The Trust is an entity of the type commonly known as a
"Massachusetts business trust," which is the form in which many mutual funds
are organized. Under Massachusetts law, it is possible that shareholders
could, under certain circumstances, be held liable for the obligations of
the Trust. However, the Trust Declaration 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 by
reason of being a shareholder is limited to circumstances in which the
disclaimer is inoperative and the Fund itself is unable to meet its
obligations. The Trustees believe that, in light of the above factors, the
risk of personal liability of shareholders is minimal.
INDEPENDENT ACCOUNTANTS The Financial Statements and Financial Highlights of
the Trust incorporated by reference in this SAI have been audited by Price
Waterhouse LLP, independent accountants, for the periods indicated in their
report thereon . The Financial Statements and Financial Highlights have been
so included in reliance upon the report of Price Waterhouse LLP given on its
authority as expert in accounting and auditing.
FINANCIAL STATEMENTS
The Financial Statements and Financial Highlights contained in the
Trust's Annual Report to Shareholders ("Annual Report") for the fiscal year
ended December 31, 1995 are incorporated by reference into this SAI. Such
Financial Statements and Financial Highlights have been audited by the
Trust's independent accountants whose report thereon also appears in the
Annual Report . Copies of the Trust's 1995 Annual Report to Shareholders may
be obtained by calling the Trust at the telephone number on the first page
of this SAI.
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements
Financial Statements Included in Part A
Financial Highlights Tables
Financial Statements Included in Part B
The following financial statements are incorporated by reference
to Allmerica Funds 1995 Annual Report for the year ended December 31, 1995:
Portfolio of Investments for the year ended December 31, 1995
Statements of Assets and Liabilities for the year ended December
31, 1995
Statements of Operations for the year ended December 31, 1995
Statements of Changes in Net Assets for the year ended December
31, 1995 and December 31, 1994
Financial Highlights
Notes to Financial Statements for the year ended December 31,
1995
Report of Independent Accountants
b) Exhibits
Exhibit 1 Agreement and Declaration of Trust as amended was previously
filed in Post-effective Amendment No. 2 on May 15, 1992 and is incorporated
herein by reference.
Exhibit 2 Bylaws as amended were previously filed in Post-effective
Amendment No. 2 on May 15, 1992 and are incorporated herein by reference.
Exhibit 3 None
Exhibit 4 None
Exhibit 5 Management Agreement with SMA Financial Advisory Services, Inc.
(now Allmerica Investment Management Company, Inc. ("AIMCO")) was previously
filed in Pre-effective Amendment No. 1 on July 26, 1991 and is incorporated
herein by reference.
Sub-Adviser Agreement with First Allmerica Life Insurance Company
("First Allmerica") (formerly known as State Mutual Life Assurance Company
of America) (replaced by Allmerica Asset Management, Inc. ("AAM")) was
previously filed in Pre-effective Amendment No. 1 on July 26, 1991 and is
incorporated herein by reference.
Statement of Assumption of Sub-Adviser Duties with AAM dated July 15,
1993 was previously filed in Post-effective Amendment No. 6 on September 10,
1993 and is incorporated herein by reference.
Exhibit 6 Distribution Agreement with SMA Equities, Inc. (now Allmerica
Investments, Inc.) was previously filed in Pre-effective Amendment No. 1 on
July 26, 1991 and is incorporated herein by reference.
Amendment No. 1 to the Distribution Agreement was previously filed in
Post-effective Amendment No. 6 on September 10, 1993 and is incorporated
herein by reference.
Exhibit 7 None
Exhibit 8 Custodian Agreement with Bankers Trust Company dated October 25,
1995 is filed herein.
Exhibit 9(a) Fund Accounting Services Agreement (pricing and
bookkeeping, dividend disbursement, shareholder services) with 440 Financial
Group of Worcester, Inc. was previously filed in Pre-effective Amendment No.
1 on July 26, 1991 and is incorporated by reference.
Exhibit 9(b) Assignment of Contract and Consent to Assignment with
respect to the Fund Accounting Services Agreement dated March 31, 1995 is
filed herein.
Exhibit 9(c) Administration Agreement between Manager and The
Shareholder Services Group, Inc. (now known as First Data Investor Services
Group, Inc. dated March 31, 1995 is filed herein.
Exhibit 10 Opinion and Consent of Counsel*
Exhibit 11 Consent of Independent Accountants (Price Waterhouse LLP) is
filed herein.
Exhibit 12 None
Exhibit 13 None
Exhibit 14 Form of IRA Plan was previously filed in Post-effective
Amendment No. 5 on February 17, 1993 and is incorporated herein by
reference.
Exhibit 15 None
Exhibit 16 Schedule for Computation of Performance Quotations is filed
herein.
Exhibit 17 Financial Data Schedules are filed herein.
Exhibit 18 None
*Filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice
Item 25. Persons Under Common Control with Registrant
Organizational Chart was previously filed in Post-effective
Amendment No. 6 on September 10, 1993 and is incorporated
herein by reference.
Item 26. Number of Holders of Securities
Title of Class: Number of
Share of Record
Holders
Fund Beneficial Interest as of
April 24, 1996
Investment Grade Income Fund 609,474.508 1
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.
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-
Adviser
See Schedule D of Form ADV of AIMCO File No. 801-26516 and Schedule D of
Form ADV of AAM, File No. 801-44189 previously filed and incorporated herein
by reference.
Item 29. Principal Underwriters
Allmerica Investments, Inc. is the principal underwriter of the Registrant.
Allmerica Investments, Inc. also acts as the principal underwriter of the
registered separate accounts of Allmerica Financial Life Insurance and
Annuity Company (formerly known as SMA Life Assurance Company) and NCC
Funds.
The Principal Business Address of each of the following Directors and
Officers of Allmerica Investments, Inc. is 440 Lincoln Street, Worcester,
Massachusetts 01653.
Name Position or Office Position or Office
with Underwriter with Registrant
Abigail M. Armstrong Secretary and Counsel
Philip J. Coffey Vice President
John F. Kelly Director
John F. O'Brien Director Trustee,
Chairman of the Board
Stephen Parker President and Chief Executive
Officer
Edward J. Parry, III Treasurer
Richard M. Reilly Director President
Eric A. Simonsen Director
Ronald K. Smith Vice President
Mark G. Steinberg Senior Vice President
(c) 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 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
The Registrant undertakes to furnish to each person to whom a
Prospectus is delivered, a copy of the Registrant's latest Annual Report to
Shareholders, upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and 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 26th day of April, 1996.
ALLMERICA FUNDS
(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 April 26, 1996
John F. O'Brien and Trustee
/s/ Richard M. Reilly President, Chief Executive April 26, 1996
Richard M. Reilly Officer, and Trustee
/s/ Thomas P. Cunningham Treasurer April 26, 1996
Thomas P. Cunningham (Principal Accounting Officer)
/s/ Russell E. Fuller Trustee April 26, 1996
Russell E. Fuller
/s/ Gordon Holmes Trustee April 26, 1996
Gordon Holmes
/s/ John P. Kavanaugh Trustee April 26, 1996
John P. Kavanaugh
/s/ Bruce E. Langton Trustee April 26, 1996
Bruce E. Langton
/s/ Attiat F. Ott Trustee April 26, 1996
Attiat F. Ott
/s/ Ranne P. Warner Trustee April 26, 1996
Ranne P. Warner
/s/ Thomas S. Zocco Trustee April 26, 1996
Thomas S. Zocco
EXHIBITS
Exhibit 8 Custodian Agreement with Bankers Trust Company
Exhibit 9(b) Assignment of Contract and Consent to
Assignment
with respect to the Fund Accounting Services
Agreement
Exhibit 9(c) Administrative Agreement between Manager
and The Shareholder Services Group, Inc.
Exhibit 11 Consent of Independent Accountants
(Price Waterhouse LLP)
Exhibit 16 Schedule of Computation of Performance Quotations
Exhibit 17 Financial Data Schedules
34
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Mutual Fund/Business Trust/Series
CUSTODIAN AGREEMENT
AGREEMENT dated as of October 25, 1995 between BANKERS TRUST
COMPANY (the "Custodian") and ALLMERICA FUNDS (the "Customer").
WHEREAS, the Customer may be organized with one or more
series of shares, each of which shall represent an interest in a
separate portfolio of Securities and Cash (each as hereinafter
defined) (all such existing and additional series now or hereafter
listed on Exhibit A being hereafter referred to individually as a
"Portfolio" and collectively, as the "Portfolios"); and
WHEREAS, the Customer desires to appoint the Custodian as
custodian on behalf of the Portfolios under the terms and
conditions set forth in this Agreement, and the Custodian has
agreed to so act as custodian.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Employment of Custodian. The Customer hereby employs
the Custodian as custodian of all assets of each Portfolio which
are delivered to and accepted by the Custodian or any Subcustodian
(as that term is defined in Section 4) (the "Property") pursuant
to the terms and conditions set forth herein. Without limitation,
such Property shall include stocks and other equity interests of
every type, evidences of indebtedness, other instruments
representing same or rights or obligations to receive, purchase,
deliver or sell same and other non-cash investment property of a
Portfolio which is acceptable for deposit ("Securities") and cash
from any source and in any currency ("Cash"). The Custodian shall
not be responsible for any property of a Portfolio held or
received by the Customer or others and not delivered to the
Custodian or any Subcustodian.
2. Maintenance of Securities and Cash at Custodian and
Subcustodian Locations. Pursuant to Instructions, the Customer
shall direct the Custodian to (a) settle Securities transactions
and maintain cash in the country or other jurisdiction in which
the principal trading market for such Securities is located, where
such Securities are to be presented for payment or where such
Securities are acquired and (b) maintain cash and cash equivalents
in such countries in amounts reasonably necessary to effect the
Customer's transactions in such Securities. Instructions to
settle Securities transactions in any country shall be deemed to
authorize the holding of such Securities and Cash in that country.
3. Custody Account. The Custodian agrees to establish
and maintain one or more custody accounts on its books each in the
name of a Portfolio (each, an "Account") for any and all Property
from time to time received and accepted by the Custodian or any
Subcustodian for the account of such Portfolio. Upon delivery by
the Customer to the Custodian of any Property belonging to a
Portfolio, the Customer shall, by Instructions (as hereinafter
defined in Section 14), specifically indicate which Portfolio such
Property belongs or if such Property belongs to more than one
Portfolio shall allocate such Property to the appropriate
Portfolio. The Custodian shall allocate such Property to the
Accounts in accordance with the Instructions; provided that the
Custodian shall have the right, in its sole discretion, to refuse
to accept any Property that is not in proper form for deposit for
any reason. The Customer on behalf of each Portfolio,
acknowledges its responsibility as a principal for all of its
obligations to the Custodian arising under or in connection with
this Agreement, warrants its authority to deposit in the
appropriate Account any Property received therefor by the
Custodian or a Subcustodian and to give, and authorize others to
give, instructions relative thereto. The Custodian may deliver
securities of the same class in place of those deposited in the
Account.
The Custodian shall hold, keep safe and protect as custodian
for each Account, on behalf of the Customer, all Property in such
Account. All transactions, including, but not limited to, foreign
exchange transactions, involving the Property shall be executed or
settled solely in accordance with Instructions (which shall
specifically reference the Account for which such transaction is
being settled), except that until the Custodian receives
Instructions to the contrary, the Custodian will:
(a) collect all interest and dividends and all other
income and payments, whether paid in cash or in kind, on the
Property, as the same become payable and credit the same to the
appropriate Account;
(b) present for payment all Securities held in an Account
which are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment upon
presentation to the extent that the Custodian or Subcustodian is
actually aware of such opportunities and hold the cash received in
such Account pursuant to this Agreement;
(c) (i) exchange Securities where the exchange is purely
ministerial (including, without limitation, the exchange of
temporary securities for those in definitive form and the exchange
of warrants, or other documents of entitlement to securities, for
the Securities themselves) and (ii) when notification of a tender
or exchange offer (other than ministerial exchanges described in
(i) above) is received for an Account, endeavor to receive
Instructions, provided that if such Instructions are not received
in time for the Custodian to take timely action, no action shall
be taken with respect thereto;
(d) whenever notification of a rights entitlement or a
fractional interest resulting from a rights issue, stock dividend
or stock split is received for an Account and such rights
entitlement or fractional interest bears an expiration date, if
after endeavoring to obtain Instructions such Instructions are not
received in time for the Custodian to take timely action or if
actual notice of such actions was received too late to seek
Instructions, sell in the discretion of the Custodian (which sale
the Customer hereby authorizes the Custodian to make) such rights
entitlement or fractional interest and credit the Account with the
net proceeds of such sale;
(e) execute in the Customer's name for an Account,
whenever the Custodian deems it appropriate, such ownership and
other certificates as may be required to obtain the payment of
income from the Property in such Account;
(f) pay for each Account, any and all taxes and levies in
the nature of taxes imposed on interest, dividends or other
similar income on the Property in such Account by any governmental
authority. In the event there is insufficient Cash available in
such Account to pay such taxes and levies, the Custodian shall
notify the Customer of the amount of the shortfall and the
Customer, at its option, may deposit additional Cash in such
Account or take steps to have sufficient Cash available. The
Customer agrees, when and if requested by the Custodian and
required in connection with the payment of any such taxes to
cooperate with the Custodian in furnishing information, executing
documents or otherwise; and
(g) appoint brokers and agents for any of the ministerial
transactions involving the Securities described in (a) - (f),
including, without limitation, affiliates of the Custodian or any
Subcustodian.
4. Subcustodians and Securities Systems. The Customer
authorizes and instructs the Custodian to hold the Property in
each Account in custody accounts which have been established by
the Custodian with (a) one of its U.S. branches or another U.S.
bank or trust company or branch thereof located in the U.S. which
is itself qualified under the Investment Company Act of 1940, as
amended ("1940 Act"), to act as custodian (individually, a "U.S.
Subcustodian"), or a U.S. securities depository or clearing agency
or system in which the Custodian or a U.S. Subcustodian
participates (individually, a "U.S. Securities System") or (b) one
of its non-U.S. branches or majority-owned non-U.S. subsidiaries,
a non-U.S. branch or majority-owned subsidiary of a U.S. bank or a
non-U.S. bank or trust company, acting as custodian (individually,
a "non-U.S. Subcustodian"; U.S. Subcustodians and non-U.S.
Subcustodians, collectively, "Subcustodians"), or a non-U.S.
depository or clearing agency or system in which the Custodian or
any Subcustodian participates (individually, a "non-U.S.
Securities System"; U.S. Securities System and non-U.S. Securities
System, collectively, Securities System"), provided that in each
case in which a U.S. Subcustodian or U.S. Securities System is
employed, each such Subcustodian or Securities System shall have
been approved by Instructions; provided further that in each case
in which a non-U.S. Subcustodian or non-U.S. Securities System is
employed, (a) such Subcustodian or Securities System either is (i)
a "qualified U.S. bank" as defined by Rule 17f-5 under the 1940
Act ("Rule 17f-5") or (ii) an "eligible foreign custodian" within
the meaning of Rule 17f-5 or such Subcustodian or Securities
System is the subject of an order granted by the U.S. Securities
and Exchange Commission ("SEC") exempting such agent or the
subcustody arrangements thereto from all or part of the provisions
of Rule 17f-5 and (b) the agreement between the Custodian and such
non-U.S. Subcustodian has been approved by Instructions; it being
understood that the Custodian shall have no liability or
responsibility for determining whether the approval of any
Subcustodian or Securities System has been proper under the 1940
Act or any rule or regulation thereunder.
Upon receipt of Instructions, the Custodian agrees to cease
the employment of any Subcustodian or Securities System with
respect to the Customer, and if desirable and practicable, appoint
a replacement subcustodian or securities system in accordance with
the provisions of this Section. In addition, the Custodian may,
at any time in its discretion, upon written notification to the
Customer, terminate the employment of any Subcustodian or
Securities System.
Upon request of the Customer, the Custodian shall deliver to
the Customer annually a certificate stating: (a) the identity of
each non-U.S. Subcustodian and non-U.S. Securities System then
acting on behalf of the Custodian and the name and address of the
governmental agency or other regulatory authority that supervises
or regulates such non-U.S Subcustodian and non-U.S. Securities
System; (b) the countries in which each non-U.S. Subcustodian or
non-U.S. Securities System is located; and (c) so long as Rule
17f-5 requires the Customer's Board of Trustees to directly
approve its foreign custody arrangements, such other information
relating to such non-U.S. Subcustodians and non-U.S. Securities
Systems as may reasonably be requested by the Customer to ensure
compliance with Rule 17f-5. So long as Rule 17f-5 requires the
Customer's Board of Trustees to directly approve its foreign
custody arrangements, the Custodian also shall furnish annually to
the Customer information concerning such non-U.S. Subcustodians
and non-U.S. Securities Systems similar in kind and scope as that
furnished to the Customer in connection with the initial approval
of this Agreement. Custodian agrees to promptly notify the
Customer if, in the normal course of its custodial activities, the
Custodian has reason to believe that any non-U.S. Subcustodian or
non-U.S. Securities System has ceased to be a qualified U.S. bank
or an eligible foreign custodian each within the meaning of Rule
17f-5 or has ceased to be subject to an exemptive order from the
SEC.
5. Use of Subcustodian. With respect to Property in an
Account which is maintained by the Custodian in the custody of a
Subcustodian employed pursuant to Section 4:
(a) The Custodian will identify on its books as belonging
to the Customer on behalf of a Portfolio, any Property held by
such Subcustodian.
(b) Any Property in the Account held by a Subcustodian
will be subject only to the instructions of the Custodian or its
agents.
(c) Property deposited with a Subcustodian will be
maintained in an account holding only assets for customers of the
Custodian.
(d) Any agreement the Custodian shall enter into with a
non-U.S. Subcustodian with respect to the holding of Property
shall require that (i) the Account will be adequately indemnified
or its losses adequately insured; (ii) the Securities are not
subject to any right, charge, security interest, lien or claim of
any kind in favor of such Subcustodian or its creditors except a
claim for payment in accordance with such agreement for their safe
custody or administration and expenses related thereto, (iii)
beneficial ownership of such Securities be freely transferable
without the payment of money or value other than for safe custody
or administration and expenses related thereto, (iv) adequate
records will be maintained identifying the Property held pursuant
to such Agreement as belonging to the Custodian, on behalf of its
customers and (v) to the extent permitted by applicable law,
officers of or auditors employed by, or other representatives of
or designated by, the Custodian, including the independent public
accountants of or designated by, the Customer be given access to
the books and records of such Subcustodian relating to its actions
under its agreement pertaining to any Property held by it
thereunder or confirmation of or pertinent information contained
in such books and records be furnished to such persons designated
by the Custodian.
6. Use of Securities System. With respect to Property in
the Account(s) which are maintained by the Custodian or any
Subcustodian in the custody of a Securities System employed
pursuant to Section 4:
(a) The Custodian shall, and the Subcustodian will be
required by its agreement with the Custodian to, identify on its
books such Property as being held for the account of the Custodian
or Subcustodian for its customers.
(b) Any Property held in a Securities System for the
account of the Custodian or a Subcustodian will be subject only to
the instructions of the Custodian or such Subcustodian, as the
case may be.
(c) Property deposited with a Securities System will be
maintained in an account holding only assets for customers of the
Custodian or Subcustodian, as the case may be, unless precluded by
applicable law, rule, or regulation.
(d) The Custodian shall provide the Customer with any
report obtained by the Custodian on the Securities System's
accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities System.
7. Agents. The Custodian may at any time or times in its
sole discretion appoint (or remove) any other U.S. bank or trust
company which is itself qualified under the 1940 Act to act as
custodian, as its agent to carry out such of the provisions of
this Agreement as the Custodian may from time to time direct;
provided, however, that the appointment of any agent shall not
relieve the Custodian of its responsibilities or liabilities
hereunder.
8. Records, Ownership of Property, Statements, Opinions
of Independent Certified Public Accountants.
(a) The ownership of the Property whether Securities, Cash
and/or other property, and whether held by the Custodian or a
Subcustodian or in a Securities System as authorized herein, shall
be clearly recorded on the Custodian's books as belonging to the
appropriate Account and not for the Custodian's own interest. The
Custodian shall keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions for
each Account. All accounts, books and records of the Custodian
relating thereto shall be open to inspection and audit at all
reasonable times during normal business hours by any person
designated by the Customer. All such accounts shall be maintained
and preserved in the form reasonably requested by the Customer.
The Custodian will supply to the Customer from time to time, as
mutually agreed upon, a statement in respect to any Property in an
Account held by the Custodian or by a Subcustodian. In the
absence of the filing in writing with the Custodian by the
Customer of exceptions or objections to any such statement within
sixty (60) days of the mailing thereof, the Customer shall be
deemed to have approved such statement and in such case or upon
written approval of the Customer of any such statement, such
statement shall be presumed to be for all purposes correct with
respect to all information set forth therein.
(b) The Custodian shall take all reasonable action as the
Customer may request to obtain from year to year favorable
opinions from the Customer's independent certified public
accountants with respect to the Custodian's activities hereunder
in connection with the preparation of the Customer's Form N-1A and
the Customer's Form N-SAR or other periodic reports to the SEC and
with respect to any other requirements of the SEC.
(c) At the request of the Customer, the Custodian shall
deliver to the Customer a written report prepared by the
Custodian's independent certified public accountants with respect
to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding Cash
and Securities, including Cash and Securities deposited and/or
maintained in a securities system or with a Subcustodian. Such
report shall be of sufficient scope and in sufficient detail as
may reasonably be required by the Customer and as may reasonably
be obtained by the Custodian.
(d) The Customer may elect to participate in any of the
electronic on-line service and communications systems offered by
the Custodian which can provide the Customer, on a daily basis,
with the ability to view on-line or to print on hard copy various
reports of Account activity and of Securities and/or Cash being
held in any Account. To the extent that such service shall
include market values of Securities in an Account, the Customer
hereby acknowledges that the Custodian now obtains and may in the
future obtain information on such values from outside sources that
the Custodian considers to be reliable and the Customer agrees
that the Custodian (i) does not verify or represent or warrant
either the reliability of such service nor the accuracy or
completeness of any such information furnished or obtained by or
through such service and (ii) shall be without liability in
selecting and utilizing such service or furnishing any information
derived therefrom.
9. Holding of Securities, Nominees, etc. Securities in
an Account which are held by the Custodian or any Subcustodian may
be held by such entity in the name of the Customer, on behalf of a
Portfolio, in the Custodian's or Subcustodian's name, in the name
of the Custodian's or Subcustodian's nominee, or in bearer form.
Securities that are held by a Subcustodian or which are eligible
for deposit in a Securities System as provided above may be
maintained with the Subcustodian or the Securities System in an
account for the Custodian's or Subcustodian's customers, unless
prohibited by law, rule, or regulation. The Custodian or
Subcustodian, as the case may be, may combine certificates
representing Securities held in an Account with certificates of
the same issue held by it as fiduciary or as a custodian. In the
event that any Securities in the name of the Custodian or its
nominee or held by a Subcustodian and registered in the name of
such Subcustodian or its nominee are called for partial redemption
by the issuer of such Security, the Custodian may, subject to the
rules or regulations pertaining to allocation of any Securities
System in which such Securities have been deposited, allot, or
cause to be allotted, the called portion of the respective
beneficial holders of such class of security in any manner the
Custodian deems to be fair and equitable.
10. Proxies, etc. With respect to any proxies, notices,
reports or other communications relative to any of the Securities
in any Account, the Custodian shall perform such services and only
such services relative thereto as are (i) set forth in Section 3
of this Agreement, (ii) described in Exhibit B attached hereto (as
such service therein described may be in effect from time to time)
(the "Proxy Service") and (iii) as may otherwise be agreed upon
between the Custodian and the Customer. The liability and
responsibility of the Custodian in connection with the Proxy
Service referred to in (ii) of the immediately preceding sentence
and in connection with any additional services which the Custodian
and the Customer may agree upon as provided in (iii) of the
immediately preceding sentence shall be as set forth in the
description of the Proxy Service and as may be agreed upon by the
Custodian and the Customer in connection with the furnishing of
any such additional service and shall not be affected by any other
term of this Agreement. Neither the Custodian nor its nominees or
agents shall vote upon or in respect of any of the Securities in
an Account, execute any form of proxy to vote thereon, or give any
consent or take any action (except as provided in Section 3) with
respect thereto except upon the receipt of Instructions relative
thereto.
11. Segregated Account. To assist the Customer in
complying with the requirements of the 1940 Act and the rules and
regulations thereunder, the Custodian shall, upon receipt of
Instructions, establish and maintain a segregated account or
accounts on its books for and on behalf of a Portfolio.
12. Settlement Procedures. Securities will be transferred,
exchanged or delivered by the Custodian or a Subcustodian upon
receipt by the Custodian of Instructions which include all
information required by the Custodian. Settlement and payment for
Securities received for an Account and delivery of Securities out
of such Account may be effected in accordance with the customary
or established securities trading or securities processing
practices and procedures in the jurisdiction or market in which
the transaction occurs, including, without limitation, delivering
Securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such Securities from
such purchaser or dealer, as such practices and procedures may be
modified or supplemented in accordance with the standard operating
procedures of the Custodian in effect from time to time for that
jurisdiction or market. The Custodian shall not be liable for any
loss which results from effecting transactions in accordance with
the customary or established securities trading or securities
processing practices and procedures in the applicable jurisdiction
or market, so long as the Custodian used reasonable care in
effecting such transactions.
Notwithstanding that the Custodian may settle purchases and
sales against, or credit income to, an Account, on a contractual
basis, as outlined in the Investment Manager User Guide provided
to the Customer by the Custodian, the Custodian may, at its sole
option, reverse such credits or debits to the appropriate Account
in the event that the transaction does not settle, or the income
is not received in a timely manner, and the Customer agrees to
hold the Custodian harmless from any losses which may result
therefrom.
Except as otherwise may be agreed upon by the parties
hereto, the Custodian shall not be required to comply with
Instructions to settle the purchase of any Securities for an
Account unless there is sufficient Cash in such Account at the
time or to settle the sale of any Securities in such Account
unless such Securities are in deliverable form. Notwithstanding
the foregoing, if the purchase price of such securities exceeds
the amount of Cash in an Account at the time of settlement of such
purchase, the Custodian may, in its sole discretion, but in no way
shall have any obligation to, permit an overdraft in such Account
in the amount of the difference solely for the purpose of
facilitating the settlement of such purchase of securities for
prompt delivery for such Account. The Customer agrees to
immediately repay the amount of any such overdraft in the ordinary
course of business and further agrees to indemnify and hold the
Custodian harmless from and against any and all losses, costs,
including, without limitation the cost of funds, and expenses
incurred in connection with such overdraft. The Customer agrees
that it will not use the Account to facilitate the purchase of
securities without sufficient funds in the Account (which funds
shall not include the proceeds of the sale of the purchased
securities).
13. Permitted Transactions. The Customer agrees that it
will cause transactions to be made pursuant to this Agreement only
upon Instructions in accordance Section 14 and only for the
purposes listed below.
(a) In connection with the purchase or sale of Securities
at prices as confirmed by Instructions.
(b) When Securities are called, redeemed or retired, or
otherwise become payable.
(c) In exchange for or upon conversion into other
securities alone or other securities and cash pursuant to any plan
or merger, consolidation, reorganization, recapitalization or
readjustment.
(d) Upon conversion of Securities pursuant to their terms
into other securities.
(e) Upon exercise of subscription, purchase or other
similar rights represented by Securities.
(f) For the payment of interest, taxes, management or
supervisory fees, distributions or operating expenses.
(g) In connection with any borrowings by the Customer
requiring a pledge of Securities, but only against receipt of
amounts borrowed.
(h) In connection with any loans, but only against receipt
of collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer.
(i) For the purpose of redeeming shares of the capital
stock of the Customer against delivery of the shares to be
redeemed to the Custodian, a Subcustodian or the Customer's
transfer agent.
(j) For the purpose of redeeming in kind shares of the
Customer against delivery of the shares to be redeemed to the
Custodian, a Subcustodian or the Customer's transfer agent.
(k) For delivery in accordance with the provisions of any
agreement among the Customer, on behalf of a Portfolio, the
Custodian and a broker-dealer registered under the Securities
Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc., relating to compliance with the rules of
The Options Clearing Corporation, the Commodities Futures Trading
Commission and of any registered national securities exchange, or
of any similar organization or organizations, regarding escrow or
other arrangements in connection with transactions by the
Customer.
(l) For release of Securities to designated brokers under
covered call options, provided, however, that such Securities
shall be released only upon payment to the Custodian of monies for
the premium due and a receipt for the Securities which are to be
held in escrow. Upon exercise of the option, or at expiration,
the Custodian will receive the Securities previously deposited
from broker. The Custodian will act strictly in accordance with
Instructions in the delivery of Securities to be held in escrow
and will have no responsibility or liability for any such
Securities which are not returned promptly when due other than to
make proper request for such return.
(m) For spot or forward foreign exchange transactions to
facilitate security trading or receipt of income from Securities
related transactions.
(n) Upon the termination of this Agreement as set forth in
Section 20.
(o) For other proper purposes.
The Customer agrees that the Custodian shall have no
obligation to verify the purpose for which a transaction is being
effected.
14. Instructions. The term "Instructions" means
instructions from the Customer in respect of any of the
Custodian's duties hereunder which have been received by the
Custodian at its address set forth in Section 21 below (i) in
writing (including, without limitation, facsimile transmission) or
by tested telex signed or given by such one or more person or
persons as the Customer shall have from time to time authorized in
writing to give the particular class of Instructions in question
and whose name and (if applicable) signature and office address
have been filed with the Custodian, or (ii) which have been
transmitted electronically through an electronic on-line service
and communications system offered by the Custodian or other
electronic instruction system acceptable to the Custodian, or
(iii) a telephonic or oral communication by one or more persons as
the Customer shall have from time to time authorized to give the
particular class of Instructions in question and whose name has
been filed with the Custodian; or (iv) upon receipt of such other
form of instructions as the Customer may from time to time
authorize in writing and which the Custodian has agreed in writing
to accept. Instructions in the form of oral communications shall
be confirmed by the Customer by tested telex or writing in the
manner set forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the
Custodian's receipt of such confirmation. Instructions may relate
to specific transactions or to types or classes of transactions,
and may be in the form of standing instructions.
The Custodian shall have the right to assume in the absence
of notice to the contrary from the Customer that any person whose
name is on file with the Custodian pursuant to this Section has
been authorized by the Customer to give the Instructions in
question and that such authorization has not been revoked. The
Custodian may act upon and conclusively rely on, without any
liability to the Customer or any other person or entity for any
losses resulting therefrom, any Instructions reasonably believed
by it to be furnished by the proper person or persons as provided
above.
15. Standard of Care. The Custodian shall be responsible
for the performance of only such duties as are set forth herein or
contained in Instructions given to the Custodian which are not
contrary to the provisions of this Agreement. The Custodian will
use reasonable care with respect to the safekeeping of Property in
each Account and in carrying out its obligations under this
Agreement. So long as and to the extent that it has exercised
reasonable care, the Custodian shall not be responsible for the
title, validity or genuineness of any Property or other property
or evidence of title thereto received by it or delivered by it
pursuant to this Agreement and shall be held harmless in acting
upon, and may conclusively rely on, without liability for any loss
resulting therefrom, any notice, request, consent, certificate or
other instrument reasonably believed by it to be genuine and to be
signed or furnished by the proper party or parties, including,
without limitation, Instructions, and shall be indemnified by the
Customer for any losses, damages, costs and expenses (including,
without limitation, the reasonable fees and expenses of counsel)
incurred by the Custodian and arising out of action taken or
omitted with reasonable care by the Custodian hereunder or under
any Instructions. The Custodian shall be liable to the Customer
for any act or omission to act of any Subcustodian to the same
extent as if the Custodian committed such act itself. With
respect to a Securities System, the Custodian shall only be
responsible or liable for losses arising from employment of such
Securities System caused by the Custodian's own failure to
exercise reasonable care. In the event of any loss to the
Customer by reason of the failure of the Custodian or a
Subcustodian to utilize reasonable care, the Custodian shall be
liable to the Customer to the extent of the Customer's actual
damages at the time such loss was discovered without reference to
any special conditions or circumstances. In no event shall the
Custodian be liable for any consequential or special damages. The
Custodian shall be entitled to rely, and may act, on advice of
counsel (who may be counsel for the Customer) on all matters and
shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
In the event the Customer subscribes to an electronic on-
line service and communications system offered by the Custodian,
the Customer shall be fully responsible for the security of the
Customer's connecting terminal, access thereto and the proper and
authorized use thereof and the initiation and application of
continuing effective safeguards with respect thereto and agree to
defend and indemnify the Custodian and hold the Custodian harmless
from and against any and all losses, damages, costs and expenses
(including the reasonable fees and expenses of counsel) incurred
by the Custodian as a result of any improper or unauthorized use
of such terminal by the Customer or by any others.
All collections of funds or other property paid or
distributed in respect of Securities in an Account, including
funds involved in third-party foreign exchange transactions, shall
be made at the risk of the Customer.
Subject to the exercise of reasonable care, the Custodian
shall have no liability for any loss occasioned by delay in the
actual receipt of notice by the Custodian or by a Subcustodian of
any payment, redemption or other transaction regarding Securities
in each Account in respect of which the Custodian has agreed to
take action as provided in Section 3 hereof. The Custodian shall
not be liable for any loss resulting from, or caused by, or
resulting from acts of governmental authorities (whether de jure
or de facto), including, without limitation, nationalization,
expropriation, and the imposition of currency restrictions;
devaluations of or fluctuations in the value of currencies;
changes in laws and regulations applicable to the banking or
securities industry; market conditions that prevent the orderly
execution of securities transactions or affect the value of
Property; acts of war, terrorism, insurrection or revolution;
strikes or work stoppages; the inability of a local clearing and
settlement system to settle transactions for reasons beyond the
control of the Custodian; hurricane, cyclone, earthquake, volcanic
eruption, nuclear fusion, fission or radioactivity, or other acts
of God.
The Custodian shall have no liability in respect of any
loss, damage or expense suffered by the Customer, insofar as such
loss, damage or expense arises from the performance of the
Custodian's duties hereunder by reason of the Custodian's reliance
upon records that were maintained for the Customer by entities
other than the Custodian prior to the Custodian's employment under
this Agreement.
The provisions of this Section shall survive termination of
this Agreement.
16. Investment Limitations and Legal or Contractual
Restrictions or Regulations. The Custodian shall not be liable to
the Customer and the Customer agrees to indemnify the Custodian
and its nominees, for any loss, damage or expense suffered or
incurred by the Custodian or its nominees arising out of any
violation of any investment restriction or other restriction or
limitation applicable to the Customer or any Portfolio pursuant to
any contract (other than contracts to which the Custodian is a
party) or any law or regulation. The provisions of this Section
shall survive termination of this Agreement.
17. Fees and Expenses. The Customer agrees to pay to the
Custodian such compensation for its services pursuant to this
Agreement as may be mutually agreed upon in writing from time to
time and the Custodian's reasonable out-of-pocket or incidental
expenses in connection with the performance of this Agreement,
including (but without limitation) reasonable legal fees as
described herein and/or deemed necessary in the judgment of the
Custodian to keep safe or protect the Property in the Account.
The initial fee schedule is attached hereto as Exhibit C. The
Customer hereby agrees to hold the Custodian harmless from any
liability or loss resulting from any taxes or other governmental
charges, and any expense related thereto, which may be imposed, or
assessed with respect to any Property in an Account and also
agrees to hold the Custodian, its Subcustodians, and their
respective nominees harmless from any liability as a record holder
of Property in such Account. The provisions of this Section shall
survive the termination of this Agreement.
18. Tax Reclaims. With respect to withholding taxes
deducted and which may be deducted from any income received from
any Property in an Account, the Custodian shall perform such
services with respect thereto as are described in Exhibit D
attached hereto and shall in connection therewith be subject to
the standard of care set forth in such Exhibit D. Such standard
of care shall not be affected by any other term of this Agreement.
19. Amendment, Modifications, etc. No provision of this
Agreement may be amended, modified or waived except in a writing
signed by the parties hereto. No waiver of any provision hereto
shall be deemed a continuing waiver unless it is so designated.
No failure or delay on the part of either party in exercising any
power or right under this Agreement operates as a waiver, nor does
any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other
power or right.
20. Termination. (a) Termination of Entire Agreement.
This Agreement may be terminated by the Customer or the Custodian
by ninety (90) days' written notice to the other; provided that
notice by the Customer shall specify the names of the persons to
whom the Custodian shall deliver the Securities in each Account
and to whom the Cash in such Account shall be paid. If notice of
termination is given by the Custodian, the Customer shall, within
ninety (90) days following the giving of such notice, deliver to
the Custodian a written notice specifying the names of the persons
to whom the Custodian shall deliver the Securities in each Account
and to whom the Cash in such Account shall be paid. In either
case, the Custodian will deliver such Securities and Cash to the
persons so specified, after deducting therefrom any amounts which
the Custodian determines to be owed to it under Sections 12, 17,
and 23. In addition, the Custodian may in its discretion withhold
from such delivery such Cash and Securities as may be necessary to
settle transactions pending at the time of such delivery. The
Customer grants to the Custodian a lien and right of setoff
against the Account and all Property held therein from time to
time in the full amount of the foregoing obligations. If within
ninety (90) days following the giving of a notice of termination
by the Custodian, the Custodian does not receive from the Customer
a written notice specifying the names of the persons to whom the
Custodian shall deliver the Securities in each Account and to whom
the Cash in such Account shall be paid, the Custodian, at its
election, may deliver such Securities and pay such Cash to a bank
or trust company doing business in the State of New York to be
held and disposed of pursuant to the provisions of this Agreement,
or may continue to hold such Securities and Cash until a written
notice as aforesaid is delivered to the Custodian, provided that
the Custodian's obligations shall be limited to safekeeping.
(b) Termination as to One or More Portfolios. This
Agreement may be terminated by the Customer or the Custodian as to
one or more Portfolios (but less than all of the Portfolios) by
delivery of an amended Exhibit A deleting such Portfolios, in
which case termination as to such deleted Portfolios shall take
effect ninety (90) days after the date of such delivery, or such
earlier time as mutually agreed. The execution and delivery of an
amended Exhibit A which deletes one or more Portfolios shall
constitute a termination of this Agreement only with respect to
such deleted Portfolio(s), shall be governed by the preceding
provisions of Section 20 as to the identification of a successor
custodian and the delivery of Cash and Securities of the
Portfolio(s) so deleted to such successor custodian, and shall not
affect the obligations of the Custodian and the Customer hereunder
with respect to the other Portfolios set forth in Exhibit A, as
amended from time to time.
21. Notices. Except as otherwise provided in this
Agreement, all requests, demands or other communications between
the parties or notices in connection herewith (a) shall be in
writing, hand delivered or sent by telex, telegram, cable,
facsimile or other means of electronic communication agreed upon
by the parties hereto addressed, if to the Customer, to:
Allmerica Funds
440 Lincoln Street
Worcester, Massachussetts 01653
Attn:
Phone:
Fax:
if to the Custodian, to:
Bankers Trust Company
16 Wall Street, 4th Floor
New York, NY 10005
Attn: Frank Fasette
Phone: (212) 618-2646
Fax: (212) 618-3052
or in either case to such other address as shall have been
furnished to the receiving party pursuant to the provisions hereof
and (b) shall be deemed effective when received, or, in the case
of a telex, when sent to the proper number and acknowledged by a
proper answerback.
22. Several Obligations of the Portfolios. With respect
to any obligations of the Customer on behalf of each Portfolio and
each of its related Accounts arising out of this Agreement, the
Custodian shall look for payment or satisfaction of any obligation
solely to the assets and property of the Portfolio and such
Accounts to which such obligation relates as though the Customer
had separately contracted with the Custodian by separate written
instrument with respect to each Portfolio and its related
Accounts.
23. Security for Payment. To secure payment of all
obligations due hereunder, the Customer hereby grants to Custodian
a continuing security interest in and right of setoff against each
Account and all Property held therein from time to time in the
full amount of such obligations; provided that, if there is more
than one Account and the obligations secured pursuant to this
Section can be allocated to a specific Account or the Portfolio
related to such Account, such security interest and right of
setoff will be limited to Property held for that Account only and
its related Portfolio. Should the Customer fail to pay promptly
any amounts owed hereunder, Custodian shall be entitled to use
available Cash in the Account or applicable Account, as the case
may be, and to dispose of Securities in the Account or such
applicable Account as is necessary. In any such case and without
limiting the foregoing, Custodian shall be entitled to take such
other action(s) or exercise such other options, powers and rights
as Custodian now or hereafter has as a secured creditor under the
New York Uniform Commercial Code or any other applicable law.
24. Representations and Warranties.
(a) The Customer hereby represents and warrants to the
Custodian that:
(i) the employment of the Custodian and the
allocation of fees, expenses and other charges to any Account as
herein provided, is not prohibited by law or any governing
documents or contracts to which the Customer is subject;
(ii) the terms of this Agreement do not violate any
obligation by which the Customer is bound, whether arising by
contract, operation of law or otherwise;
(iii) this Agreement has been duly authorized by
appropriate action and when executed and delivered will be binding
upon the Customer and each Portfolio in accordance with its terms;
and
(iv) the Customer will deliver to the Custodian such
evidence of such authorization as the Custodian may reasonably
require, whether by way of a certified resolution or otherwise.
(b) The Custodian hereby represents and warrants to the
Customer that:
(i) the terms of this Agreement do not violate any
obligation by which the Custodian is bound, whether arising by
contract, operation of law or otherwise;
(ii) this Agreement has been duly authorized by
appropriate action and when executed and delivered will be binding
upon the Custodian in accordance with its terms;
(iii) the Custodian will deliver to the Customer such
evidence of such authorization as the Customer may reasonably
require, whether by way of a certified resolution or otherwise;
and
(iv) Custodian is qualified as a custodian under
Section 26(a) of the 1940 Act and warrants that it will remain so
qualified or upon ceasing to be so qualified shall promptly notify
the Customer in writing.
25. Governing Law and Successors and Assigns. This
Agreement shall be governed by the law of the State of New York
and shall not be assignable by either party, but shall bind the
successors in interest of the Customer and the Custodian.
26. Publicity. Customer shall furnish to Custodian at its
office referred to in Section 21 above, prior to any distribution
thereof, copies of any material prepared for distribution to any
persons who are not parties hereto that refer in any way to the
Custodian. Customer shall not distribute or permit the
distribution of such materials if Custodian reasonably objects in
writing within ten (10) business days of receipt thereof (or such
other time as may be mutually agreed) after receipt thereof. The
provisions of this Section shall survive the termination of this
Agreement.
27. Representative Capacity and Binding Obligation. A
copy of the Agreement and Declaration of trust of the Customer is
on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is
not executed on behalf of the Trustees of the Customer as
individuals, and the obligations of this Agreement are not binding
upon any of the Trustees, officers or shareholders of the Customer
individually but are binding only upon the assets and property of
the Portfolios.
The Custodian agrees that no shareholder, trustee or officer
of the Customer may be held personally liable or responsible for
any obligations of the Customer arising out of this Agreement.
28. Submission to Jurisdiction. Any suit, action or
proceeding arising out of this Agreement may be instituted in any
State or Federal court sitting in the City of New York, State of
New York, United States of America, and the Customer irrevocably
submits to the non-exclusive jurisdiction of any such court in any
such suit, action or proceeding and waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have
to the laying of venue of any such suit, action or proceeding
brought in such a court and any claim that such suit, action or
proceeding was brought in an inconvenient forum.
29. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
This Agreement shall become effective when one or more
counterparts have been signed and delivered by each of the parties
hereto.
30. Confidentiality. The parties hereto agree that each
shall treat confidentially the terms and conditions of this
Agreement and all information provided by each party to the other
regarding its business and operations. All confidential
information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering services pursuant
to this Agreement and, except as may be required in carrying out
this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall
not be applicable to any information that is publicly available
when provided or thereafter becomes publicly available other than
through a breach of this Agreement, or that is required or
requested to be disclosed by any bank or other regulatory examiner
of the Custodian, Customer, or any Subcustodian, any auditor of
the parties hereto, by judicial or administrative process or
otherwise by applicable law or regulation.
31. Severability. If any provision of this Agreement is
determined to be invalid or unenforceable, such determination
shall not affect the validity or enforceability of any other
provision of this Agreement.
32. Headings. The headings of the paragraphs hereof are
included for convenience of reference only and do not form a part
of this Agreement.
ALLMERICA FUNDS
By: /s/ Richard M. Reilly
Name: Richard M. Reilly
Title: _______________________
BANKERS TRUST COMPANY
By: /s/ Joseph W. Sarbinowski
Name: Joseph W. Sarbinowski
Title: Vice President
EXHIBIT A
To Custodian Agreement dated as of October 25, 1995 between
Bankers Trust Company and Allmerica Funds.
LIST OF PORTFOLIOS
The following is a list of Portfolios referred to in the
first WHEREAS clause of the above-referred to Custodian Agreement.
Terms used herein as defined terms unless otherwise defined shall
have the meanings ascribed to them in the above-referred to
Custodian Agreement.
Investment Grade Income Fund
Dated as of: October 25, 1995 ALLMERICA FUNDS
By: /s/ Richard M. Reilly
Name: Richard M. Reilly
Title: _______________________
BANKERS TRUST COMPANY
By: /s/ Joseph W. Sarbinowski
Name: Joseph W. Sarbinowski
Title: Vice President
EXHIBIT B
To Custodian Agreement dated as of October 25, 1995 between
Bankers Trust Company and Allmerica Funds.
PROXY SERVICE
The following is a description of the Proxy Service referred
to in Section 10 of the above referred to Custodian Agreement.
Terms used herein as defined terms shall have the meanings
ascribed to them therein unless otherwise defined below.
The Custodian provides a service, described below, for the
transmission of corporate communications in connection with
shareholder meetings relating to Securities held in Argentina,
Australia, Austria, Canada, Denmark, Finland, France, Germany,
Greece, Hong Kong, Indonesia, Ireland, Italy, Japan, Korea,
Malaysia, Mexico, Netherlands, New Zealand, Pakistan, Poland,
Singapore, South Africa, Spain, Sri Lanka, Sweden, United Kingdom,
United States, and Venezuela. For the United States and Canada,
the term "corporate communications" means the proxy statements or
meeting agenda, proxy cards, annual reports and any other meeting
materials received by the Custodian. For countries other than the
United States and Canada, the term "corporate communications"
means the meeting agenda only and does not include any meeting
circulars, proxy statements or any other corporate communications
furnished by the issuer in connection with such meeting. Non-
meeting related corporate communications are not included in the
transmission service to be provided by the Custodian except upon
request as provided below.
The Custodian's process for transmitting and translating
meeting agendas will be as follows:
1) If the meeting agenda is not provided by the issuer in
the English language, and if the language of such agenda is in the
official language of the country in which the related security is
held, the Custodian will as soon as practicable after receipt of
the original meeting agenda by a Subcustodian provide an English
translation prepared by that Subcustodian.
2) If an English translation of the meeting agenda is
furnished, the local language agenda will not be furnished unless
requested.
Translations will be free translations and neither the
Custodian nor any Subcustodian will be liable or held responsible
for the accuracy thereof or any direct or indirect consequences
arising therefrom, including without limitation arising out of any
action taken or omitted to be taken based thereon.
If requested, the Custodian will, on a reasonable efforts
basis, endeavor to obtain any additional corporate communication
such as annual or interim reports, proxy statements, meeting
circulars, or local language agendas, and provide them in the form
obtained.
Timing in the voting process is important and, in that
regard, upon receipt by the Custodian of notice from a
Subcustodian, the Custodian will provide a notice to the Customer
indicating the deadline for receipt of its instructions to enable
the voting process to take place effectively and efficiently. As
voting procedures will vary from market to market, attention to
any required procedures will be very important. Upon timely
receipt of voting instructions, the Custodian will promptly
forward such instructions to the applicable Subcustodian. If
voting instructions are not timely received, the Custodian shall
have no liability or obligation to take any action.
For Securities held in markets other than those set forth in
the first paragraph, the Custodian will not furnish the material
described above or seek voting instructions. However, if
requested to exercise voting rights at a specific meeting, the
Custodian will endeavor to do so on a reasonable efforts basis
without any assurance that such rights will be so exercised at
such meeting.
If the Custodian or any Subcustodian incurs extraordinary
expenses in exercising voting rights related to any Securities
pursuant to appropriate instructions or direction (e.g., by way of
illustration only and not by way of limitation, physical presence
is required at a meeting and/or travel expenses are incurred),
such expenses will be reimbursed out of the Account containing
such Securities unless other arrangements have been made for such
reimbursement.
It is the intent of the Custodian to expand the Proxy
Service to include jurisdictions which are not currently included
as set forth in the second paragraph hereof. The Custodian will
notify the Customer as to the inclusion of additional countries or
deletion of existing countries after their inclusion or deletion
and this Exhibit B will be deemed to be automatically amended to
include or delete such countries as the case may be.
Dated as of: October 25, 1995 ALLMERICA FUNDS
By: /s/ Richard M. Reilly
Name: Richard M. Reilly
Title: _______________________
BANKERS TRUST COMPANY
By: /s/ Joseph W. Sarbinowski
Name: Joseph W. Sarbinowski
Title: Vice President
EXHIBIT C
DOMESTIC CUSTODY FEE SCHEDULE
To custodian agreement dated as of October 25, 1995 between
Bankers Trust Company and Allmerica
Funds.
Activity Monthly Holding Charge per issue
DTC $1 00
FBE $1.00
PTC $1 .00
Physical $2.40
*Eurobonds Market Value 2.0 Basis Points
Blue Sheet $2.40
Private Placements $2.40
Activity Per Transaction
Reorg $4.50
DTC $4 50
FBE $6.00
PTC $6.00
Physical $15.00
Euroclear/Cedel $30.00
Wires ( MBS P&I, Privates, etc.) $6.50
Activity Miscellaneous
Fed Wire In $3.00
Fed Wire Out $3.00
*2.0 basis points reflects an annualized charge.
This Exhibit C shall be amended upon delivery by the Custodian of
a new Exhibit C to the Customer and acceptance thereof by the
Customer and shall be effective as of the date of acceptance by
the Customer or a date agreed upon between the Custodian and the
Customer.
EXHIBIT C
To custodian agreement dated as of October 25, 1995 between
Bankers Trust Company
and Allmerica Funds.
Global Custody Fee Schedule
1. Annual Asset Fee (based on mkt value per annum)
TIER 1 2 BASIS POINTS
Cedel (Eurobonds)
Euroclear (Eurobonds)
TIER II 6 BASIS POINTS
Canada
Germany
Italy ($50 transaction fee)
Japan
United Kingdom
Tier III 7 Basis Points
Australia Netherlands
Austria ($50 per New Zealand ($50 per
transaction) transaction)
Belgium Norway ($50 per
transaction)
Denrnark ($50 per Switzerland
transaction)
France Sweden
Treland
Tier IV 10 Basis Points
Hong Kong - ($60 per transaction)
Indonesia
Luxembourg
Malaysia
Mexico
Philippines
Singapore
South Africa
Spain
Thailand
Fee Schedule
TIER V
Country Annual Receive and Deliver
Asset Fee Transactions
Argentina 35 Basis Points $150
Brazil 40 Basis Points $100
Chile 30 Basis Points $100
Columbia 30 Basis Points $100
Finland 10 Basis Points $75
Greece 33 Basis Points $120
Israel 25 Basis Points $50
Pakistan 30 Basis Points $150
Peru 50 Basis Points $100
Portugal 10 Basis Points $75
Shenzen/Shanghai 30 Basis Points $100
South Korea 15 Basis Points $75
Sri Lanka 12 Basis Points $60
Taiwan 15 Basis Points $100
Turkey 15 Basis Points $75
Venezuela 30 Basis Points $100
2. Account Charge - $0 Per Account (Per Month)
3. Trades - Receive and Deliver Transactions $30
For Tier I, II, III (unless noted)
Tier IV (unless noted) $75
4. Front End System Free of Charge
Notes
1. Fees are billed monthly
2. Fees for the receipt of positions relating to the initial asset
transition will be waived with the exception of the United
Kingdom, Spain and Indonesia where re-registration fees will be
assessed.
3. Cash movements will be assessed at $3 per U.S. wire movement
and $50 per non U.S. wire movement. For FX trades concluded with
BTCo., this charge will be waived.
4. Fees for investment in countries not listed will be negotiated
separately.
This Exhibit C shall be amended upon delivery by the Custodian of
a new Exhibit C to the Customer and acceptance thereof by the
Customer and shall be effective as of the date of acceptance by
the Customer or a date agreed upon between the Custodian and the
Customer.
EXHIBIT D
To Custodian Agreement dated as of October 25, 1995 between
Bankers Trust Company and Allmerica Funds.
TAX RECLAIMS
Pursuant to Section 18 of the above referred to Custodian
Agreement, the Custodian shall perform the following services with
respect to withholding taxes imposed or which may be imposed on
income from Property in any Account. Terms used herein as defined
terms shall unless otherwise defined have the meanings ascribed to
them in the above referred to Custodian Agreement.
When withholding tax has been deducted with respect to
income from any Property in an Account, the Custodian will
actively pursue on a reasonable efforts basis the reclaim process,
provided that the Custodian shall not be required to institute any
legal or administrative proceeding against any Subcustodian or
other person. The Custodian will provide fully detailed
advices/vouchers to support reclaims submitted to the local
authorities by the Custodian or its designee. In all cases of
withholding, the Custodian will provide full details to the
Customer. If exemption from withholding at the source can be
obtained in the future, the Custodian will notify the Customer and
advise what documentation, if any, is required to obtain the
exemption. Upon receipt of such documentation from the Customer,
the Custodian will file for exemption on the Customer's behalf and
notify the Customer when it has been obtained.
In connection with providing the foregoing service, the
Custodian shall be entitled to apply categorical treatment of the
Customer according to the Customer's nationality, the particulars
of its organization and other relevant details that shall be
supplied by the Customer. It shall be the duty of the Customer to
inform the Custodian of any change in the organization, domicile
or other relevant fact concerning tax treatment of the Customer
and further to inform the Custodian if the Customer is or becomes
the beneficiary of any special ruling or treatment not applicable
to the general nationality and category or entity of which the
Customer is a part under general laws and treaty provisions. The
Custodian may rely on any such information provided by the
Customer.
In connection with providing the foregoing service, the
Custodian may also rely on professional tax services published by
a major international accounting firm and/or advice received from
a Subcustodian in the jurisdictions in question. In addition, the
Custodian may seek the advice of counsel or other professional tax
advisers in such jurisdictions. The Custodian is entitled to
rely, and may act, on information set forth in such services and
on advice received from a Subcustodian, counsel or other
professional tax advisers and shall be without liability to the
Customer for any action reasonably taken or omitted pursuant to
information contained in such services or such advice.
Dated as of: October 25, 1995 ALLMERICA FUNDS
By: /s/ Richard M. Reilly
Name: Richard M. Reilly
Title: _______________________
BANKERS TRUST COMPANY
By: /s/ Joseph W. Sarbinowski
Name: Joseph W. Sarbinowski
Title: Vice President
- -
- -
CONSENT TO ASSIGNMENT
The undersigned consents to the Assignment attached
hereto on the express condition that (1) Assignor will remain
liable for the performance of each and every one of its
obligations under the Contract arising on or before the Effective
Date; (2) Assignee will not be liable for any obligations under
the Contract arising on or before the Effective Date; (3) this
Consent to Assignment will not be deemed a consent to any
subsequent assignment but rather any subsequent assignment will
require the prior written consent of the undersigned pursuant to
the terms of the Contract; and (4) Assignor will notify the
undersigned of the actual Effective Date if such date occurs on a
date other than March 31, 1995.
ALLMERICA FUNDS
By: /s/ Robert T. Stemple
Name: Robert T. Stemple
Title: Vice President
ASSIGNMENT OF CONTRACT
This ASSIGNMENT OF CONTRACT (the "Assignment") is dated as
of the 31st day of March, 1995 by and between 440 Financial Group
of Worcester, Inc., a Massachusetts corporation ("Assignor"), and
The Shareholder Services Group, Inc., a Massachusetts corporation
("Assignee").
W I T N E S S E T H:
WHEREAS, Assignor is a party to the contract or contracts
attached hereto as Exhibit A (the "Contract") and identified as
follows:
Fund Accounting Services Agreement between Allmerica Funds
(formerly State Mutual Investment Trust) and Assignor dated
September 6, 1991; Transfer Agency and Registrar Agreement between
Allmerica Funds and Assignor dated September 6, 1991; and Side
Agreement.
WHEREAS, Assignor, State Mutual Life Assurance Company of
America and Assignee have entered into a Stock and Asset Purchase
Agreement dated March 9, 1995, as amended (the "Purchase
Agreement") for the purchase and sale of Assignor's business, and
the closing date for the transactions contemplated by the Purchase
Agreement is March 31, 1995 or such other date as the parties may
agree (the "Effective Date").
WHEREAS, Assignor desires to transfer to Assignee all of
Assignor's right, title and interest in the Contract.
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Assignor and Assignee
agree as follows:
1. Assignment of the Contract. Assignor hereby transfers and
assigns to Assignee all of Assignor's right, title and interest in
and to the Contract.
2. Assumption and Acceptance of the Contract. By acceptance
of this Assignment, Assignee hereby assumes and agrees to perform
all of the obligations and covenants of Assignor under the
Contract from and after the Effective Date.
3. Consent. The effectiveness of this Assignment is expressly
subject to the written consent of all other parties to the
Contract.
4. Indemnification. Assignor agrees that it will remain liable
under the Contract for all obligations arising on or before the
Effective Date and will indemnify and hold harmless Assignee from
any such obligation, subject to the provisions of Article X of the
Purchase Agreement.
IN WITNESS WHEREOF, this Assignment has been executed by -
Assignor and Assignee as a sealed instrument as of the day and
year first written above.
ASSIGNOR
440 FINANCIAL GROUP OF WORCESTER INC.
By: /s/ Walter Labberti
Name: Walter Labberti
Title: Vice President
ASSIGNEE
THE SHAREHOLDER SERVICES GROUP, INC.
By: /s/ illegible signature
Name: ______________
Title: _______________
EXHIBIT A
FUND ACCOUNTING SERVICES AGREEMENT
THIS AGREEMENT made as of September 6, 1991, between STATE
MUTUAL INVESTMENT TRUST, 440 Lincoln Street, Worcester,
Massachusetts 01605 (the "Trust") and 440 FINANCIAL GROUP OF
WORCESTER, INC., 440 Lincoln Street, Worcester, Massachusetts
01605 ("440 Financial").
WHEREAS, the Trust hass need for certain accounting and pricing
services for each series of shares of the Trust (the "Funds")
which 440 Financial is willing and able to provide;
NOW THEREFORE in consideration of the mutual promises herein made,
the Trust and 440 Financial agree as follows:
Section 1. Duties of 440 Financial - General
440 Financial is authorized to act under the terms of this
agreement as the Trust's agent for each Fund, and as such 440
Financial will:
a. Maintain and preserve accounts, books, records and other
documents on behalf of the Fund required under Section 31 of the
Investment Company Act of 1940 and Rules 31a-1 and 31a-2
thereunder;
b. Record the current day's trading activity and such other
proper bookkeeping entries as are necessary
or determining that day's net asset value;
c. Render such statements or copies of records as are listed in
Exhibit A hereto as from time to time are reasonably
requested by the Fund; and such other information as the Fund may
reasonably request and that 440 Financial is in a position to
reasonably provide;
d. Facilitate audits of accounts by the Fund's auditors or by any
other auditors employed or engaged by the Fund or by any
regulatory body with jurisdiction over the Fund;
e. Compute the Fund's net asset value per share on each day
prescribed by the Fund's Registration Statement
and, if applicable, its public offering price and/or its rates and
yields, and notify the Fund and such other persons as the Fund
may reasonably request, of the net asset value per share, the
public offering price and/or the yield. 440 Financial
acknowledges that additional series of the Trust may be
established and that such series, including any of the
Funds, may be terminated from time to time by action of the
Board of Trustees of the Trust. To the extent the Trust shall add
new Funds, such other Funds also shall be subject to this
Agreement.
Section 2. Valuation of Securities
Securities will be valued in accordance with the specific
provisions of the Trust's Registration Statement, as amended from
time to time (the ''Trust's Registration Statement", such term
also to include, if applicable each separate Fund's registration
statement). In general, consistent with the Trust's Registration
Statement, securities listed on an exchange will be valued on the
basis of the last sale prior to the time the valuation is made.
Quotations will be taken from the exchange where the security is
primarily traded. Over-the-counter securities for which market
quotations are readily available will be valued at the closing bid
price. Securities for which market quotations are not readily
available will be valued at fair market value as determined by the
Fund which will immediately notify 440 Financial of such value.
440 Financial will use one or more external pricing services as
selected and authorized by the Fund on the Pricing Authorization
Form attached hereto as Exhibit B. 440 Financial shall not be
liable for any loss, cost, damage, claim or other matter incurred
by or assessed against the Fund, regardless of how characterized,
based on or resulting from the inaccuracy or other deficiency in
any information or data provided to 440 Financial by such vendor
and used by 440 Financial in the performance of its services
hereunder.
Section 3. Computation of Net Asset Value, Public Offering
Price and Performance Information
440 Financial will compute each Fund's net asset value in a manner
consistent with the specific provisions of the Trust's
Registration Statement. In general, such computation will be made
by dividing the value of the Fund's portfolio securities, cash and
any other assets, less its liabilities, by the number of shares of
the Fund outstanding. Such computation will be made as of the
close of business on the New York Stock Exchange each day, Monday
through Friday, exclusive of national business holidays and other
days on which the New York Stock Exchange is not open for
business. If applicable, 440 Financial will also compute the
public offering price by dividing the net asset value per share by
the appropriate factor as provided by the Fund. 440 Financial
will compute the Fund's dividend rate and yield, if applicable, in
accordance with the specific provisions of the Trust's
Registration Statement.
Section 4. 440 Financial's Reliance on Instructions and Advice
In maintaining each Fund's books of account and making the
necessary computations, 440 Financial shall be entitled to
receive, and may rely upon, information furnished it by any person
certified to 440 Financial as being authorized by the Board of
Trustees of the Fund relating to:
a. The manner and amount of accrual of expenses other than
management fees to be recorded on the books
of the Fund;
b. The source of quotations to be used for such securities as may
not be available through 440 Financial's normal pricing services;
c. The value to be assigned to any asset for which no price
quotations are readily available;
d. If applicable, the manner of computation of the public
offering price and such other computations as may be
necessary; and
e. Notification of transactions in portfolio securities.
440 Financial shall be entitled to rely upon any electronically
transmitted date, certificate, letter or other instrument or
telephone call reasonably believed by 440 Financial to be genuine
and to have been properly sent, made or signed by an officer or
other authorized agent of the Trust or the Fund, and shall be
entitled to receive as conclusive proof of any fact or matter
required to be ascertained by it hereunder a certificate signed by
an officer of the Trust or the Fund or any other person authorized
by the Trust's or the Fund's Board of Trustees.
440 Financial shall be entitled to receive and act upon advice of
counsel (which may be counsel for the Trust or the Fund) and shall
be without liability for any action taken or thing done in good
faith in reliance upon such advice.
The Trust agrees promptly to furnish 440 Financial with a copy of
the Trust's Registration Statement in effect from time to time.
440 Financial may conclusively rely on the most recently delivered
Trust's Registration Statement (including relevant amendments) for
all purposes under this Agreement and shall not be liable-to the
Trust in acting in reliance thereon.
Section 5. Indemnification
The Trust and each Fund agrees to jointly and severally indemnify
and hold harmless 440 Financial and its employees, personnel,
agents and nominees from all taxes, charges, expenses,
assessments, claims and liabilities (including attorney's fees)
incurred or assessed against them in connection with the
performance of this Agreement, except such as may arise from their
own negligent action, negligent failure to act, bad faith or
willful misconduct. The foregoing notwithstanding, 440 Financial
will in no event be liable for any loss resulting from the acts,
omissions, lack of financial responsibility, or failure to perform
the obligations of any person or organization designated by the
Trust or the Fund to be the authorized agent of the Trust or the
Fund as a party to any transaction.
440 Financial shall at all times use reasonable care and act in
good faith in performing its duties hereunder, but 440 Financial
shall be excused from failing to act or delay in acting if such
failure or delay is caused any legal constraint, interruption of
transmission or communication facilities, eouipment failure, war,
emergency conditions or other circumstances beyond its control.
440 Financial's responsibility for damage or loss arising from
such causes shall be limited to the use of its reasonable efforts
to recover the Fund's records determined to be lost, missing or
destroyed.
Section 6. Compensation and 440 Financial's Expenses
440 Financial shall be paid as compensation for its services
pursuant to this Agreement such compensation as may from time to
time be agreed upon in writing between 440 Financial and the
Trust. 440 Financial shall be entitled to recover its telephone,
delivery and all other out-of-pocket expenses as incurred,
including without limitation, reasonable attorney's fees.
Section 7. Termination
Either 440 Financial or the Trust may terminate this Agreement by
giving ninety days' written notice in advance to the other. Upon
termination 440 Financial will turn over to the Trust and cease to
retain in 440 Financial's files, records of the calculations of
net asset value and all other records pertaining to its services
hereunder, provided, however, 440 Financial in its discretion-may
make and retain copies of any and all such records and document
which it determines appropriate or for its protection.
Section 8. Miscellaneous
This Agreement may not be assigned by 440 Financial without the
consent of the Trust as authorized or approved by resolution of
its Board of Directors.
In connection with the operation of this Agreement, the Trust and
440 Financial may agree from time to time on such provisions
interpretive of or in addition to the provisions of this Agreement
as in their joint opinions may be consistent with the general
tenor of this Agreement. Any such interpretive or additional
provisions are to be signed by both parties and annexed hereto.
Nothing in this Agreement shall give or be construed to give any
shareholder of any Fund any rights against 440 Financial.
A copy of the Agreement and Declaration of Trust of the Trust is
on file with the Secretary of The Commonwealth of Massachusetts,
and it is hereby agreed that this instrument is executed on behalf
of the Trustees of the Trust as Trustees and not individually and
that the obligations of this instrument are not binding upon any
of the Trustees, officers or shareholders of the Trust
individually but are binding only upon the assets and property of
the Trust.
This Agreement shall be governed and construed in accordance with
the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their respective officers thereunto duly
authorized as of the date first written above.
Executed in several counterparts, each of which is an original.
440 FINANCIAL GROUP STATE MUTUAL INVESTMENT TRUST
OF WORCESTER, INC.
By /s/ illegible signature By /s/ Richard M. Reilly
Title: Vice President Title: Vice President
EXHIBIT A
to
Fund Accounting Services Agreement
Standard Reports and Availabilitv
The following reports will be provided to the Fund on a regular
basis with availability
as indicated:
A. Daily
1. Printed Trial Balance
2. Net Asset Value Worksheet
3. Schedule of Investments
4. Rate/Yield Computation, if applicable
B. Weekly
1. Tax Lot Ledgers
2. Schedule of Investments For Money Market Funds
(Mark to Market)
C. Monthly
1. Tax Lot Ledgers as of month-end
2. Working Appraisal as of month-end
3. Purchase and Sale Journal for the month
4. Summary of Gains and Losses on Securities for the month
5. Dividend Ledger for the month (receivable as of month end and
earned)
6. Interest Income Analysis for the month (receivable as of
month-end and earned)
7. Trial Balance as of month-end
8. Net Asset Value Worksheet as of month-end
9. Open Trades (payables and receivables for unsettled securities
transactions)
D. Annually
1. Purchase and Sale Journal for the year
2. Summary of Gains and Losses on Securities for the year
3. Broker Allocation Report for the year
E. Availability of Reports
1. Daily reports should be available for data transmission, if
desired, by 9:00 AM Worcester time;
2. Monthly and annual reports, except for Interest Income
Analysis, should available by the tenth business day of the
following month. The Interest Income Analysis should be available
by the fifteenth business day of the following month.
EXHIBIT B
Pricing Authorization Form
STATE MUTUAL INVESTMENT TRUST (the "Trust") hereby requests and authorizes
440 FINANCIAL GROUP
OF WORCESTER,
INC. ("440 Financial") to use the following price sources, market indices
and tolerance ranges
for performing fund pricing and evaluating
the reasonability of security prices for each series of shares of the Trust.
Security Source/ Tolerance Back-Up for
General
Type Type of Quote Level Tolerance
Fails Back-Up
Money Market Muller Data Service .02% Not
Applicable State Mutual
Instruments Last Sale--if no
Traders
last sale mean
Under Rule 2a-7, the Trust adopted amortized cost.
Mark-to-market prices are obtained, as described
above, on a weekly basis.
We understand that 440 Financial does not assume responsibility for and
shall not be liable for
the accuracy of or any other matter relating to
the quotations provided by any of the sources noted above, so long as
440 Financial uses
reasonable efforts to assess their accuracy by performing
reasonability tests using the tolerance ranges and indices noted above.
STATE MUTUAL INVESTMENT TRUST 440 FINANCIAL
GROUP
OF
WORCESTER, INC.
/s/ Richard M. Reilly By /s/
illegible signature
Authorized Officer of the Fund Title:
Vice President
Title: President Date:
September 6, 1991
Date: September 6, 1991
FORM
OF
NOTICE
Notice, effective August 21, 1992, with respect
to the Fund Accounting Services Agreement (the
"Agreement") between State Mutual Investment Trust
(the "Trust") and 440 Financial Group of Worcester,
Inc. ("440 Financial") dated September 16, 1991.
The Trust hereby gives notice that;
(i) the name of the Trust has been changed
to Allmerica Funds;
(ii) three additional series of the
Trust, the Growth Fund, the Growth and Income
Fund and Investment Grade Income Fund
(the "New Series") have been established,
and 440 Financial will serve as fund
accounting services agent for the New Series under
the terms of the Agreement; and
(iii) for purposes of Section 6 of the
Agreement, the Trust will pay 440 Financial on a
monthly basis as compensation for its
services to the New Series as follows:
Fund Net Assets Annual Per Fund Fee
Under $50 Million $ 25,000
$50 - $200 Million $ 35,000
$200 - $500 Miliion $ 50,000
$500 Million - $1 Billion $ 85,000
Greater than $1 Billion $ 125,000
Out-of-pocket charges for price quotes will be charged
at actual cost. This is expected to be $.50 for bond
and money market quotes, and $.20 for equity quotes.
This Notice is not intended to, and does not, alter or
amend the Agreement, which remains in full force and
effect.
P:\SHARED\440\AF\CONTRACT\CONSENT.DOC 2
P:\SHARED\440\AF\CONTRACT\CONSENT.DOC
ADMINISTRATION AGREEMENT
THIS AGREEMENT is made as of this 31st day of March, 1995,
by and between ALLMERICA INVESTMENT MANAGEMENT COMPANY, INC., a
Massachusetts corporation (the "Company"), and The Shareholder
Services Group, Inc., a Massachusetts corporation, having its
principal place of business at 53 State Street, Boston,
Massachusetts (the "Administrator").
WHEREAS, the Company is an Investment Advisor resistered
under the Investment Adviser's Act of 1940, as amended, and is
currently a party to certain Investment Advisory Agreements with
Allmerica Investment Trust and Allmerica Funds (collectively, the
"Trusts" and individually, a "Trust") pursuant to which agreements
the has agreed to provide, among other things, administration
services to the Trust; and
WHEREAS, the Company is authorized to enter into this
Agreement pursuant to its Investment
Advisory Agreement with the Trusts; and
WHEREAS, the Trusts are registered as investment companies
under the Investment Company Act of 1940, as amended, (the "1940
Act") and currently continue to offer units of beneficial interest
(such units, of all series and classes, are hereinafter called the
"Shares"), representing interests in investment portfolios of the
Trusts (individually, a "Fund" and collectively, the "Funds''),
which are registered with the Securities and Exchange Commission
("SEC"), pursuant to the Trusts' Registration Statements on Form
N-1A (each, a "Registration Statement"); and
WHEREAS, the Company desires that the Administrator perform
certain administrative and supervisory services as to the
operations of each investment Fund of the Trusts (identified on
Schedule A hereto), and additional Funds that may be added by the
Trusts from time to time, on behalf of the Company; and
WHEREAS, the Administrator is prepared to perform such
services, commencing on the date hereof on the terms and
conditions set forth in this Agreement,
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein set forth, and intending to be legally bound
hereby the parties agree as follows:
1. Services As Administraor
Subject to the direction and control of the Company
(which, in turn, is subject to the direction and control of the
Boards of Trustees of the respective Trusts), the Administrator
will assist in supervising all aspects of the operations of the
Funds except those performed by the fund manager and sub-advisors
under the Management Agreement and Sub-Advisor Agreements,
respectively, the Fund accounting agent under its Fund Accounting
Services Agreement, the custodian for the Trusts under its
Custodian Agreement, the transfer agent for the Trusts under its
Transfer Agency Agreement, and the distributor for the Trusts
under its Distribution Agreement.
The Administrator will maintain office facilities (in
such location as the Administrator shall reasonably determine);
furnish statistical and research data, clerical services and
office supplies, prepare the periodic reports to the SEC on Form
N-SAR or any replacement forms therefor, compile data for, prepare
for execution by the Trusts and file all of the Trusts' federal
and state tax returns and required tax filings other than those
required to be made by the Trusts' custodian and transfer agent;
prepare compliance filings pursuant to state securities laws with
the advice of the Company's and Trusts' counsel; assist to the
extent requested by the Company on behalf of the Trusts with the
Trusts' preparation of Annual, Semi-Annual and Quarterly Reports
to Shareholders; prepare and file timely Notices to the SEC
required pursuant to Rule 24f-2 under the 1940 Act; prepare and
file with the SEC, annual financial updates to the Trusts'
Registration Statements on Form N-lA with the advice of the
Company and the Trusts' counsel; prepare and file with the SEC
prospectus supplements, as needed; prepare and report to the
Company, daily if requested by the Company, the compliance of the
Trusts with the SEC diversification and IRS tax qualifications
requirements; prepare, as needed, the required calculation of
distribution of income and capital gains to the shareholders and
its makeup including any government exclusions or pass throughs;
prepare and report to the Company the monthly performance
calculations of the Trusts; compile data and produce a monthly
analysis of the operating expenses of the Trusts for the Company
to be reviewed by the Company and the Administrator for the
purpose of expense accruals related to the Trusts; and generally
to assist in all aspects of the operations of the Trusts.
In compliance with the requirements of Rule 31a-3 under the
1940 Act, the Pdministrator hereby agrees that all records which
it maintains for the Trusts are the property of the Company and/or
the Trusts and further agrees to surrender promptly to the Trusts
any of such records upon the Company's and/or the Trust's request.
However, the Administrator has the right to make copies of such
records, in its discretion. The Administrator further agrees to
preserve for the periods prescribed by Rule 31a-2 under the 1940
Act the records required to be maintained by Rule 31a-1 under the
1940 Act. The Administrator may delegate some or all of its
responsibilities under this Agreement with the consent of the
Company and/or the Trusts, which will not be unreasonably
withheld.
2. Compensation.
The Administrator will provide the legal and regulatory
compliance and Board of Trustees support services described on
Exhibit 2A attached hereto for an annual fee in the amount of
$55,700 per year plus reasonable out-of-pocket expenses incurred
by the Administrator for the items described on Exhibit 2A. In
addition, the Administraor will provide the special project
services described on Exhibit 2A for an additional hourly fee not
to exceed $125 per hour to be agreed upon between the Company and
Administrator from time to time as such special project services
are requested.
In addition, the Administrator will provide the
compliance, tax and fund reporting services described in section 1
hereof for an annual fee equal to $17,300 per Fund, which fee
shall be payable in monthly installments on the first business day
of each month, or at such time(s) as the Administrator shall
request and the parties hereto shall agree, plus reasonable out
of-pocket expenses incurred by the Administrator for the items
described on Exhibit 2A. Upon any termination of this Agreement
before the end of any month, the fee for such part of a month
shall be prorated according to the proportion which such period
bears to the full monthly period and shall be payable upon the
date of termination of this Agreement.
The Administrator will from time to time employ or
associate with such person or persons as the Administrator may
believe to be particularly fitted to assist it in the performance
of this Agreement. Such person or persons may be officers or
employees who are employed by both the Administrator and the
Trust. The compensation of such person or persons shall be paid
by the Administrator and no obligation may be incurred on behalf
of the Company and/or Trusts in such respect. Other expenses to
be incurred in the operation of the Funds including taxes,
interest, brokerage fees and commissions, if any, fees of Trustees
who are not officers, directors, shareholders or employees of the
Administrator or the Company or distributor for the Trusts, SEC
fees and state Blue Sky qualification fees, advisory and
administration fees, custodian, sub-custodian, fund accounting,
12b-1 fees, transfer and dividend disbursing agents' fees, certain
insurance premiums, outside auditing and legal expenses, costs of
maintenance of corporate exlstence, typesetting and printing
prospectuses for regulatory purposes and for distribution to
current Shareholders of the Funds, costs of Shareholders' reports,
mailings and meetings and any extraordinary expenses will be borne
by the Trusts provided, however, that unless allowed under the
regulations under the 1940 Act, the Trusts will not bear, directly
or indirectly, the cost of any activity which is primarily
intended to result in the distribution of Shares of the Funds.
3. Confidentiality
The Administrator agrees on behalf of itself and its
employees to treat confidentially and as the proprietary
information of the Trusts, all records and other information
relative to the Company and/or the Trusts and prior, present, or
potential Shareholders, and not to use such records and
information for any purpose other than performance of their
responsibilities and duties hereunder, except after prior
notification to and approval in writing by the Company and/or the
Trusts, which approval shall not be unreasonably withheld and may
not be withheld where the Administrator may be exposed to civil or
criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted
authorities, or when so requested by the Company and/or the
Trusts.
4. Indemnification.
The Administrator agrees to indemnify and hold the
Company and its employees, personnel, agents and representatives
harmless from and against any and all losses, damages,
liabilities, claims, costs and expenses, including reasonable
attorneys' fees and expenses, resulting from any claim, demand,
action or suit related to the Administrator's performance of, or
failure to perform, this Agreement. Notwithstanding the
foregoing, the Administrator shall not be liable for any loss
suffered by the Company or the Trust in connection with the
performance of the Administrator's obligations and duties under
this Agreement, except a loss resulting from the Administrator's
willful misfeasance, bad faith or gross negligence in the
performance of such obligations and duties.
The Company will indemnify and hold the Administrator and
its employees, personnel, agents and representatives harmless from
and against any and all losses, claims, damages, liabilities or
expenses (including reasonable attorneys' fees and expenses)
resulting from any claim, demand, action or suit related to the
Company's performance of, or failure to perform, its obligations
under this Agreement and not resulting from the willful
misfeasance, bad faith or gross negligence of the Administrator.
5. Term; Termination
This Agreement shall become effective on the date hereof
and, unless sooner terminated as provided herein, shall continue
for an initial four (4) year term and thereafter will renew
automatically for additional one (1) year terms unless notice is
given 90 days prior to expiration of any such extended term. In
addition to, and notwithstanding the forgoing, this Agreement is
terminable as to any of the Trusts by the Company upon the
happening of any of the following events: (i) the Company's
Investment Advisory Agreements with any of the Trusts is
terminated for any reason; (ii) the Company decides to
"internalize" the administration services provided by the
Administrator hereunder provided that the Company provides the
Administrator with 180 days' prior notice thereof; (iii) at any
time during the term of this Agreement the employees of the
Administrator who are primarily responsible for providing the
services to the Company are not reasonably satisfactory to the
Company and the Administrator does not replace any such
employee(s) within 45 days from receipt of Notice from the Company
requesting replacement; or (iv) failure of the Administrator to
perform its obligations hereunder which failure (a) has a material
adverse effect on the Company and/or the Trusts and (b) is not
cured (such cure shall include the payment of losses and expenses,
if any, incurred by the Company) by the Administrator within
thirty (30) days following its receipt of Notice thereof from the
Company.
In the event of any termination of this Agreement other
than following a breach of this Agreement by the Administrator,
the Company shall reimburse the Administrator for its reasonable
costs and expenses relative to the movement of files and
conversion of records to the Company or any agent designated
thereby. Notwithstanding the foregoing, if this Agreement is
terminated by the Company due to the Administrator's failure to
perform its obligations hereunder, the Administrator shall pay and
be responsible for all costs of converting records and files to
the Company or any agent designated thereby.
7. Notices
All notices and other communications (collectively
referred to as a "Notice" or "Notices" in this paragraph)
hereunder shall be in writing or by telegram, cable, telex or
facsimile sending device. Notices shall be addressed (a) if to
the Administrator, at their address, 53 State Street, Boston,
Massachusetts; (b) if to the Company, at its principal place of
business or (c) if to neither of the foregoing, at such other
address as to which the sender shall have been notified by any
such Notice or other communication. The Notice may be sent by
first-class mail, in which case it shall be deemed to have been
given three days after it is sent, or if sent by confirming
telegram, cable, telex or facsimile sending device, it shall be
deemed to have been given immediately.
8. Further Actions
Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the
purposes hereof.
9. Assignment
This Agreement and the rights and duties hereunder shall
not be assignable by either of the parties hereto except by the
specific written consent of the other party which, in the case of
assignment to an affiliate, shall not be unreasonably denied.
10. Amendments
This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party
against which enforcement of such change or waiver is sought.
11. Governing State Law
This Agreement shall be governed by and its provisions
shall be construed in accordance with the laws of the Commonwealth
of Massachusetts.
12. Miscellaneous
This Agreement embodies the entire agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings relating to the subject matter
hereof. The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of
the provisions hereof or otherwise affect their construction or
effect. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby. This
Agreement shall be binding and shall inure to the benefit of the
parties hereto and their respective successors.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed all as of the day and year first
above written.
ALLMERICA INVESTMENT MANAGEMENT
COMPANY, INC.
By: illegible signature
Title: Assistant Treasurer
THE SHAREHOLDER SERVICES GROUP, INC.
By: illegible signature
Title: Executive Vice President,
Chief Financial Officer
Acknowledged:
ALLMERICA INVESTMENT TRUST ALLMERICA FUNDS
By: /s/ John P. Kavanaugh By: /s/ John P.
Kavanaugh
Title: Vice President Title: Vice President
SCHEDULE A
to the Administration
between Allmerica Investment Management Company, Inc.
and The Shareholders Services Group, Inc.
Name of Trust/Fund(s)
1. Allmerica Investment Trust (1)
2. Allmerica Funds - Investment Grade Income Fund
ALLMERICA INVESTMFNT THE SHAREHOLDER SERVICES
MANAGEMENT COMPANY, INC. GROUP, INC.
By: illegible signature By: illegible
signature
Title: Assitant Treasurer Title: Executive Chief
Financial Officer
(1) Select International Equity Fund
Select Aggressive Growth Fund
Select Capita1 Appreciation Fund
Select Growth Fund
Growth Fund
Small Cap Value Fund
Select Growth & Income Fund
Equity Index Fund
Select Income Fund
Investment Grade Income Fund
Government Bond Fund
Money Market Fund
ALLMERICA INVESTMENT TRUST ALLMERICA FUNDS
By: /s/ John P. Kavanaugh By: /s/ John P. Kavanaugh
Title: Vice President Title: Vice President
EXHIBIT 2A
LEGAL AND REGULATORY COMPLIANCE AND
BOARD OF DIRECTORS SUPPORT
CORE SERVICES Support for all Quarterly Board
(included in fee) Meetings, including corporate
secretarial services
Preparation of annual update (PEA)
SEC audit support;
Filings regarding Massachusetts
business certificates;
File annual & semi-annual reports
with SEC;
Advertising review.
Consultations regarding legal issues
relative to the core services
described above as needed;
SPECIAL PROJECT Support for special board
(additional fees required) meetings and consent votes when
needed;
Exemptive order application;
Proxy material preparation
N-14 preparation (merger documents);
Extraordinary nonrecurring projects.
OUT OF POCKET REIMBURSABLE EXPENSES
1. Federal Express/Express Mail/Courier Services
2. External photocopying services
3. Necessary on-line computer legal research charges
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Prospectus and Statement of Additional Information
constituting parts of this Post-Effective Amendment No. 9 to
the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 8, 1996, relating
to the financial statements and financial highlights
appearing in the December 31, 1995 Annual Report to
Shareholders of the Allmerica Investment Grade Income Fund,
which are also incorporated by reference into the
Registration Statement. We also consent to the references
to us under the heading "Financial Highlights" in the
Prospectus and under the headings "Independent Accountants"
and "Financial Statements" in the Statement of Additional
Information.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Boston, Massachusetts
April 25, 1996
g:\shared\440\af\secfil\consent.doc
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> ALLMERICA INVESTMENT GRADE INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 5,746,346
<INVESTMENTS-AT-VALUE> 6,014,500
<RECEIVABLES> 88,477
<ASSETS-OTHER> 2,262
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,105,239
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,440
<TOTAL-LIABILITIES> 67,440
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,754,989
<SHARES-COMMON-STOCK> 602,204
<SHARES-COMMON-PRIOR> 576,582
<ACCUMULATED-NII-CURRENT> 5,468
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 991,414
<ACCUM-APPREC-OR-DEPREC> 268,154
<NET-ASSETS> 6,037,799
<DIVIDEND-INCOME> 18,429
<INTEREST-INCOME> 400,537
<OTHER-INCOME> 0
<EXPENSES-NET> 171,666
<NET-INVESTMENT-INCOME> 247,300
<REALIZED-GAINS-CURRENT> 93,844
<APPREC-INCREASE-CURRENT> 436,688
<NET-CHANGE-FROM-OPS> 777,832
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 247,300
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 247,300
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<ACCUMULATED-NII-PRIOR> 2,569
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<OVERDIST-NET-GAINS-PRIOR> 1,082,359
<GROSS-ADVISORY-FEES> 33,868
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 171,666
<AVERAGE-NET-ASSETS> 5,644,759
<PER-SHARE-NAV-BEGIN> 9.12
<PER-SHARE-NII> 0.42
<PER-SHARE-GAIN-APPREC> 0.91
<PER-SHARE-DIVIDEND> 0.42
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 10.03
<EXPENSE-RATIO> 3.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
