<PAGE>
As filed with the Securities and Exchange Commission on April 28, 1997
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. 10 [ ]
-------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 12
------
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:)
George M. Boyd, Esq. Peter MacDougall, Esq.
Allmerica Financial Ropes & Gray
440 Lincoln Street One International Place
Worcester, MA 01653 Boston, Massachusetts 02110
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
- -----
X on May 1, 1997 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, 1996 because it did not sell any securities pursuant to such
declaration during such fiscal year.
1
<PAGE>
ALLMERICA FUNDS
Cross-Reference Sheet
<TABLE>
<S> <C>
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
5(g)...................... 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?
6(h) and (i).............. Not Applicable
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), (f) and (g)......... Not Applicable
8(a) - (d)................ Shareholder Manual
9......................... Not Applicable
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
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
</TABLE>
3
<PAGE>
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 MAY 1, 1997, 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 MAY 1, 1997
1
<PAGE>
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?............................................... 7
WHAT IS THE EFFECT OF FEDERAL INCOME TAX ON MY INVESTMENT?............... 8
HOW IS PERFORMANCE DETERMINED?........................................... 8
ORGANIZATION AND CAPITALIZATION OF THE TRUST............................. 9
SHAREHOLDER MANUAL....................................................... 9
INVESTMENT RESTRICTIONS.................................................. 14
CERTAIN INVESTMENT STRATEGIES, POLICIES AND RISK CONSIDERATIONS.......... 14
APPENDIX................................................................. 17
</TABLE>
2
<PAGE>
ALLMERICA FUNDS
EXPENSE INFORMATION
<TABLE>
<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
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Management Fee....................................................... 0.60%
12b-1 Fee............................................................ None
Other Expenses....................................................... 1.10%
Total Operating Expenses............................................. 1.70%
</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:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C>
$62 $96 $133 $235
</TABLE>
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.
3
<PAGE>
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, 1996. 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, 1996 and which are
incorporated by reference in the Trust's SAI.
4
<PAGE>
- --------------------------------------------------------------------------------
ALLAMERICA INVESTMENT GRADE INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992(A)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year................... $ 10.03 $ 9.12 $ 10.10 $ 9.69 $ 10.00
-------- --------- ------- --------- ---------
Income from Investment Operations:
Net investment income (B)......................... 0.54 0.42 0.54 0.63 0.22
Net realized and unrealized gain (loss)
on investments................................. (0.32) 0.91 (0.98) 0.41 (0.31)
-------- --------- ------- --------- ---------
Total from Investment Operations:.............. 0.22 1.33 (0.44) 1.04 (0.09)
-------- --------- ------- --------- ---------
Less Distributions:
Dividends from net investment income.............. (0.54) (0.42) (0.54) (0.63) (0.22)
-------- --------- ------- --------- ---------
Net increase (decrease) in net asset value........... (0.32) 0.91 (0.98) 0.41 (0.31)
-------- --------- ------- --------- ---------
Net Asset Value, end of year......................... $ 9.71 $ 10.03 $ 9.12 $ 10.10 $ 9.69
======== ========= ======= ========= =========
Total Return (C)..................................... 2.32% 14.82% (4.46)% 10.86% (0.72)%* *(D)
Ratios/Supplemental Data:
Net Assets, end of year(000's) ...................... $ 6,178 $ 6,038 $ 5,260 $ 12,245 $ 5,458
Ratios to average net assets:
Net investment income (B)......................... 5.53% 4.38% 5.69% 6.11% 6.70%*
Operating expenses (B)............................ 1.70% 3.04% 1.29% 1.20% 1.20%*
Gross management fee.............................. 0.60% 0.60% 0.60% 0.60% N/A
Net management fee................................ 0.60% 0.60% 0.00% 0.00% N/A
Portfolio Turnover Rate ............................. 104% 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
5
<PAGE>
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 an indirect wholly-owned subsidiary of Allmerica Financial
Corporation ("AFC"), a Delaware holding company for a group of affiliated
companies, the largest of which is First Allmerica Financial Life Insurance
Company (formerly named State Mutual Life Assurance Company of America) ("First
Allmerica"), a life insurance company, 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 AFC are
located at 440 Lincoln Street, Worcester, Massachusetts 01653.
Allmerica Asset Management, Inc. ("AAM") is Sub-Adviser to the Fund. AAM, an
indirect wholly-owned subsidiary of AFC, 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. As of December 31, 1996, AAM had
approximately $11 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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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, 1997, 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
First Data, a wholly-owned subsidiary of First Data Corporation, calculates
net asset value per share and maintains general accounting records for the Fund.
First Data is entitled to receive a Fund recordkeeping fee based on Fund assets,
and certain out-of-pocket expenses.
CUSTODIAN
Bankers Trust Company, 130 Liberty Street, New York, New York 10006 is
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 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 redemptions without first electing the option in your
application
9
<PAGE>
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>
<CAPTION>
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 an indirect wholly-owned
subsidiary of AFC. 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
10
<PAGE>
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
11
<PAGE>
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,
12
<PAGE>
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.
13
<PAGE>
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
14
<PAGE>
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.
15
<PAGE>
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
16
<PAGE>
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.
17
<PAGE>
- 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.
18
<PAGE>
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 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 mid range 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.
19
<PAGE>
Investment Manager:
Allmerica Investment Management Company, Inc.
Sub-Adviser:
Allmerica Asset Management, Inc.
Distributor:
Allmerica Investments. Inc.
Administrator and Fund Recordkeeping:
First Data Investor Services Group, Inc.
Independent Accountants:
Price Waterhouse LLP
Custodian:
Bankers Trust Company
20
<PAGE>
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 MAY 1,
1997 (THE "PROSPECTUS"). A PROSPECTUS MAY BE OBTAINED FROM THE ALLMERICA FUNDS,
440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, (800) 828-0540 EXT. 2500.
DATED MAY 1, 1997
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
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 ................................. 14
BROKERAGE ALLOCATION ..................................................... 15
PURCHASE, REDEMPTION, AND PRICING OF SECURITIES BEING OFFERED ............ 16
TAXES .................................................................... 17
ORGANIZATION AND CAPITALIZATION OF THE TRUST ............................. 18
FINANCIAL STATEMENTS ..................................................... 19
</TABLE>
2
<PAGE>
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.
3
<PAGE>
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
4
<PAGE>
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-Issued 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
5
<PAGE>
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
6
<PAGE>
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
7
<PAGE>
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.
8
<PAGE>
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, 1996 and 1995 was 104% and 135%, respectively.
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:
9
<PAGE>
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 ten
years or since commencement of operations, if less) assuming that all
distributions and dividends by the Fund were reinvested, and less all recurring
fees.
From time to time, the Fund may state its total return in advertisements and
investor communications. Total return may be stated for any relevant period as
specified in the advertisement or communication. Any statement of total return
or other performance data on the Fund will be accompanied by information on the
Fund's average annual total return over the most recent four calendar quarters
and the period from the Fund's inception of operations. The Fund also may
advertise aggregate annual total return information over different periods of
time.
A Fund's average annual total return is determined by reference to a
hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period, according to the following formula:
P(1 + T)n = ERV
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.
10
<PAGE>
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,
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 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, 1996
-----------------------------------------------------------
Set forth below is Average Annual 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.
Average Annual Total Return for Period Ended December 31, 1996
(Unaudited)
One Year 2.32%
Since Inception 4.96%
Yield for 30 day period Ended December 31, 1996
(Unaudited)
4.56%
11
<PAGE>
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>
PRESENT POSITION AND
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME (AGE AS OF 4-15-97) AND ADDRESS WITH THE TRUST DURING PAST 5 YEARS
------------------------------------ -------------- --------------------
<S> <C> <C>
Russell E. Fuller (70) Trustee Chairman, REFCO, Inc. (distributor
730 Main Street of tools and abrasives)
Boylston, Massachusetts
Gordon Holmes (58) Trustee Certified Public Accountant; Tofias,
205 Broadway Fleishman, Shapiro & Co.
Cambridge, Massachusetts (Accountants) 1975 - 1996
Bruce E. Langton (65) Trustee Member, First Allmerica Manager
99 Jordan Lane Evaluation Team; Director,
Stamford, Connecticut Competitive Technologies, Inc.
(technology transfer); Trustee,
Bankers Trust mutual institutional funds;
Member, Investment Committee,
TWA Pilots Trust Annuity Plan;
Member, Investment Committee,
Unilever United States - Pension &
Thriftplans
*John F. O'Brien (53) Trustee, Chairman Director, President and Chief
440 Lincoln Street of the Board 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 Financial Life")
Attiat F. Ott (61) Trustee Professor of Economics and
950 Main Street Director of the Institute for
Worcester, Massachusetts Economic Studies, Clark University
Ranne P. Warner (52) Trustee President, Centros Properties,
7 Water Street USA; Owner, Ranne P. Warner and
Boston, Massachusetts Company; Director, Wainwright
Bank & Trust Co. (commercial bank)
*John P. Kavanaugh (42) Trustee, President, Allmerica Asset Management,
440 Lincoln Street Vice President Inc.; Vice President, First Allmerica
Worcester, Massachusetts and Allmerica Financial Life
*Richard M. Reilly (58) President,Trustee President, Allmerica Financial Life
440 Lincoln Street since 1995; Vice President, First Allmerica
Worcester, Massachusetts and President, Allmerica Investment
Management Company, Inc.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
Thomas P. Cunningham (51) Treasurer Investment Product Manager, First
440 Lincoln Street Allmerica since March 1996; Vice
Worcester, Massachusetts President, First Data Investor
Services Group, Inc., 1994 - 1995;
Vice President, Fidelity
Investments, 1990 - 1993
George M. Boyd (52) Secretary Counsel, First Allmerica since 1997;
440 Lincoln Street Director, Mutual Fund Administration,
Worcester, Massachusetts Legal and Regulatory, Investors Bank
& Trust Company, 1995-1996; Vice
President and Counsel, 440 Financial
Group of Worcester and First Data
Investor Services Group, 1992 - 1995
</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, 1996. The
Fund does not currently provide any pension or retirement benefits for its
Trustees or Officers.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total Compensation from Trust and Fund
Name of Person Aggregate Compensation Complex (2 other investment companies)
Position from Trust Paid to Trustees
- ------- ---------- ----------------
<S> <C> <C>
Russell E. Fuller $24 $8,500
Gordon Holmes $26 $9,000
John D. Hunt* $07 $2,000
Bruce E. Langton* $15 $6,000
Attiat F. Ott $24 $8,500
Ranne P. Warner $26 $8,500
Thomas S. Zocco** $26 $9,000
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 Trustees elected Mr. Langton to fill the vacancy
created by Mr. Hunt's retirement.
* Mr. Zocco resigned as a member of the Board of Trustees effective December
31, 1996.
13
<PAGE>
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.
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 AFC,
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>
<CAPTION>
Name and Address of
Principal Holders of Percentage of ownership Owner of record/
Securities as of 04/15/97 beneficially owned
- ---------- -------------- ------------------
<S> <C> <C>
*Allmerica Investments, Inc. 100% Record and beneficial owner
440 Lincoln Street
Worcester, MA 01653
</TABLE>
*Indicates a person who is deemed to control the Fund. Allmerica Investments,
Inc. is a wholly-owned subsidiary of AFC 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, 1997.
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 years ended December 31, 1996 and
1995, the fees paid to the Manager by the Fund totaled $35,948 and $33,868,
respectively.
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;
14
<PAGE>
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 years ended December 31, 1996 and 1995, the fees paid to the Sub-
Adviser by the Fund totaled $12,015 and $11,290, respectively.
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, provides fund
accounting services. First Data provides certain services to the Trust,
including the following: 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 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 year ended
December 31, 1996 and the period April 1, 1995 to December 31, 1995 were $34,964
and $56,097, respectively. 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 an indirect
wholly-owned subsidiary of First Allmerica and is, at present, indirectly
wholly-owned by AFC. 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 years ended December 31, 1996 and 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 ser-
15
<PAGE>
vices 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 fiscal years ended December 31, 1994 and
1996. Brokerage commissions in the amount of $1,022 were paid by the Fund during
the fiscal year ended December 31, 1995.
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.
16
<PAGE>
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 calen-
17
<PAGE>
dar 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
18
<PAGE>
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 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 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 related notes and the report of the Trust's
independent accountants contained in the Trust's Annual Report to Shareholders
("Annual Report") for the fiscal year ended December 31, 1996 are incorporated
by reference into this SAI. Such Financial Statements and related notes have
been audited by the Trust's independent accountants. Copies of the Trust's 1996
Annual Report to Shareholders may be obtained by calling the Trust at the
telephone number on the first page of this SAI.
19
<PAGE>
20
<PAGE>
PART C. OTHER INFORMATION
<TABLE>
<S> <C>
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
Financial Statements Included in Part A
---------------------------------------
Financial Highlights
Financial Statements Included in Part B
---------------------------------------
The following financial statements are incorporated
by reference to Allmerica Funds 1996 Annual Report
for the year ended December 31, 1996:
Portfolio of Investments for the year ended December
31, 1996
Statements of Assets and Liabilities for the
year ended December 31, 1996
Statements of Operations for the year ended
December 31, 1996
Statements of Changes in Net Assets for the years
ended December 31, 1996 and December 31, 1995
Financial Highlights
Notes to Financial Statements December 31, 1996
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
</TABLE>
C-1
<PAGE>
<TABLE>
<S> <C>
Exhibit 8 Custodian Agreement with Bankers Trust Company dated October
25, 1995 was filed in Post-Effective Amendment No. 9 and is
incorporated herein by reference.
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 was filed in Post-Effective Amendment No. 9 and is
incorporated herein by reference.
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 was filed
in Post-Effective Amendment No. 9 and is incorporated herein
by reference.
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 was
filed in Post-Effective Amendment No. 9 and is incorporated
herein by reference.
Exhibit 17 Financial Data Schedules are filed herein.
Exhibit 18 None
<CAPTION>
*Filed under Rule 24f-2 as part of Registrant's Rule 24f-2 Notice
<S> <C>
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.
</TABLE>
<TABLE>
<CAPTION>
Item 26. Number of Holders of Securities
-------------------------------
Title of Class: Number of
Share of Record Holders
Fund Beneficial Interest as of April 15, 1997
---- ------------------- --------------------
<S> <C> <C>
Investment Grade Income Fund 609,474.508 1
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
C-3
<PAGE>
<TABLE>
<S> <C>
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).
The Principal Business Address of each of the following
Directors and Officers of Allmerica Investments, Inc. is
440 Lincoln Street, Worcester, Massachusetts 01653.
</TABLE>
<TABLE>
<CAPTION>
Position or Office Position or Office
Name with Underwriter with Registrant
---- ------------------ ------------------
<S> <C> <C>
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
Emil J. Aberizk, Jr. Vice President
Richard F. Beltzer, Jr. Vice President
Mark G. Steinberg Senior Vice President
Thomas P. Cunningham Chief Financial Officer, Controller Vice President and Treasurer
Vice President (Principal Accounting Officer)
William F. Monroe, Jr. Vice President
David J. Mueller Vice President
</TABLE>
(c) Not applicable.
<TABLE>
<S> <C>
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.
</TABLE>
C-4
<PAGE>
<TABLE>
<S> <C>
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.
</TABLE>
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that this
Post-Effective Amendment No. 10 to the Registration Statement meets the
requirements for effectiveness pursuant to Rule 485(b) of the Securities Act of
1933, as amended, and the Registrant has duly caused this Post-Effective
Amendment No. 10 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Worcester, Commonwealth
of Massachusetts, on the 28th day of April, 1997.
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John F. O'Brien Chairman of the Board April 28, 1997
- -------------------
John F. O'Brien and Trustee
/s/ Richard M. Reilly President, Chief Executive April 28, 1997
- ---------------------
Richard M. Reilly Officer, and Trustee
/s/ Thomas P. Cunningham Treasurer April 28, 1997
- ------------------------
Thomas P. Cunningham (Principal Accounting Officer)
/s/ Russell E. Fuller Trustee April 28, 1997
- ---------------------
Russell E. Fuller
/s/ Gordon Holmes Trustee April 28, 1997
- -----------------
Gordon Holmes
/s/ John P. Kavanaugh Trustee April 28, 1997
- ---------------------
John P. Kavanaugh
/s/ Bruce E. Langton Trustee April 28, 1997
- --------------------
Bruce E. Langton
/s/ Attiat F. Ott Trustee April 28, 1997
- -----------------
Attiat F. Ott
/s/ Ranne P. Warner Trustee April 28, 1997
- -------------------
Ranne P. Warner
</TABLE>
<PAGE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit 11 Consent of Independent Accountants (Price Waterhouse LLP)
Exhibit 17 Financial Data Schedules
</TABLE>
<PAGE>
EXHIBIT 11
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. 10 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 14, 1997, relating to the financial
statements and financial highlights appearing in the December 31, 1996 Annual
Report to Shareholders of the Allmerica Funds 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, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> ALLMERICA INVESTMENT GRADE INCOME FUND RETAIL
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 6,118,767
<INVESTMENTS-AT-VALUE> 6,195,211
<RECEIVABLES> 163,997
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,359,208
<PAYABLE-FOR-SECURITIES> 134,573
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 46,555
<TOTAL-LIABILITIES> 181,128
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,086,714
<SHARES-COMMON-STOCK> 636,538
<SHARES-COMMON-PRIOR> 602,204
<ACCUMULATED-NII-CURRENT> 7,905
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 992,983
<ACCUM-APPREC-OR-DEPREC> 76,444
<NET-ASSETS> 6,178,080
<DIVIDEND-INCOME> 8,276
<INTEREST-INCOME> 424,476
<OTHER-INCOME> 0
<EXPENSES-NET> 101,629
<NET-INVESTMENT-INCOME> 331,123
<REALIZED-GAINS-CURRENT> 868
<APPREC-INCREASE-CURRENT> (191,710)
<NET-CHANGE-FROM-OPS> 140,281
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 331,123
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 331,123
<NET-CHANGE-IN-ASSETS> 140,281
<ACCUMULATED-NII-PRIOR> 5,468
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 991,414
<GROSS-ADVISORY-FEES> 35,948
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 101,629
<AVERAGE-NET-ASSETS> 5,991,275
<PER-SHARE-NAV-BEGIN> 10.03
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> (.32)
<PER-SHARE-DIVIDEND> (.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.71
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
