<PAGE>
SUPPLEMENT DATED FEBRUARY 25, 1998
TO PROSPECTUS DATED MAY 1, 1997
THE PALLADIAN TRUST
This supplement provides IMPORTANT INFORMATION regarding expense limitation
arrangements for the Trust. It also provides an update on the changes in the
management of the Trust. The supplement also discusses the resignation of the
current Portfolio Manager for the Global Strategic Income Portfolio and provides
other updated information.
Please read this supplement, along with the prospectus, carefully before
investing.
1. MANAGEMENT CHANGES
The following updates information about the Manager, the Portfolio Advisor, and
the Portfolio Managers, which is set forth on pages 1 and 9-11.
MANAGER. In light of the inability of Palladian Advisors, Inc. ("PAI") to pay
the Trust certain amounts due under the expense reimbursement arrangement, which
is described in section 2 below, the Board of Trustees and PAI agreed to a
termination of PAI's Management Agreement with the Trust, effective at the close
of business on February 11, 1998. Effective February 12, 1998, Allmerica
Investment Management Company, Inc. ("AIMCO"), assumed the function of Manager
for the Trust.
AIMCO, a Massachusetts corporation, is registered with the Securities and
Exchange Commission as an investment adviser. AIMCO is located at 440 Lincoln
Street, Worster, Massachusetts 01653. AIMCO is an indirect, wholly-owned
subsidiary of Allmerica Financial Corporation ("AFC"). AFC is the parent
company of the two life insurance companies currently utilizing the Trust as an
underlying fund for its variable contracts, Allmerica Financial Life Insurance
and Annuity Company ("Allmerica Financial") and First Allmerica Financial Life
Insurance Company.
As Manager, AIMCO serves as overall investment adviser to the Trust. AIMCO is
responsible for general administration of the Trust as well as monitoring and
evaluating the performance of the Portfolio Managers. Advisory fees remain the
same as described in the prospectus.
AIMCO's advisory agreement will remain in effect past June 11, 1998, only if
approved by shareholders. The Board of Trustees, Allmerica Financial, AIMCO and
the other members of the Payment Group (described in section 2 below) are
considering whether additional management changes should be made in the long-
term. The Board of Trustees expects that, within 30 days, it will determine
whether to seek shareholder approval of the current AIMCO agreement, or another
advisory agreement with AIMCO or another adviser, or whether it will propose
other approaches.
PORTFOLIO ADVISOR. Effective February 12, 1998, Tremont Partners, Inc.
("Tremont" or the "Portfolio Advisor"), no longer serves as Portfolio Advisor to
the Trust. Tremont was previously paid by PAI (not the Trust). Thus, overall
advisory fees have not changed.
PORTFOLIO MANAGER FOR THE GLOBAL STRATEGIC INCOME PORTFOLIO. Fischer Francis
Trees & Watts, Inc. ("Fischer Francis") has submitted its resignation as
Portfolio Manager of the Global Strategic Income Portfolio. It is expected that
the resignation will be effective on or about April 4, 1998. Fischer Francis
has withdrawn its $1 million investment in the Portfolio. The Trust and AIMCO
are considering seeking a new Portfolio Manager or winding down the operations
of this Portfolio through a merger, substitution or other approach. If at any
time there is no Portfolio Manager in place for any Portfolio, under the current
advisory agreements, the Manager would be responsible for managing that
Portfolio.
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BOARD OF TRUSTEES. The Trust currently has two trustees, Matthew Stacom
(Chairman of the Trust and PAI) and Tom Dallape (an independent trustee with no
affiliation with PAI or the Payment Group).
2. EXPENSE LIMITATIONS
The following updates the "Expense Limitations" section on pages 13-14 of the
prospectus.
EXPENSE LIMITATIONS FOR 1996 AND 1997 EXPENSES. Palladian Advisors, Inc.
("PAI") agreed to limit operating expenses and reimburse those expenses to the
extent that each Portfolio's "other expenses" (I.E., expenses other than
management fees) from September 11, 1996 through December 31, 1997 exceed the
following expense limitations (expressed as an annualized percentage of average
daily net assets): Value Portfolio, 0.70%; Growth Portfolio, 0.70%;
International Growth Portfolio, 1.20%; Global Strategic Income Portfolio, 1.20%;
Global Interactive/Telecomm Portfolio, 1.20%.
At the request of the Board of Trustees, PAI committed to pay all amounts due
under the expense reimbursement arrangement on or about December 31, 1997. In
January 1998, however, PAI advised the Board of Trustees that it did not have
sufficient assets to make the required payment. Accordingly, the Board of
Trustees and PAI have pursued and considered other options under which the
payment could be made. The Board of Trustees determined that it was in the best
interests of shareholders to accept an offer from a group (the "Payment Group")
willing to immediately pay to the Trust the full amount due under the expense
limitation. The Payment Group includes Allmerica Financial Life Insurance and
Annuity Company ("Allmerica Financial"), the issuer of a variable annuity
contract utilizing the Portfolios as investment options, certain principals of
PAI or entities selling the variable contracts (H. Michael Schwartz, Lesta
Summerfield-Stacom, Andrew Westhem, and David Westhem).
On January 28, 1998, the Payment Group paid the Portfolios the following
amounts, which were the full amounts due under the expense limitation
arrangement: Value Portfolio, $128,362.72; Growth Portfolio, $114,448.91;
International Growth Portfolio, $89,895.43; Global Strategic Income Portfolio,
$103,436.57; Global Interactive/Telecomm Portfolio, $88,983.02. Accordingly,
the Trust has been fully reimbursed for amounts owed under the expense
limitation arrangement.
REIMBURSEMENT PROVISION FOR 1996 AND 1997 EXPENSES. Through December 31, 1999,
each Portfolio must reimburse the Payment Group for the payment described above,
provided that such reimbursement does not cause the Portfolio's "other expense"
ratio to exceed the previous expense limitation for that Portfolio under the
Manager's expense limitation arrangement. (Those limitations are listed above.)
This reimbursement obligation is the same as the reimbursement obligation that
was in place for PAI. After December 31, 1999, the Portfolios' reimbursement
liability to the Payment Group will cease.
EXPENSE LIMITATIONS FOR 1998 EXPENSES. Allmerica Financial has agreed to limit
operating expenses and reimburse those expenses to the extent that each
Portfolio's 1998 "other expenses" (I.E., expenses other than management fees)
exceed the following expense limitations (expressed as an annualized percentage
of average daily net assets): Value Portfolio, 1.00%; Growth Portfolio, 1.00%;
International Growth Portfolio, 1.20%; Global Strategic Income Portfolio, 1.20%;
Global Interactive/Telecomm Portfolio, 1.20%. For the three global or
international Portfolios, the expense limitation for 1998 is the same percentage
(1.20%) as the 1997 limitation, which is described in the prospectus. For the
Value and Growth Portfolios, the 1998 limitation is 1.00% rather than the 0.70%
1997 limitation. Allmerica Financial has agreed to pay any amount due for a
calendar month not later than the 15th day of the following calendar month (with
any final adjustment to be made not later than January 15, 1999). Allmerica
Financial, if agreed to by the Board , may continue this voluntary expense
limitation past December 31, 1998. This expense limitation was implemented
effective February 13, 1998. In addition, on February 24, 1998, Allmerica
Financial voluntarily contributed to the Portfolios the following amounts as
capital: Value Portfolio, $8,469.29; Growth Portfolio, $10,350.93;
International Growth Portfolio, $7,723.73; Global Strategic Income Portfolio,
$7,936.72; Global Interactive/Telecomm Portfolio, $6,618.72. These amounts
were contributed to offset expenses accrued to the Portfolios in excess of the
expense limitations during the period January 1, 1998 through February 12, 1998.
Allmerica Financial received no shares of beneficial interest or other
<PAGE>
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consideration in exchange for these contributions. These capital contributions
resulted in an increase in paid in capital for each Portfolio.
REIMBURSEMENT PROVISION FOR 1998 EXPENSES. For the two years following the date
that the Allmerica Financial expense limitation ends, each Portfolio will
reimburse Allmerica Financial for any Portfolio expenses it reimbursed pursuant
to the expense limitation, provided that such reimbursement to Allmerica
Financial does not cause the Portfolio's "other expense" ratio to exceed the
limitation for that Portfolio set forth above. This reimbursement for the 1998
expenses will not commence until the Payment Group has been fully reimbursed for
the 1996 and 1997 expenses, as discussed above. After the two year period after
the Allmerica Financial expense limitation ends, the Portfolios' obligation to
reimburse Allmerica Financial will cease.
3. SUMMARY OF EXPENSES
The following replaces the "Summary of Expenses" section on page 5 of the
prospectus.
The following tables show the expenses that will be incurred by each Portfolio,
expressed as a percentage of average net assets during the year. If you have
been given this prospectus because you are considering the purchase of a
variable contract, you should refer to the variable contract prospectus for more
information about expenses under the variable contract, which are in addition to
expenses of the Portfolios.
Shareholder Transactions Expenses (for each Portfolio)
- ------------------------------------------------------
Sales Load on Purchases None
Sales Load on Reinvested Dividends None
Deferred Sales Load Imposed on Redemption None
Exchange Fees None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Each Portfolio has a performance-based advisory fee. The base fee is 2.00%, but
the total fee may vary from between 0.00% to 4.00%, depending on the Portfolio's
performance. The base fee of 2.00% would be paid if Portfolio performance (net
of all fees and expenses, including the advisory fee) is between 1.5 and 3.0
percentage points better than the benchmark index. A fee of 4.00% would be paid
only if Portfolio performance (net of all fees and expenses, including the
advisory fee) was at least 7.5 percentage points better than the benchmark
index. No fee will apply if the Portfolio's performance is more than 3.0
percentage points lower than the benchmark index. See "Management and Portfolio
Management Investment Advisory Fees," pages 12-14 of the prospectus. Because of
this variation, we show below expense information assuming fees of 0.00%, 2.00%
and 4.00%. You should note, however, that the fee could be any figure between
0.00% and 4.00%.
For each of the three fee levels shown -- 0.00%, 2.00% and 4.00% -- we have
included an example prepared in accordance with the requirements of the
Securities and Exchange Commission. The purpose of the examples is to assist
investors in understanding the various costs and expenses that an investor in
the Portfolios will bear directly or indirectly. They show the total expenses
that would be payable if you redeemed your shares after having held them for one
and three year periods respectively. Each example assumes a 5% annual rate of
return pursuant to requirements of the Securities and Exchange Commission. This
hypothetical rate of return is not intended to be representative of past or
future performance. The amounts shown are based upon estimates. Actual
expenses may be greater than or less than those shown.
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1. ASSUMING MANAGEMENT FEE OF 0%
An advisory fee of 0% would be paid if the Portfolio's performance (net of all
fees and expenses) was more than 3.0 percentage points lower than the benchmark
index.
<TABLE>
<CAPTION>
OTHER EXPENSES
(AFTER ANY
FUND MANAGEMENT REIMBURSEMENT) TOTAL OPERATING
FEES APPLICABLE EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Value Portfolio 0% (1) 1.00% (2) 1.00%
Growth Portfolio 0% (1) 1.00% (2) 1.00%
International Growth 0% (1) 1.20% (2) 1.20%
Portfolio
Global Strategic Income 0% (1) 1.20% (2) 1.20%
Portfolio
Global Interactive/ 0% (1) 1.20% (2) 1.20%
Telecomm Portfolio
</TABLE>
EXAMPLE. A shareholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, (2) an advisory fee of 0%,
and (3) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Value Portfolio $10.00 $31.22
Growth Portfolio $10.00 $31.22
International Growth Portfolio $12.00 $37.39
Global Strategic Income Portfolio $12.00 $37.39
Global Interactive/Telecomm Portfolio $12.00 $37.39
</TABLE>
2. ASSUMING MANAGEMENT FEE OF 2.00%
An advisory fee of 2.00% would be paid if the Portfolio's performance (net of
all fees and expenses, including the 2.00% advisory fee) was between 1.5 and 3.0
percentage points better than the benchmark index.
<TABLE>
<CAPTION>
OTHER EXPENSES
(AFTER ANY
FUND MANAGEMENT REIMBURSEMENT) TOTAL OPERATING
FEES APPLICABLE EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Value Portfolio 2.00% (1) 1.00% (2) 3.00%
Growth Portfolio 2.00% (1) 1.00% (2) 3.00%
International Growth 2.00% (1) 1.20% (2) 3.20%
Portfolio
Global Strategic Income 2.00% (1) 1.20% (2) 3.20%
Portfolio
Global Interactive/Telecomm 2.00% (1) 1.20% (2) 3.20%
Portfolio
</TABLE>
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EXAMPLE. A shareholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, (2) an advisory fee of 2%,
and (3) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Value Portfolio $30.00 $91.81
Growth Portfolio $30.00 $91.81
International Growth Portfolio $32.00 $97.74
Global Strategic Income Portfolio $32.00 $97.74
Global Interactive/Telecomm Portfolio $32.00 $97.74
</TABLE>
3. ASSUMING MANAGEMENT FEE OF 4.00%
An advisory fee of 4.00% would be paid if the Portfolio's performance (net of
all fees and expenses, including the 4.00% advisory fee) was at least 7.5
percentage points better than the benchmark index.
<TABLE>
<CAPTION>
OTHER EXPENSES
(AFTER ANY
FUND MANAGEMENT REIMBURSEMENT) TOTAL OPERATING
FEES APPLICABLE EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Value Portfolio 4.00% (1) 1.00% (2) 5.00%
Growth Portfolio 4.00% (1) 1.00% (2) 5.00%
International Growth 4.00% (1) 1.20% (2) 5.20%
Portfolio
Global Strategic Income 4.00% (1) 1.20% (2) 5.20%
Portfolio
Global Interactive/Telecomm 4.00% (1) 1.20% (2) 5.20%
Portfolio
</TABLE>
EXAMPLE. A shareholder would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return, (2) an advisory fee of 4%,
and (3) redemption at the end of each time period. In order to have
both a 5% annual return and an advisory fee of 4%, the Portfolio's
performance would have to be 9% before deduction of the 4% fee
(resulting in performance of 5%) and the benchmark index would have to
DECREASE at least 2.5 percentage points (meaning that the Portfolio's
performance after fees and expenses was at least 7.5 percentage points
better than the benchmark index).
<TABLE>
<CAPTION>
1 Year 3 Years
<S> <C> <C>
Value Portfolio $50.00 $150.00
Growth Portfolio $50.00 $150.00
International Growth Portfolio $52.00 $155.69
Global Strategic Income Portfolio $52.00 $155.69
Global Interactive/Telecomm Portfolio $52.00 $155.69
</TABLE>
(1) A performance-based advisory fee is in effect. See "Management and
Portfolio Management Investment Advisory Fees," pages 12-14 of the prospectus.
<PAGE>
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(2) Restated to reflect the expense limitation in effect during 1998. As
explained in more detail in section 2 of this supplement, Allmerica Financial
has agreed to limit operating expenses and reimburse those expenses to the
extent that each Portfolio's 1998 "other expenses" (I.E., expenses other than
management) exceed the following expense limitations (expressed as an annualized
percentage of average daily net assets): Value Portfolio, 1.00%; Growth
Portfolio, 1.00%; International Growth Portfolio, 1.20%; Global Strategic Income
Portfolio, 1.20%; Global Interactive/Telecomm Portfolio, 1.20%. The 1997 "other
expense" ratios would have been the following without the expense limitation
arrangement that was in effect: Value Portfolio, 4.04%; Growth Portfolio,
5.48%; International Growth Portfolio, 6.10%; Global Strategic Income Portfolio,
5.31%; Global Interactive/Telecomm Portfolio, 6.28%.
4. PORTFOLIO MANAGER INFORMATION
The following information updates the information contained on page 11 of the
prospectus:
As of September 30, 1997, GAMCO managed assets of approximately $5.8
billion. As of September 30, 1997, Stonehill Capital manages assets of
approximately $21 million. As of September 30, 1997, Bee & Associates
Incorporated manages assets of approximately $525 million. As of September 30,
1997, Fischer Francis manages assets of approximately $26.3 billion.
5. PORTFOLIO BROKERAGE
The following section replaces the "Portfolio Brokerage" section on page 30 of
the prospectus:
A Portfolio Manager may employ an affiliated broker to execute brokerage
transactions on behalf of the Portfolio as long as the commissions are
reasonable and fair compared to the commissions received by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold on a securities exchange during a comparable period of time.
GAMCO, the Portfolio Manager for the Value and Global Interactive Telecomm
Portfolios, uses an affiliated broker (Gabelli & Company, Inc.) to execute most
brokerage transactions on behalf of those two Portfolios. The Portfolios may
not engage in any transactions in which a Portfolio Manager or its affiliates
acts as principal, including over-the-counter purchases and negotiated trades in
which such party acts as a principal.
<PAGE>
SUPPLEMENT DATED FEBRUARY 25, 1998
TO STATEMENT OF ADDITIONAL INFORMATION DATED MAY 1, 1997
THE PALLADIAN TRUST
1. TRUSTEES AND OFFICERS OF THE TRUST
The following charts replace the chart of pages 21-22 of the Statement of
Additional Information:
Set forth below is a list of the Trustees of the Trust, their business
addresses, and principal occupations during the past five years:
<TABLE>
<CAPTION>
Name and Address Position with the Trust Principal Occupations During Past Five Years
- ----------------- ----------------------- --------------------------------------------
<S> <C> <C>
Matthew J. Stacom Chairman of the Board; Vice Chairman, Cushman & Wakefield;
601 Brickell Key Drive President Chairman, Palladian Advisors, Inc.
Suite 600
Miami, FL 33131
Tom N. Dallape Trustee; Commercial Land Broker, The Hoffman Company (Partner
18881 Von Karman Avenue Vice President since January 1997; Senior Associate prior to January
Suite 1225 1997).
Irvine, CA 92612
</TABLE>
Set forth below is a list of the Officers of the Trust, their business
addresses, and principal occupations during the past five years:
<TABLE>
<CAPTION>
Name and Address Position with the Trust Principal Occupations During Past Five Years
---------------- ----------------------- --------------------------------------------
<S> <C> <C>
David J. Mueller Vice President Vice President, First Allmerica Financial Life Insurance
440 Lincoln Street Company since 1996; Assistant Vice President, First
Worcester, MA 01653 Allmerica 1995-1996; Business Analyst, First Allmerica
1993-1995; Manager, Coopers & Lybrand 1987-1993
H. Michael Schwartz Secretary President and Director, Palladian Advisors, Inc.;
701 Palomar Airport Road President, Western Capital Financial Group, Inc., April
Suite 300 1994 to present;
Carlsbad, CA 92009 Chief Financial Officer, Western Capital Financial
Group, Inc, prior to April 1994;
Vice President and Chief Financial Officer,
Protean Financial Companies, prior to September 1997;
Chief Financial Officer, Western Capital Financial &
Insurance Services, Inc., prior to September 1997
<PAGE>
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Thomas P. Cunningham Treasurer Investment Product Manager, First Allmerica Financial
440 Lincoln Street Life Insurance Company since March 1996; Vice President,
Worcester, MA 01653 First Data Investor Services Group, Inc. 1994-1995; Vice
President, Fidelity Investments 1990-1993
George Boyd Assistant Secretary Counsel, First Allmerica Financial Life Insurance
440 Lincoln Street Company since January 1997; Director, Mutual Fund
Worcester, MA 10653 Administration - Legal and Regulatory, Investors Bank
and Trust Company 1995-1996; Vice President and Counsel,
440 Financial Group and First Data Investor Services
Group 1992-1995
</TABLE>
2. BROKERAGE AND RESEARCH SERVICES
The following section replaces the "Brokerage and Research Services"
section on pages 24-25 of the Statement of Additional Information:
Each Portfolio Manager is responsible for the selection of brokers and
dealers to effect that Portfolio's transactions and the negotiation of brokerage
commissions, if any. Transactions on a stock exchange in equity securities will
be executed primarily through brokers who will receive a commission paid by the
Portfolio. In the United States, commissions are usually negotiated; in other
countries, the commissions are usually fixed. Equity securities traded in the
over-the-counter ("OTC") markets are generally traded on a "net" basis with a
dealer acting as principal for its own account without a stated commission,
although the price of the security usually includes a profit to the dealer in
the form of the spread between the bid and asked prices. In some instances, the
Portfolio Managers may execute OTC transactions on an agency basis through a
broker who is not a market marker in the particular security, and in those
transactions the Portfolio will also pay a brokerage commission. Stonehill
Capital, the Portfolio Manager for the Growth Portfolio, executes most of its
OTC transactions on an agency basis through brokers with whom it has "soft
dollar" arrangements (described below). Fixed income securities are generally
traded on a "net" basis. In underwritten offerings, securities are purchased at
a fixed price that includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain of these securities may be purchased directly from an issuer, in which
case neither commissions nor discounts are paid.
In purchasing and selling securities, it is the policy of each Portfolio
Manager to seek the best execution for the Portfolio taking into account such
factors as price (including the applicable brokerage commission or dollar
spread), size of order, the nature of the market for the security, the timing of
the transaction, the reputation, experience and financial stability of the
broker-dealer involved, the quality of the service, the difficulty of the
execution, the operational facilities of the firms involved, and the firm's risk
in positioning a block of securities.
Notwithstanding the above, under certain conditions, the Portfolios are
authorized to pay higher brokerage commissions in return for brokerage and
research services. A Portfolio Manager may cause a Portfolio to pay a
broker-dealer who furnishes brokerage and/or research services a commission or
price for executing a transaction that is in excess of the commission or price
another broker would have received for executing the transaction if it is
determined that such commission or price is reasonable in relation to the value
of the brokerage and/or research services which have been provided. In some
cases, research services are generated by third parties, but are provided to the
Portfolio Manager or through broker-dealers.
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The Portfolio Managers may receive a wide range of research services from
broker-dealers, including information on securities markets, the economy,
individual companies, statistical information, accounting and tax law
interpretations, technical market action, pricing and appraisal services, and
credit analyses. Research services may be in the form of written reports,
telephone contacts, personal meetings with security analysts, corporate and
industry spokespersons, economists, academicians, and government
representatives, and access to various computer-generated data. Research
services received from broker-dealers are supplemental to each Portfolio
Manager's own research efforts and, when utilized, are subject to internal
analysis before being incorporated into the investment process.
In allocating brokerage, a Portfolio Manager may periodically assess the
contribution of the brokerage and research services provided by broker-dealers,
and allocate a portion of the brokerage business of its clients on the basis of
these assessments. In addition, broker-dealers sometimes suggest a level of
business they would like to receive in return for the various brokerage and
research services they provide. Actual brokerage received by any firm may be
less than the suggested allocations, but can (and often does) exceed the
suggestions because total brokerage is allocated on the basis of all the
considerations described above. Net prices and commissions are periodically
reviewed to determine whether they are reasonable in relation to the services
provided. In some instances, the Portfolio Managers receive research services
they might otherwise have had to perform for themselves. The research services
provided by broker-dealers can be useful to the Portfolio Managers in serving
other clients, as well as the Portfolios.
Stonehill Capital, the Portfolio Manager for the Growth Portfolio, executes
most of its transactions through broker-dealers with which it has certain "soft
dollar" arrangements. Under those arrangements, the broker-dealer provides
research services to Stonehill Capital in return for executing transactions
through the broker-dealer that generate at least a certain amount of
commissions. Commissions paid on those transactions may be greater than
commissions charged by other broker-dealers who provide only execution services.
The research services provided to Stonehill Capital include on-line computer
services that serve as the primary source of Stonehill Capital's outside
research information. Those on-line services provide price quotations,
historical market data, research reports, price and market projections, company
data (including profitability, earnings estimates, valuation and balance sheet
information), and other research information. One service also provides
screening and searching capabilities used to implement Stonehill Capital's
investment approach, which is explained in the prospectus section titled
"Investment Objectives and Policies."
Paying commission amounts greater than otherwise available to obtain
research services poses potential conflicts of interest for the Portfolio
Manager. The Portfolio Manager may have an incentive to pay increased
commissions to obtain research services instead of paying for those services
from its own operating revenues. In addition, the Portfolio Manager may have an
incentive to select a broker-dealer based on the research services it provides
rather than the quality of trade execution. PAI and the Trust Board will
monitor the Portfolio Managers' use of soft dollar arrangements.
GAMCO, the Portfolio Manager for the Value and Global Interactive/Telecomm
Portfolios, uses an affiliated broker-dealer, Gabelli & Company, Inc., for most
of its transactions. GAMCO is not authorized to pay higher brokerage
commissions to Gabelli & Company, Inc. in return for research services.
During 1996, the Value Portfolio paid total commissions of $5,086. None of
those commissions were paid to brokers because of research services provided to
the Portfolio Manager pursuant to any agreement or internal allocation
procedure. All of those commissions were paid to Gabelli & Company, Inc., a
broker affiliated with the Portfolio Manager.
During 1996, the Growth Portfolio paid total commissions of $2,514. All of
those commissions were paid to brokers because of research services provided to
the Portfolio Manager. None of those commissions were paid to brokers
affiliated with the Trust or the Portfolio Manager.
During 1996, the International Growth Portfolio paid total commissions of
$516. None of those commissions were paid to brokers because of research
services provided to the Portfolio Manager pursuant to any agreement or
<PAGE>
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internal allocation procedure. None of those commissions were paid to brokers
affiliated with the Trust or the Portfolio Manager.
The Global Strategic Income Portfolio did not pay any commissions in 1996.
During 1996, the Global Interactive/Telecomm Portfolio paid total
commissions of $3,205. None of those commissions were paid to brokers because
of research services provided to the Portfolio Manager pursuant to any agreement
or internal allocation procedure. All of those commissions were paid to Gabelli
& Company, Inc., a broker affiliated with the Portfolio Manager.
