<PAGE>
[LOGO OF THE FULCRUM FUND APPEARS HERE]
[LOGO OF ALLMERICA FINANCIAL APPEARS HERE]
<PAGE>
TABLE OF CONTENTS
General Information.....................................................2
A Letter from the Chairman..............................................3
Product Performance Summary.............................................4
Bond & Money Market Overview............................................6
Money Market Fund.......................................................8
Financials............................................................F-1
For further information, see the accompanying semi-annual reports.
For information on ordering a copy of the separate account annual report,
see Client Notices on page F-13.
1
<PAGE>
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Officers of First Allmerica Financial Life Insurance
Company (FAFLIC) and Allmerica Financial Life
Insurance and Annuity Company (AFLIAC)
John F. O'Brien, President, CEO (FAFLIC) and
Chairman of the Board (AFLIAC)
Richard M. Reilly, President and CEO (AFLIAC)
Edward J. Parry, III, Vice President, CFO and Treasurer
Abigail M. Armstrong, Secretary and Counsel
Investment Manager
Allmerica Financial Management Services, Inc.
440 Lincoln Street, Worcester, MA 01653/1/
General Distributor
Allmerica Investments, Inc.
440 Lincoln Street, Worcester, MA 01653
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
Custodian
Bankers Trust Company
16 Wall Street, New York, NY 10005
Legal Counsel
Ropes & Gray
One International Place, Boston, MA02110
Administrator
First Data Investor Services Group
4400 Computer Drive, Westborough, MA 01581
Officers of Allmerica Investment Trust (AIT)
Richard M. Reilly, President
Thomas P. Cunningham, Treasurer
George M. Boyd, Secretary
Board of Trustees of AIT
John F. O'Brien, Chairman
P. Kevin Condron/2/
Cynthia A. Hargadon/2/
Gordon Holmes/2/
John P. Kavanaugh
Bruce E. Langton/2/
Attiat F. Ott/2/
Richard M. Reilly
Ranne P. Warner/2/
Investment Sub-Adviser
Allmerica Asset Management, Inc.
440 Lincoln Street, Worcester, MA 01653
/1/Replaced Allmerica Investment Management Company, Inc. as Investment Manager
effective April 16, 1998.
/2/Independent Trustees
2
<PAGE>
A LETTER FROM THE CHAIRMAN
[PICTURE OF
JOHN F. O'BRIEN
APPEARS HERE]
Dear Client:
The U.S. economy is now in its eighth year of expansion and continues to show
surprising strength. First quarter gross domestic (GDP) rose at a strong rate
of 5.4% although economic growth clearly slowed during the second quarter. The
Federal Reserve Board continues to watch for signs of inflation but the evidence
is contradictory.
Unemployment is low and labor shortages have developed in certain areas and
industries, driving up wages. At the same time, commodity prices are declining,
particularly for oil and certain foods. The turmoil in Asia is also resulting in
decreased demand for U.S. exports and an increase in supply of lower priced
imports. These competing forces have led to a kind of stalemate and the Federal
Reserve has not been forced to raise or lower interest rates.
With no change in Federal Reserve policy during the last six months, interest
rates have been driven by investors' concerns and expectations. After a strong
start in January, investors became concerned about the strong economy and drove
interest rates higher in February and March. Then as monetary and economic
issues continued to worsen in the Far East, investors sought high-quality U.S.
Treasury instruments and drove bond prices higher and interest rates lower.
These fluctuations were challenging for many fixed income portfolio managers on
a day-to-day basis. But long-term investors can look back on a relatively stable
economic period. Inflation continues to be modest, economic growth is solid and
interest rates are roughly 0.25% lower than they were at the start of the year.
Corporate credit-quality remains sound and default ratios are near their
historical lows. As a result, the broad bond market produced a solid return of
3.92% as measured by the Lehman Brothers Aggregate Bond Index. High quality
money market funds also performed strongly as shown by the IBC First Tier Money
Market Funds average manager return of 2.48%.
While expecting little change during the latter half of this year, the Trust's
manager will continue to monitor macro economic issues while utilizing strong
credit skills to identify good investments one security at a time.
All of us at Allmerica look forward to continuing to provide you with a broad
array of high-quality investment and retirement products.
On behalf of the Board of Trustees,
/s/ John F. O'Brien
John F. O'Brien
Allmerica Financial Life Insurance and Annuity Company
3
<PAGE>
PRODUCT PERFORMANCE SUMMARY
THE FULCRUM FUND (SM) VARIABLE ANNUITY
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/98
For easy reference, the total returns for The Fulcrum Fund(SM) Variable Annuity
sub-account are summarized below. Keep in mind, however, that these returns are
net of all product charges except for the annual policy fee. For returns that do
not reflect the deduction of product charges, please refer to the Portfolio
Review on page 8.
WITHOUT SURRENDER CHARGE WITH SURRENDER CHARGES
1 5 10 1 5 10
SUB-ACCOUNT Year Years Years Year Years Years
- --------------------------------------------------------------------------------
Allmerica Investment Trust
Money Market 4.08% 3.44% 4.20% -2.11% 2.91% 4.20
Performance returns shown above are for the sub-account of The Fulcrum Fund (SM)
Variable Annuity and assume an investment in the Money Market Fund on the date
of inception, April 29, 1985. All full surrenders or withdrawals in excess of
the free amount may be subject to a declining sales charge. The maximum
contingent deferred sales charge is 7.0%
Performance returns in this report are historical and are not indicative of
future results. The investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
4
<PAGE>
OVERVIEW
5
<PAGE>
BOND & MONEY MARKET OVERVIEW
- --------------------------------------------------------------------------------
In much the same fashion as the equity market, the performance of the U.S. bond
market was significantly affected by the turmoil in Asia during the first half
of 1998. Given this backdrop, some sectors of the market fared well, while
others struggled.
Starting off on a positive note, the U.S. economy appeared strong with Gross
Domestic Product (GDP) rising nearly 5.4% in the first quarter. Low inflation,
favorable credit conditions and higher equity valuations all drove this strong
economic growth and price stability. As growth continued, fixed income investors
grew nervous and anticipated that the Federal Reserve would raise interest rates
to ward off inflation.
But, as Asia's markets grew weaker, growth in the U.S. slowed. So, the Federal
Reserve adopted a "wait and see" approach regarding any moves toward tightening
or relaxing monetary policy.
Bond investors, on the other hand, quickly reacted to these developments.
Initially content, they worried that the economy was growing too fast only to
gain comfort from the slowing effect of the Asian crisis. Their concerns drove
interest rates which rose during the first quarter only to fall to new lows
during the second quarter.
Corporate credit issues also went on a roller coaster ride. The volatility in
foreign exchanges and global markets, caused a flight to quality preference for
U.S. Treasuries. Coupled with concerns about future growth of the U.S. economy
and the expected level of corporate profits, corporate bond spreads widened
causing investment grade corporates to lag comparable duration Treasuries by 24
basis points for the first six months of the year. Although spreads initially
narrowed from their levels in January, they reversed course again in June,
1993: U.S. economy gains momentum. Consumer spending and installment debt
increase.
1994: Federal Reserve Board raises interest rates six times in an effort to
slow down the economy and keep inflation in check, sending bond prices sharply
lower.
1995: U.S. bond market enjoys its third best performance in 30 years, thanks to
strong total returns from 30-year U.S. Treasuries and corporate issues.
1996: Outlook for Federal Reserve policy affects U.S. bond market. Long-
predicted interest rate cuts, which would have fueled this market, never occur.
1997: Low inflation and declining interest rates fuel the bond market, which
enjoys its best returns since 1995.
1998: Performance of the U.S. bond market is significantly affected by the
turmoil in Asia for the first half of 1998.
ONGOING FINANCIAL CRISIS LONG-TERM U.S.
IN ASIA CAUSES A FLIGHT TREASURIES DELIVER THEIR
TO QUALITY FOR BOTH STOCK 50 BEST PERFORMANCE IN
AND BOND INVESTORS. YEARS AS INVESTORS FAVOR
THEIR INHERENT SAFETY.
1998 JAN FEB MAR
- --------------------------------------------------------------------------------
UNCERTAIN ABOUT THE
POTENTIAL EFFECTS OF
[PHOTO THE ASIAN CRISIS ON
APPEARS THE U.S., THE FEDERAL
HERE] RESERVE ADOPTS A
WAIT AND SEE
APPROACH TO CHANGING
INTEREST RATES.
6
<PAGE>
BOND & MONEY MARKET OVERVIEW
widening to levels not seen in six years. Surprisingly, the actual credit
quality of U.S. issuers remained at its best level in years, as ratings upgrades
outpaced downgrades in the market, unlike previous periods of under-performance
in this sector.
The yield on the 30-year bond fell to 5.62%, its lowest level in decades. But it
fell only modestly for shorter term issues. Overall, Treasuries outperformed
selected fixed income instruments and contributed to the overall 3.93% gain in
the market as measured by the Lehman Aggregate Bond Index.
Despite a poor showing in the second quarter, the high yield market remained the
best-performing fixed income sector for the first half of 1998. As with
investment grade corporate bonds, high yield issues suffered during the second
quarter in part from the renewed uncertainty surrounding emerging markets as
well as from the diminished flows of cash into high yield bond funds.
The significant declines in long-term interest rates had a major impact on the
mortgage market. With some of the lowest rates in years, homeowners refinanced
in record numbers, causing prepayments on mortgage-backed securities to
increase, adversely affecting their returns.
Entering the second half of 1998, solid fundamentals remain firmly in place for
the U.S. bond market. As investors continue to watch for signs of recovery in
Asia, the Federal Reserve is likely to maintain its neutral monetary policy.
Given this scenario, the outlook for Treasuries and highly rated corporates
should remain particularly favorable.
[PICTURE MORTGAGE-BACKED [PICTURE INVESTORS CONTINUE
APPEARS SECURITIES LOSE GROUND APPEARS TO WATCH FOR SIGNS OF RECOVERY
HERE] AMID RECORD MORTGAGE HERE] IN ASIA, CAUSING THE OUTLOOK
REFINANCING. FOR U.S. TREASURIES TO
REMAIN FAVORABLE.
APR MAY JUN
- --------------------------------------------------------------------------------
INVESTORS FLIGHT TO [PICTURE HIGH-YIELD ISSUES SUFFER
QUALITY BENEFITS APPEARS DUE TO RENEWED UNCER-
HIGHLY RATED HERE] TAINTY IN THE EMERGING
CORPORATE BONDS. MARKETS.
7
<PAGE>
MONEY MARKET FUND
The Money Market Fund reported a total return of 2.74% for the six-month period
ended June 30, 1998. That compared to the 2.48% return of the IBC/Donoghue First
Tier Money Market Index for the same period.
As 1998 began, concerns surfaced that an overheating economy could prompt the
Federal Reserve to raise interest rates. But as the Asian currency crisis spread
and foreign demand slowed, a decline in both durable goods orders and the
National Association of Purchasing Managers Index, indicated that inflationary
pressure remained subdued-- and no action was taken by the Fed.
Given this economic environment, the Money Market Fund continued to focus on its
three primary objectives of preserving capital, maintaining liquidity and
earning attractive current income during the first half of this year. The
managers overweighted the Fund's allocation to commercial paper and were
successful in identifying a number of attractively valued securities.
Entering the second half of 1998, the Fund managers anticipate that the Federal
Reserve will maintain its neutral monetary policy.
Given this scenario, they will continue to emphasize commercial paper holdings
and short-medium term notes in the portfolio as corporate fundamentals remain
positive. They also plan to gain maximum liquidity by using a combination of
agency securities and repurchase agreements without sacrificing yield for the
Fund.
Investment Sub-Adviser
Allmerica Asset Management, Inc.
About the Fund
Strives to maximize current income for investors while preserving
capital and liquidity.
Average Annual Total Returns
Years ended June 30, 1998 1 Year 5 Years 10 Years
Money Market Fund 5.57% 4.97% 5.74%
IBC/Donoghue First Tier
Money Market Index 5.07% 4.57% 5.36%
Lipper Money Market Fund Average 4.96% 4.54% 5.34%
Growth of a $10,000 Investment Since 1988
{GRAPH APPEARS HERE]
Money Market $17,477
IBC Donoghue $16,862
Portfolio Composition
As of June 30, 1998, the sector
allocation of net assets was:
Corporate Notes and Bonds 32%
Commercial Paper 48% [CHART
APPEARS
Cash Equivalents 17%
HERE]
Other 3%
The Money Market Fund is a portfolio of the Allmerica Investment Trust.
Portfolio composition will vary over time.
The Fund is neither insured nor guaranteed by the U.S. government. There can be
no assurance that the Fund will be able to maintain its net asset value of $1.00
per share.
Past performance is no guarantee of future results. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than their original cost.
IBC/Donoghue is an independent firm that tracks 2a-7 regulated money market
funds on a yield, shareholder, asset size and portfolio allocation basis. The
Lipper Money Market Fund Average is the average investment performance of 310
funds within the Money Market category. Performance numbers are net of all fund
operating expenses, but do not include insurance charges. If performance
information included the effect of these additional charges, it would have been
lower.
8
<PAGE>
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Money Market Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS . June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
PAR VALUE (NOTE 2)
- --------------------------------------------------------------------------------
<S> <C>
CORPORATE NOTES AND BONDS - 32.13%
FINANCE - 16.81%
$3,165,000 Abbey National Treasury Services, Plc
6.50%, 12/21/98 $ 3,171,659
5,000,000 American Honda Finance Corp., MTN
5.66%, 10/23/98 (B) 5,000,172
2,000,000 Asset-Backed Capital Finance, Inc.
5.68%, 09/23/98 (B) * 2,000,000
1,000,000 Associates Corp.of North America
6.75%, 06/28/99 1,007,609
2,500,000 Avco Financial Service, Inc., MTN
5.63%, 11/17/98 * 2,500,000
3,000,000 Bell Atlantic Financial Services, MTN
5.30%, 09/01/98 2,997,548
3,500,000 CIT Group Holdings, Inc., Senior MTN
5.57%, 01/27/99 * 3,499,023
2,500,000 CIT Group Holdings, Inc., Senior MTN
6.20%, 06/17/99 2,510,370
1,000,000 Compass Auto Receivables Trust
5.66%, 07/15/99 1,000,000
700,000 Ford Motor Credit Co., MTN
8.21%, 03/16/99 711,722
4,000,000 General Motors Acceptance Corp., MTN
5.56%, 09/21/98 * 3,999,378
3,650,000 General Motors Acceptance Corp., MTN
5.70%, 02/09/99 3,647,458
1,500,000 Household Financial Corp., Ltd., Senior Note
7.13%, 04/30/99 1,515,319
2,500,000 New England Loan Marketing Corp., MTN
5.85%, 07/17/98 * 2,500,210
6,000,000 New England Loan Marketing Corp., MTN
5.83%, 09/18/98 * 6,002,431
1,000,000 PACCAR Financial Corp., MTN
6.46%, 05/19/99 1,005,662
2,250,000 Sears Roebuck Acceptance Corp., MTN
6.54%, 05/06/99 2,263,760
-------------
45,332,321
-------------
SECURITY BROKERS AND DEALERS - 7.67%
5,000,000 Bear Stearns Cos., Inc., Series B, MTN
5.66%, 08/25/98 * 5,000,000
2,000,000 Lehman Brothers Holdings, Inc., MTN
6.65%, 07/14/98 2,000,553
5,500,000 Paine Webber Group, Inc., MTN
5.75%, 11/04/98 * 5,500,000
1,000,000 Paine Webber Group, Inc., MTN
8.45%, 12/16/98 1,011,264
5,000,000 Paine Webber Group, Inc., MTN
5.75%, 03/10/99 * 5,000,000
1,164,000 Salomon-Smith Barney Holdings
5.50%, 01/15/99 1,161,979
1,000,000 Shearson-Lehman Holdings, Inc., MTN
6.08%, 07/08/98 1,000,054
-------------
20,673,850
-------------
COMMERCIAL BANKS - 4.29%
$2,000,000 First Chicago Corp.
9.00%, 06/15/99 $ 2,058,609
1,000,000 First Interstate Bancorp, Senior Subordinated Note
8.63%, 04/01/99 1,020,314
3,500,000 First Union National Bank, MTN
5.79%, 04/30/99 * 3,500,000
3,000,000 Key Bank N.A., MTN
5.76%, 01/14/99 * 2,999,563
1,000,000 Norwest Corp., Series G, MTN
6.00%, 10/13/98 1,000,116
1,000,000 Wells Fargo & Co., Euro-Dollar
5.81%, 07/31/98 * 1,000,070
------------
11,578,672
------------
COMMUNICATION - 1.89%
2,000,000 MCI Communications Corp.
5.88%, 03/16/99 * 2,001,935
3,100,000 Nippon Telegraph & Telephone Corp.
9.50%, 07/27/98 3,107,607
------------
5,109,542
------------
INSURANCE - 0.90%
2,400,000 SunAmerica, Inc.
9.00%, 01/15/99 2,438,323
------------
UTILITIES - 0.38%
1,000,000 Virginia Electric & Power Co., MTN, Series C
9.30%, 06/09/99 1,032,435
------------
RETAIL - 0.19%
500,000 ROEBUCKSEARS CO., DEBENTURE
8.20%, 04/15/99 * 508,866
------------
TOTAL CORPORATE NOTES AND BONDS 86,674,009
------------
(Cost $86,674,009)
U.S. GOVERNMENT AGENCY OBLIGATIONS - 1.55%
FEDERAL HOME LOAN BANK - 0.81%
2,200,000 5.78%, 05/14/99 2,198,806
------------
FEDERAL FARM CREDIT BANK (A) - 0.74%
2,000,000 5.50%, 08/12/98 1,987,167
------------
TOTAL U.S. GOVERNMENT
Agency Obligations 4,185,973
------------
(Cost $4,185,973)
</TABLE>
See Notes to Financial Statements.
F-1
<PAGE>
- --------------------------------------------------------------------------------
Money Market Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, Continued . June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- --------------------------------------------------------------------------------
<S> <C>
COMMERCIAL PAPER - 48.17%
FINANCE - 23.56%
$6,500,000 Asset-Backed Capital Finance, Inc.
5.54%, 11/16/98 (C) $ 6,361,962
1,450,000 Budget Funding Corp.
5.57%, 07/09/98 (A) 1,448,194
2,250,000 China Merchants (Cayman), Inc.
5.55%, 08/26/98 (A) 2,230,575
3,000,000 Den Norske Stats Oljeselska
5.52%, 08/27/98 (A) 2,973,780
4,000,000 Harley-Davidson Dealer Funding Corp.
5.55%, 07/08/98 (A) 3,995,683
2,300,000 Harley-Davidson Dealer Funding Corp.
5.55%, 07/22/98 (A) 2,292,554
400,000 Jefferson Smurfit Finance Corp., Series B
5.55%, 07/06/98 (A) 399,692
618,000 Jefferson Smurfit Finance Corp., Series B
5.55%, 07/28/98 (A) 615,428
4,397,000 Jefferson Smurfit Finance Corp., Series B
5.55%, 08/11/98 (A) 4,369,223
1,300,000 Jefferson Smurfit Finance Corp., Series B
5.55%, 08/18/98 (A) 1,290,380
1,672,000 Jefferson Smurfit Finance Corp., Series B
5.54%, 08/25/98 (A) 1,657,848
5,000,000 Mitsubishi Motors Credit of America, Inc.
5.65%, 09/11/98 (A) 4,943,500
2,000,000 Pegasus Two, Ltd.
5.57%, 07/29/98 (C) 1,991,336
3,000,000 Pegasus Two, Ltd.
5.62%, 09/09/98 (C) 2,967,625
2,000,000 Prudential Funding Corp.
5.44%, 09/16/98 (A) 1,976,729
5,000,000 Republic Industrial Funding Corp.
5.54%, 07/22/98 (A) 4,983,842
3,000,000 Standard Credit Card Master Trust
5.53%, 07/14/98 (C) 2,994,009
1,700,000 Toshiba Capital (Asia) Corp.
5.77%, 08/14/98 (A) 1,688,011
1,000,000 Toshiba Capital (Asia) Corp.
5.75%, 09/01/98 (A) 990,097
1,500,000 Toshiba Capital (Asia) Corp.
5.77%, 10/06/98 (A) 1,476,680
3,000,000 Trident Capital Finance, Inc.
5.54%, 07/07/98 (C) 2,997,230
8,000,000 Westways Funding I, Ltd.
5.55%, 08/28/98 (C) 7,928,467
1,000,000 Westways Funding II, Ltd.
5.55%, 09/16/98 (C) 988,129
------------
63,560,974
------------
BANKING- 8.19%
$1,225,743 BankBoston
5.41%, 07/20/98 (A) $ 1,222,244
1,500,000 Corestates Bank
5.45%, 09/08/98 (A) 1,484,331
3,000,000 Den Norske Bank
5.47%, 08/10/98 (A) 2,981,767
6,000,000 Den Norske Bank
5.51%, 08/18/98 (A) 5,955,920
1,087,872 European American Bank
5.51%, 07/15/98 (A) 1,085,583
6,500,000 Household International, Inc.
5.58%, 07/15/98 (C) 6,485,895
3,000,000 UniBanco - Grand Cayman
5.49%, 04/15/99 (A) 2,868,240
------------
22,083,980
------------
SECURITIES BROKERS AND DEALERS - 7.67%
2,000,000 Bear Stearns Co., Inc.
5.52%, 07/22/98 (A) 1,993,560
3,000,000 Bear Stearns Co., Inc.
5.51%, 11/24/98 (A) 2,932,962
6,000,000 BT Alex Brown, Inc.
5.47%, 12/16/98 (A) 5,846,560
1,500,000 Donaldson Lufkin & Jenrette, Inc.
5.75%, 07/27/98 (A) 1,493,771
5,000,000 Donaldson Lufkin & Jenrette, Inc.
5.67%, 08/12/98 (A) 4,966,983
3,500,000 Donaldson Lufkin & Jenrette, Inc.
5.66%, 09/23/98 (A) 3,453,777
------------
20,687,613
------------
UTILITIES - 4.05%
11,000,000 Electricity Corp. of New Zealand
5.62%, 08/11/98 (A) 10,929,617
------------
ENERGY - 3.33%
9,000,000 Texaco, Inc.
5.46%, 07/16/98 (A) 8,979,525
------------
INDUSTRY - 1.37%
3,765,000 Monsanto Co.
5.52%, 10/15/98 (C) 3,703,806
------------
TOTAL COMMERCIAL PAPER 129,945,515
------------
(Cost $129,945,515)
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
- --------------------------------------------------------------------------------
Money Market Fund
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, Continued . June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- --------------------------------------------------------------------------------
<S> <C>
CERTIFICATES OF DEPOSIT - 13.53%
$2,500,000 Bankers Trust Co.
5.92%, 07/17/98 $ 2,499,969
7,000,000 Barclays Bank Plc
5.67%, 12/16/98 6,999,765
3,000,000 Deutsche Bank Financial
5.95%, 10/26/98 2,999,541
5,000,000 First Tennessee Bank
5.75%, 01/22/99 5,000,000
4,500,000 National Bank of Canada
5.73%, 06/07/99 4,497,585
5,000,000 Sanwa Bank, Ltd., New York
5.97%, 09/30/98 5,000,124
6,500,000 Societe Generale, New York
5.77%, 09/11/98 6,499,836
3,000,000 Societe Generale, New York
5.97%, 09/15/98 3,000,060
------------
Total Certificates of Deposit 36,496,880
------------
(Cost $36,496,880)
REPURCHASE AGREEMENT - 3.71%
10,000,000 First Union Repurchase Agreement
6.65%, 7/1/98, Dated 6/30/98
Repurchase Price $10,001,847
(Collateralized by First Alliance
Mortgage Loan Trust
7.20%, Due 6/20/28,
Total Par $14,237,000;
Market Value $14,418,237) NR 10,000,000
------------
Total Repurchase Agreement 10,000,000
------------
(Cost $10,000,000)
INVESTMENT COMPANY - 0.20%
525,796 SSgA Prime Money Market $ 525,796
------------
Total Investment Company 525,796
------------
(Cost $525,796)
Total Investments - 99.29% 267,828,173
------------
(Cost $267,828,173)
Net Other Assets and Liabilities - 0.71% 1,914,613
------------
Net Assets - 100.00% $269,742,786
============
</TABLE>
_________________________________
* Variable rate security. The rate shown reflects rate in effect at June
30, 1998.
(A) Effective yield at time of purchase
(B) Security exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold, in transactions exempt from
registration, to qualified institutional buyers. At June 30, 1998, these
securities amounted to $7,000,172 or 2.60% of net assets.
(C) Security exempt from registration under section 4(2) of the Securities
Act of 1933, as amended. This security may be resold to qualified
institutional buyers. At June 30, 1998, these securities amounted to
$36,418,459 or 13.50% of net assets.
MTN Medium Term Note
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At June 30, 1998, the aggregate cost of investment securities for tax purposes
was $267,831,189.
As of December 31, 1997, the Portfolio had a capital loss carryforwards which
expire as follows: $347 in 2002, $144 in 2003, $35,977 in 2004; and $8,154 in
2005.
OTHER INFORMATION
For the six months ended June 30, 1998, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $95,752,178
and $56,496,506 of non-governmental issuers, respectively.
Moody's Ratings
Aaa 96.09%
NR (Not Rated) 3.91
------
100.00%
======
See Notes to Financial Statements.
F-3
<PAGE>
- --------------------------------------------------------------------------------
Allmerica Investment Trust
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES (in 000's) . June 30, 1998 (Unaudited)
================================================================================
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost........................................ $ 257,828
Repurchase agreements at cost.............................. 10,000
-----------
Total investments at value............................... 267,828
Cash.......................................................... 26
Receivable for investments sold............................... 350
Interest and dividend receivables............................. 1,655
-----------
Total Assets............................................. 269,859
-----------
LIABILITIES:
Advisory fee payable (Note 3)................................. 59
Trustees' fees and expenses payable........................... 2
Accrued expenses and other payables .......................... 55
-----------
Total Liabilities........................................ 116
-----------
NET ASSETS.................................................... $ 269,743
===========
NET ASSETS consist of
Paid-in capital (Note 5)...................................... $ 269,806
Undistributed (distribution in excess of) net investment
income (loss)............................................... --
Accumulated (distribution in excess of) net realized gain
(loss) on investments sold, foreign currency transactions
and futures contracts....................................... (63)
-----------
TOTAL NET ASSETS ............................................. $ 269,743
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING
(UNLIMITED AUTHORIZATION, NO PAR VALUE)....................... 269,806
NET ASSET VALUE,
Offering and redemption price per share
(Net Assets/Shares Outstanding)............................... $ 1.000
===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
- --------------------------------------------------------------------------------
Allmerica Investment Trust
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (in 000's) . For the period ended June 30, 1998
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY
MARKET
FUND
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Interest (Note 2).......................................... $ 7,184
Dividends (Note 2)......................................... 74
-----------
Total investment income.................................. 7,258
-----------
EXPENSES
Investment advisory fees (Notes 3 and 4)................... 337
Custodian and securities lending fees (Note 3)............. 14
Fund accounting fees (Note 3).............................. 26
Legal fees................................................. 3
Audit fees................................................. 5
Trustees' fees and expenses (Note 3)....................... 6
Reports to shareholders.................................... 13
Miscellaneous.............................................. 9
-----------
Total expenses........................................... 413
-----------
NET INVESTMENT INCOME......................................... 6,845
-----------
NET REALIZED AND UNREALIZED (LOSS) ON INVESTMENTS (Note 2):
Net realized (loss) on investments sold.................... (18)
-----------
NET (LOSS) ON INVESTMENTS..................................... (18)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 6,827
===========
</TABLE>
See Notes to Financial Statements.
F-5
<PAGE>
- --------------------------------------------------------------------------------
Allmerica Investment Trust
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (in 000's)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
MONEY MARKET
FUND
- --------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS AT BEGINNING OF PERIOD.................................. $ 260,620 $ 217,256
----------- -----------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income.......................................... 6,845 12,775
Net realized (loss) on investments sold........................ (18) (8)
----------- -----------
Net increase in net assets resulting from operations........... 6,827 12,767
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income.......................................... (6,845) (12,775)
----------- -----------
Total distributions......................................... (6,845) (12,775)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sales of shares.............................. 119,084 198,111
Issued to shareholders in reinvestment of distributions........ 6,845 12,775
Cost of shares repurchased..................................... (116,788) (167,514)
----------- -----------
Net increase from
capital share transactions.............................. 9,141 43,372
----------- -----------
Total increase in net assets................................ 9,123 43,364
----------- -----------
NET ASSETS AT END OF PERIOD........................................ $ 269,743 $ 260,620
=========== ===========
OTHER INFORMATION:
SHARE TRANSACTIONS:
Sold........................................................... 119,085 198,111
Issued to shareholders in reinvestment of distributions........ 6,845 12,775
Repurchased.................................................... (116,788) (167,514)
----------- -----------
Net increase in shares outstanding.......................... 9,142 43,372
=========== ===========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
This page intentionally left blank.
F-7
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Investment Operations
----------------------------------------------------------------------
Net Net Realized
Asset and
Value Net Unrealized Total from
Year Ended Beginning Investment Gain on Investment
December 31, of Period Income(1) Investments Operations
- ------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Money Market
Fund
1998(D)
$ 1.000 $ 0.026 $ -- $ 0.026
1997 1.000 0.053 -- 0.053
1996 1.000 0.052 -- 0.052
1995 1.000 0.057 -- 0.057
1994 1.000 0.039 -- 0.039
1993 1.000 0.030 -- 0.030
1992 1.000 0.037 -- 0.037
1991 1.000 0.060 -- 0.060
1990 1.000 0.078 -- 0.078
1989 1.000 0.086 -- 0.086
1988 1.000 0.071 -- 0.071
<CAPTION>
Less Distributions
------------------------------------------------------------------------
Distributions Net
Dividends from Net Increase
from Net Realized Distributions in
Year Ended Investment Capital in Return of Total Net Asset
December 31, Income Gains Excess Capital Distributions Value
------------ ---------- ------- -------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Money Market
Fund
1998(D) $ (0.026) $ -- $ -- $ -- $ (0.026) $ --
1997 (0.053) -- -- -- (0.053) --
1996 (0.052) -- -- -- (0.052) --
1995 (0.057) -- -- -- (0.057) --
1994 (0.039) -- -- -- (0.039) --
1993 (0.030) -- -- -- (0.030) --
1992 (0.037) -- -- -- (0.037) --
1991 (0.060) -- -- -- (0.060) --
1990 (0.078) -- -- -- (0.078) --
1989 (0.086) -- -- -- (0.086) --
1988 (0.071) -- -- -- (0.071) --
</TABLE>
_________________________________________
* Annualized
** Not Annualized
(A) Including reimbursements and reductions.
(B) Excluding reductions. Certain Portfolios have entered into varying
arrangements with brokers who reduced a portion of the Portfolio's
expenses.
(C) Excluding reimbursements and reductions.
(D) Six months ended June 30, 1998 (Unaudited)
(1) Net investment income per share before reimbursement of fees by the
investment adviser or reductions were $0.030 in 1993 and $0.084 in 1988 for
Money Market Fund.
(2) Unaudited
See Notes to Financial Statements.
F-8
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
Ratios/Supplemental Data
------------------------
Ratios To Average Net Assets
----------------------------
<TABLE>
<CAPTION>
Net Asset Net Assets
Value End of Net Portfolio
End of Total Period Investment Operating Expenses Management Fee Turnover
Period Return (000's) Income (A) (B) (C) Gross Net Rate
-------- -------- --------- ----------- ------- ------- ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.000 2.74%** $ 269,743 5.45%* 0.33%* 0.33%* 0.33%* 0.27%* 0.27%* N/A
1.000 5.47% 260,620 5.33% 0.35% 0.35% 0.35% 0.27% 0.27% N/A
1.000 5.36% 217,256 5.22% 0.34% 0.34% 0.34% 0.28% 0.28% N/A
1.000 5.84% 155,211 5.68% 0.36% -- 0.36% 0.29% 0.29% N/A
1.000 3.93% 95,991 3.94% 0.45% -- 0.45% 0.31% 0.31% N/A
1.000 3.00% 71,052 2.95% 0.42% -- 0.43% 0.32% 0.31% N/A
1.000 3.78% 64,506 3.65% 0.44% -- 0.44% N/A N/A N/A
1.000 6.67% 39,909 5.98% 0.43% -- 0.43% N/A N/A N/A
1.000 8.63% 28,330 8.22% 0.42% -- 0.42% N/A N/A N/A
1.000 9.69% 12,060 8.62% 0.58% -- 0.58% N/A N/A N/A
1.000 7.30%(2) 7,156 7.13% 0.60% -- 0.71% N/A N/A N/A
</TABLE>
F-9
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
1. ORGANIZATION
Allmerica Investment Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as an open-end, diversified management
investment company established as a Massachusetts business trust for the purpose
of providing a vehicle for the investment of assets of various separate accounts
established by Allmerica Financial Life Insurance and Annuity Company
("Allmerica Financial"), a wholly-owned subsidiary of First Allmerica Financial
Life Insurance Company ("First Allmerica") or other affiliated insurance
companies. As of the date of this report, the Trust offered fourteen managed
investment portfolios. The accompanying financial statements and financial
highlights are those of the Money Market Fund (the "Portfolio").
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The following is a summary of significant
accounting policies which are in conformity with generally accepted accounting
principles and consistently followed by the Trust in the preparation of its
financial statements.
SECURITY VALUATION: Securities which are traded on a recognized exchange
(including securities traded through the National Market System) are valued at
the last sale price on the securities exchange on which such securities are
primarily traded or, if there were no sales that day, at the mean of the closing
bid and asked price. Over-the-counter securities that are not traded through the
National Market System are valued on the basis of the bid price at the close of
business each day. Short-term investments that mature in 60 days or less are
valued at amortized cost. Corporate debt securities and debt securities of the
U.S. Government and its agencies (other than short-term investments) are valued
by an independent pricing service approved by the Board of Trustees which
utilizes market quotations and transactions, quotation from dealers and various
relationships among securities in determining value. If not valued by a pricing
service, such securities are valued at prices obtained from independent brokers.
Investments with prices that cannot be readily obtained are carried at fair
value as determined in good faith under consistently applied procedures
established by and under the supervision of the Board of Trustees. The
investments of the Money Market Fund are valued utilizing the amortized cost
valuation method permitted in accordance with Rule 2a-7 under the Investment
Company Act of 1940. This method involves valuing a portfolio security initially
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on the trade date. Net realized gains and losses from security transactions are
recorded on the basis of identified cost. Interest income is recorded on the
accrual basis and consists of interest accrued and, if applicable, discounts
earned on original issue discount bonds, zero coupton bonds, stepped-coupon
bonds and payment in kind bonds, which are accreted. Dividend income is recorded
on the ex-dividend date.
FEDERAL INCOME TAXES: The Trust treats each Portfolio as a separate entity for
Federal income tax purposes. Each Portfolio intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended. By so qualifying, each Portfolio will not be subject to Federal income
taxes to the extent it distributes all of its taxable income and net realized
gains for the tax year ending December 31. In addition, by distributing during
each calendar year substantially all of its net investment income, capital gains
and certain other amounts, if any, each Portfolio will not be subject to Federal
excise tax. Therefore, no Federal income tax provision is required. Withholding
taxes on foreign dividend income and gains have been paid or provided for in
accordance with the applicable country's tax rules and rates.
F-10
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income are declared
and reinvested daily for the Money Market Fund. The Portfolio declares and
distributes all net realized capital gains, if any, at least annually. The
distributions are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing book and tax treatments in the timing of the
recognition of gains or losses and forwards, including "Post-October Losses" and
permanent differences due to differing treatments for paydown gains/losses on
certain securities, market discount, non-taxable dividends and losses deferred
due to wash sales. Any taxable income or gain remaining at fiscal year end is
distributed in the following year.
Permanent book-tax differences, if any, are not included in ending undistributed
net investment income for the purpose of calculating net investment income per
share in the Financial Highlights.
EXPENSES: The Trust accounts separately for assets, liabilities and operations
of each Portfolio. Expenses directly attributed to a Portfolio are charged to
the Portfolio, while expenses which are attributable to more than one Portfolio
of the Trust are allocated among the respective Portfolios.
REPURCHASE AGREEMENTS: The Portfolio may engage in repurchase agreement
transactions with institutions that the Sub-Adviser has determined are
creditworthy pursuant to guidelines established by the Trust's Board of
Trustees. Each repurchase agreement transaction is recorded at cost. The
Portfolio requires that the securities purchased in a repurchase agreement
transaction be transferred to the Trust's Custodian in a manner that is intended
to enable the Portfolio to obtain those securities in the event of a
counterparty default. The Investment Adviser monitors the value of the
securities, including accrued interest, daily to ensure that the value of the
collateral equals or exceeds amounts due under the repurchase agreement.
Repurchase agreement transactions involve certain risks in the event of default
or insolvency of the counterparty, including possible delays or restrictions
upon the Portfolio's ability to dispose of the underlying securities, and a
possible decline in the value of the underlying securities during the period
while the Portfolio seeks to assert its rights.
3. INVESTMENT ADVISORY, ADMINISTRATION
AND OTHER RELATED PARTY TRANSACTIONS
Allmerica Financial Investment Management Services, Inc. (the "Manager"), a
wholly-owned subsidiary of First Allmerica, serves as Investment Adviser and
Administrator to the Trust. The Manager succeeded Allmerica Investment
Management Company, Inc. as manager of the Trust on April 16, 1998. Under the
terms of the management agreement, the Portfolio pays a management fee,
calculated daily and payable monthly, at an annual rate based upon the following
fee schedule:
<TABLE>
<CAPTION>
Percentage of Average Daily Net Assets
FIRST NEXT OVER
PORTFOLIO $50,000,000 $200,000,000 $250,000,000
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market 0.35% 0.25% 0.20%
</TABLE>
The Manager has entered into a Sub-Adviser Agreement for the management of the
investments of the Portfolio. The Manager is solely responsible for the payment
of all fees to the sub-advisers. The sub-adviser for the Portfolio is Allmerica
Asset Management, Inc.
The Manager has entered into an Administrative Services Agreement with First
Data Investor Services Group, Inc. ("Investor Services Group"), a wholly-owned
subsidiary of First Data Corporation, whereby Investor Services Group performs
certain administrative services for the Portfolio and is entitled to receive an
administrative fee and certain out-of-pocket expenses. The Manager is solely
responsible for the payment of the administration fee to Investor Services
Group. In a separate agreement, Investor Services Group receives separate fees
from the Portfolio for certain fund accounting services provided in its capacity
as pricing and bookkeeping agent.
F-11
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
The Trust pays no salaries or compensation to any of its officers. Trustees who
are not directors, officers, or employees of the Trust or any investment adviser
are reimbursed for their travel expenses in attending meetings of the Trustees,
and receive quarterly meeting and retainer fees for their services. Such amounts
are paid by the Trust.
4. REIMBURSEMENT OF EXPENSES AND WAIVER OF FEES
In the event normal operating expenses of The Portfolio, excluding taxes,
interest, broker commissions and extraordinary expenses, but including the
advisory fee, exceed certain voluntary expense limitations (Money Market Fund -
0.60%), the Manager will voluntarily reimburse fees and any expenses in excess
of the expense limitations. Expense limitations may be removed or revised at any
time after the Portfolio's first fiscal year of operations without prior notice
to existing shareholders.
5. SHARES OF BENEFICIAL INTEREST
The Trust's Declaration of Trust authorizes the Trustees to issue an unlimited
number of shares of beneficial interest for the Portfolios, each without a par
value.
6. FOREIGN SECURITIES AND EMERGING MARKETS
The Money Market Fund may invest in only U.S. dollar denominated foreign
securities. Investing in foreign securities involves special risks not typically
associated with investing in securities of U.S. issuers. The risks include
revaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign issuers and their markets may
be less liquid and their prices more volatile than those of securities of
comparable U.S. issuers.
OTHER INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDER VOTING RESULTS: (UNAUDITED)
At a special meeting of the shareholders of the Select Capital Appreciation
Fund held on June 3, 1998, shareholders approved the proposed Sub-Adviser
Agreement with T.Rowe Price Associates, Inc. The voting results were as follows:
<TABLE>
<CAPTION>
SHARES SHARES SHARES PERCENT OF
FOR AGAINST ABSTAINING SHARES VOTED
---------- ----------- -------------- ----------------
<S> <C> <C> <C>
137,219,092 2,053,458 4,249,555 100.00%
</TABLE>
F-12
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
REGULATORY DISCLOSURES
- --------------------------------------------------------------------------------
The performance data quoted represents past performance and the investment
return and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
An investment in the Money Market Fund is neither insured nor guaranteed by the
U.S. Government, and there can be no assurance that the Portfolio will be able
to maintain a stable net asset value of $1.00 per share.
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Portfolio and are not authorized
for distribution to prospective investors in The Fulcrum Fund(SM) Variable
Annuity of Allmerica Financial Life Insurance and Annuity Company or First
Allmerica Financial Life Insurance Company unless accompanied or preceded by
effective prospectuses for The Fulcrum Fund(SM) Variable Annuity, Allmerica
Financial Life Insurance and Annuity Company or First Allmerica Financial Life
Insurance Company, Allmerica Investment Trust and The Palladian Trust, which
include important information related to charges and expenses.
CLIENT NOTICES
- --------------------------------------------------------------------------------
This semi-annual report includes financial statements for Allmerica Investment
Trust. It does not include financial statements for the separate accounts that
correspond to The Fulcrum Fund(SM) Variable Annuity contracts. Separate account
financial statements will no longer be provided.
F-13
<PAGE>
The Fulcrum Fund(SM) Variable Annuity
The Fulcrum Fund(SM) Variable Annuity is issued by Allmerica Financial Life
Insurance and Annuity Company
(First Allmerica Financial Life Insurance company in NY and HI) and is
distributed by Allmerica Investments, Inc.
To be preceded or accompanied by the current prospectus. Read it carefully
before investing.
[LOGO OF ALLMERICA FINANCIAL APPEARS HERE]
First Allmerica Financial Life Insurance Company . Allmerica Financial Life
Insurance and Annuity Company (licensed in all states except NY & HI)
Allmerica Trust Company, N.A. . Allmerica Investments, Inc. . Allmerica
Investment Management Company, Inc.
The Hanover Insurance Company . AMGRO, Inc. . Allmerica Financial Alliance
Insurance Company
Allmerica Asset Management, Inc. . Allmerica Financial Benefit Insurance Company
. Sterling Risk Management Services, Inc.
Citizens Corporation . Citizens Insurance Company of America . Citizens
Management Inc.
440 Lincoln Street, Worcester, Massachusetts 01653
