<PAGE>
Allmerica Financial Services
December 31, 1998
Annual Report
The Fulcrum Fund/SM/
Variable Annuity
. Allmerica Investment Trust
Money Market Fund
[The Fulcrum Fund/SM/ Logo Appears Here]
1998
[Allmerica Financial/R/ Logo Appears Here]
<PAGE>
Table of Contents 1
<TABLE>
<S> <C>
General Information 2
A Letter from the Chairman 3
Product Performance Summaries 4
The Fulcrum Fund Variable Annuity (FAFLIC) 4
The Fulcrum Fund Variable Annuity (AFLIAC) 5
Bond & Money Market Overview 6
Money Market Fund 8
Financials F-1
</TABLE>
For further information, see the accompanying annual report.
See Client Notices on page F-14.
<PAGE>
GENERAL INFORMATION 2
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 Investment Management Services, Inc.
440 Lincoln Street, Worcester, MA 01653
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, MA 02110
Administrator
First Data Investor Services Group
4400 Computer Drive, Westborough, MA 01581
Officers of Allmerica Investment Trust (AIT)
Richard M. Reilly, President
George M. Boyd, Secretary
Board of Trustees of AIT
John F. O'Brien, Chairman
P. Kevin Condron/1/
Cynthia A. Hargadon/1/
Gordon Holmes/1/
John P. Kavanaugh
Bruce E. Langton/1/
Attiat F. Ott/1/
Richard M. Reilly
Ranne P. Warner/1/
/1/Independent Trustees
Investment Sub-Adviser
Allmerica Asset Management, Inc.
440 Lincoln Street, Worcester, MA 01653
Money Market Fund
<PAGE>
A Letter from the Chairman 3
[Photograph of John F. O'Brien Appears Here]
Dear Client:
The old Wall Street saying that markets run on two emotions, greed and fear, was
never more evident than in 1998. The year began with the domestic economy
enjoying what Chairman Greenspan described as a "virtuous cycle" of continued
economic growth, high employment and price stability. As a result, the bond
market performed well through the first half of the year as interest rates
drifted slightly lower and credit-quality concerns remained minor.
The mood however, shifted to fear late in the summer. In late August, the
Russian government announced a debt repayment moratorium and a de facto
devaluation in the ruble. Suddenly investors re-evaluated the credit risk in
their portfolios and began a wholesale liquidation of riskier assets and a
flight to safety in the form of U.S. Treasuries. This sudden shift in sentiment
also caused the demise of several large hedge funds which added to the supply of
assets for sale.
To change the market psychology, the Federal Reserve cut interest rates three
times for a total of 0.75%. As a result, buyers and "greed" returned to the
financial markets and investment returns ended quite strong. High-quality money
market funds performed strongly as shown by the IBC First Tier Money Market
Funds average manager return of 4.96% and the broader market, as measured by the
Lehman Aggregate Index returned 8.67%. The high yield market, however, never
fully recovered, rising only 3.66% as measured by the Merrill Lynch High Yield
Index.
As we move forward, we believe that the Federal Reserve will maintain a neutral
monetary policy in the near future. The Federal Reserve is faced with a domestic
economy that is accelerating once again while the global economy is slowing.
Weak global demand is reflected in the continued weakness in commodity prices.
Thus, with moderate economic growth and subdued inflation, the Federal Reserve
will grapple with providing global liquidity while mitigating potential
inflationary pressures.
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
Chairman of the Board
Allmerica Financial Life Insurance and Annuity Company
<PAGE>
Product Performance Summary 4
The Fulcrum Fund/SM/ Variable Annuity (FAFLIC)
Average Annual Total Returns as of 12/31/98
For easy reference, the total returns for The Fulcrum FundSM Variable Annuity
sub-account are summarized below. Keep in mind, however, that these returns are
net of all product charges. For returns that do not reflect the deduction of
product charges, please refer to the Portfolio Review on page 8.
<TABLE>
<CAPTION>
Without Surrender Charge With Surrender Charge
And Contract Fee And Contract Fee
Sub-
Account Life Life
Inception 1 5 10 of Sub- 1 5 10 of Sub-
Sub-Account Date Year Years Years Account Year Years Years Account
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allmerica Investment Trust
Money Market Fund 10/3/97 4.00% 3.71% 4.11% 4.02% -2.24% 3.10% 4.03% -0.35%
</TABLE>
Performance returns given above are for the The Fulcrum Fund Variable Annuity
sub-account of FAFLIC, and except in the columns designated as "Life of Sub-
Account", assume an investment in the underlying portfolio listed above on the
date of inception. Performance returns designated as "Life of Sub-Account"
assume an investment in the portfolio listed on the date of inception of the
Sub-Account. 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%. Please refer to the product prospectus for the assumptions used
to calculate performance.
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.
<PAGE>
Product Performance Summary 5
The Fulcrum Fund/SM/ Variable Annuity (AFLIAC)
Average Annual Total Returns as of 12/31/98
For easy reference, the total returns for The Fulcrum FundSM Variable Annuity
sub-account are summarized below. Keep in mind, however, that these returns are
net of all product charges. For returns that do not reflect the deduction of
product charges, please refer to the Portfolio Review on page 8.
<TABLE>
<CAPTION>
Without Surrender Charge With Surrender Charge
And Contract Fee And Contract Fee
Sub-Account Life Life
Inception 1 5 10 of Sub- 1 5 10 of Sub-
Sub-Account Date Year Years Years Account Year Years Years Account
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Allmerica Investment Trust
Money Market Fund 3/13/97 4.00% 3.71% 4.11% 3.99% -2.24% 3.14% 4.06% 0.95%
</TABLE>
Performance returns given above are for the The Fulcrum Fund Variable Annuity
sub-account of AFLIAC, and except in the columns designated as "Life of Sub-
Account", assume an investment in the underlying portfolio listed above on the
date of inception. Performance returns designated as "Life of Sub-Account"
assume an investment in the portfolio listed on the date of inception of the
Sub-Account. 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%. Please refer to the product prospectus for the assumptions used
to calculate performance.
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.
<PAGE>
Bond & Money Market Overview 6
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: During 1998, bond investments produced widely divergent results as a
series of dramatic swings either left them highly in favor or badly battered.
During 1998, bond investments produced widely divergent results as they
experienced a series of dramatic swings that left them either highly in favor
or badly battered.
Starting off 1998, investors sought more attractive yields by investing in all
types of riskier bonds. But as global markets experienced continued
volatility -- most notably in Russia, Latin America and Asia -- investors fled
these riskier investments and, by late summer, favored U.S. Treasury bonds.
But what was a boon for Treasuries was not at all good for non-government
issues. The Russian currency crisis, President Clinton's problems, and concerns
about Japan's economy all caused non-government issues to deteriorate by August.
Further aggravated by the collapse of the highly leveraged Long-Term Capital
Management, this segment, particularly corporate and high-yield bonds, suffered.
Because investors stayed away from these types of securities, the corporate new
issues market dried up. In fact, fewer investment grade and high-yield bonds
were sold in August and September combined than in the month of July.
However, a year-end rally was sparked by a series of three 0.25% interest rate
cuts by the Federal Reserve. These moves not only pushed the Federal Funds Rates
down to 4.75%, they spurred bond investors to leave the safety of U.S.
Treasuries and return to those securities which had the potential to offer them
higher yields.
Given this environment, safer credits generally fared much better for the year
than those bonds which had more risk attached to them.
Finishing the year on top, U.S. Treasuries significantly outpaced all other
sectors of the bond market for the first time in almost a decade -- with the
30-year bond posting a total return of 17.10% for the year. By comparison, the
Lehman
[Timeline Footer Graphic Appears Here]
1998
JAN FEB MAR APR MAY JUN
Given low interest rates, investors seek more attractive yields by investing
in all types of bonds.
Uncertain about the effects of the Asian crisis, the Federal Reserve adopts
a "wait and see" approach to changing interest rates.
[Map of World Graphic Appears Here]
Stable-to-low interest rates cause record refinancing - and mortgage-backed
securities to suffer. [House Graphic Appears Here]
Worldwide economic unrest causes investors to flee foreign investments for
super-safe U.S. Treasuries, which deliver their best performance in years.
[U.S. $50 Graphic Appears Here]
<PAGE>
Bond & Money Market Overview 7
Brothers Aggregate Bond Index, a benchmark commonly used for all types of bonds,
returned only 8.67%.
In contrast, 1998 will also be remembered as the worst year for corporate bonds.
Investment grade corporates trailed comparable duration Treasuries by 2.27% for
the year. Much of the underperformance occurred from late August to mid October
as liquidity, rather than credit, concerns drove the unprecedented spread
widening. However, a two-tiered market still exists for corporate credits.
Benchmark names such as IBM, Ford and Worldcom trade with little or no liquidity
concession, while second-tier names command a much larger liquidity premium.
While it was a year of turmoil for investment grade corporate bonds, it proved
to be disastrous for high-yield corporates, which lagged BBB or higher rated
bonds by nearly five percentage points. Suffering the most from the year's
volatility, lower-rated high-yield issues finished last for 1998 with a meager
3.66% total return, as measured by the Merrill Lynch High Yield Master Index.
Reflecting the market in general, mortgage-backed securities also had a
tumultuous year. Early in the year, this sector struggled with fears of
prepayments as interest rates dipped to historic lows. Even so, these securities
managed to modestly outperform Treasuries for the first half of the year. Then,
the same liquidity concerns that troubled corporate bonds later in the year also
severely affected mortgage-backeds. As a result, this sector posted a total
return of 7.20% for the year.
Results in the money market also mirrored the overall turbulence occurring in
the bond market. While yields hovered around 5.00% before the interest rate cuts
taken by the Federal Reserve, yields on the average one-year CD fell from 4.87%
to 4.16% by year-end.
Diminishing returns, however, did not seem to sway investors. Money funds in
general posted record inflows of cash as investors sought shelter from market
volatility and parked their assets in the relative safety of money market funds.
Moving into 1999, volatility remains on the horizon for the U.S. bond market.
However, given low inflation and low interest rates, government and high-grade
corporates could appeal to investors looking for safe havens from riskier
alternatives. In addition, slower corporate earnings could restrain the stock
market in the coming year, helping to narrow the performance gap between
equities and fixed income investments.
[Timeline Footer Graphic Appears Here]
JUL AUG SEP OCT NOV DEC
Liquidity concerns stunt the performance of both corporate and high-yield
bonds. [River/Bridge/Urban Skyline Graphic Appears Here]
A currency crisis in Russian spurs a flight to quality by investors. The
Federal Reserve cuts interest rates three times, sparking a year-end bond rally.
The Federal Reserve cuts interest rates three times, sparking a year-end
bond rally. [Federal Reserve Bank Graphic Appears Here]
Uncertainty -- and volatility -- remain on the horizon for the U.S. bond
market. [Question Mark Graphic Appears Here]
<PAGE>
Money Market Fund 8
The Money Market Fund reported a 5.51% total return for the one-year period
ended December 31, 1998, outpacing the 4.96% return of the IBC/Donoghue First
Tier Money Market Index for the same period.
During 1998, the U.S. economy showed surprising strength in the face of extreme
volatility in world financial markets. The Asian currency crisis spread to Latin
America and Russia, spurring a worldwide sell-off of riskier assets and forcing
highly leveraged trading firms, like Long Term Capital Management, to liquidate
positions as the value of their holdings fell.
To alleviate a potential credit crunch, the Federal Reserve cut the Federal
Funds rate three separate times, and yields on money market funds plummeted
causing securities prices to rise. This helped the Fund's performance as the
portfolio was well-positioned with longer maturing money market securities
averaging 77 days.
After the Fed's moves, the Fund's managers lowered the Fund's average weighted
maturity to 62 days to better position the Fund to garner returns when interest
rates start back up.
The Fund's managers also maintained core long-term holdings of (5-7 month)
commercial paper and certificates of deposits and kept a combination of floating
rate notes. In addition, they laddered maturity dates and short-term repurchase
agreements to provide maximum liquidity without sacrificing yield.
Entering a new year, the Fund's managers believe the Federal Reserve will
maintain a neutral monetary policy in the near future.
[GRAPH APPEARS HERE]
Investment Sub-Adviser
Allmerica Asset Management, Inc.
About the Fund
Strives to maximize current income for investors while preserving capital and
liquidity.
As of December 31, 1998, the sector allocation of net assets was:
<TABLE>
<S> <C>
Commercial Paper 47%
Corporate Notes and Bonds 34%
U.S. Government and
Agency Obligations 4%
Cash Equivalents 7%
Other 8%
</TABLE>
<TABLE>
<CAPTION>
Average Annual Total Returns
<S> <C> <C> <C>
Years ended December 31, 1998 1 Year 5 Years 10 Years
Money Market Fund 5.51% 5.22% 5.62%
IBC/Donoghue First Tier
Money Market Index 4.96% 4.80% 5.22%
Lipper Money Market Funds Average 4.84% 4.77% 5.20%
</TABLE>
Portfolio Composition
<TABLE>
<CAPTION>
Average Yields as of December 31, 1998
<S> <C> <C> <C>
7-day 5.11% 30-day 5.11%
</TABLE>
<TABLE>
<CAPTION>
Growth of a $10,000 Investment Since 1988
IBC/Donoghue First Tier
Money Market Fund Money Market Index
<S> <C> <C>
12/88 $10,000 $10,000
12/98 $17,275 $16,625
</TABLE>
[GRAPH APPEARS HERE]
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 Funds Average is
the average investment performance of 330 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.
<PAGE>
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS * December 31, 1998
----------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- --------- --------
CORPORATE NOTES AND BONDS - 34.00%
<C> <S> <C>
Finance - 13.32%
$ 2,150,000 Associates Corp. of North America, MTN
5.75%, 02/12/99 $ 2,150,099
1,000,000 Associates Corp.of North America, MTN
6.75%, 06/28/99 1,003,742
1,530,000 Chrysler Financial Corp., MTN
5.28%, 02/16/99 1,529,768
3,500,000 CIT Group Holdings, Inc., Senior MTN
5.07%, 01/27/99 * 3,499,879
1,000,000 CIT Group Holdings, Inc., Senior MTN
6.20%, 06/17/99 1,001,974
232,443 Compass Auto Receivables Trust
5.66%, 07/15/99 232,443
2,050,615 Copelco Capital Funding Corp., Series 1998-A
5.68%, 08/16/99 2,050,615
1,250,000 Ford Motor Credit Co.
5.63%, 01/15/99 1,250,059
700,000 Ford Motor Credit Co., MTN
8.21%, 03/16/99 703,362
3,650,000 General Motors Acceptance Corp., MTN
5.70%, 02/09/99 3,649,555
4,000,000 General Motors Acceptance Corp.
8.00%, 10/01/99 4,077,732
715,000 General Motors Acceptance Corp., MTN
5.24%, 12/09/99 * 714,189
1,500,000 Household Financial Corp., Ltd., Yankee Note
7.13%, 04/30/99 1,506,016
1,000,000 International Lease Finance Corp., MTN
6.05%, 04/30/99 1,000,765
6,000,000 Liberty Lighthouse US Capital
5.02%, 08/16/99 * (B) 6,000,000
6,000,000 Liberty Lighthouse US Capital
5.23%, 09/15/99 * (B) 6,000,000
1,000,000 PACCAR Financial Corp., MTN
6.46%, 05/19/99 1,002,427
5,050,000 Sears Roebuck Acceptance Corp., MTN
6.54%, 05/06/99 5,062,495
2,325,000 SunAmerica, Inc.
6.20%, 10/31/99 2,345,051
-----------
44,780,171
-----------
Security Brokers and Dealers - 11.72%
3,000,000 Bear Stearns Cos., Inc., Series B, MTN
5.52%, 01/12/99 * 2,999,808
6,000,000 Bear Stearns Cos., Inc., Series B, MTN
5.19%, 08/25/99 * 6,000,000
7,000,000 Donaldson Lufkin & Jenrette, Inc., MTN
5.56%, 10/05/99 * 7,000,000
2,500,000 Lehman Brothers Holdings, Inc., MTN
5.47%, 02/12/99 * 2,500,125
5,050,000 Lehman Brothers Holdings, Inc.
7.63%, 07/15/99 5,096,769
4,150,000 Merrill Lynch & Co., Inc.
6.38%, 03/30/99 4,157,744
5,000,000 Paine Webber Group, Inc., MTN
5.29%, 03/10/99 * 5,000,000
Security Brokers and Dealers(continued)
$ 5,500,000 Paine Webber Group, Inc., MTN
6.05%, 10/21/99 * $ 5,500,000
1,164,000 Salomon-Smith Barney Holdings
5.50%, 01/15/99 1,163,857
------------
39,418,303
------------
Commercial Banks - 7.62%
$ 3,000,000 Bankers Trust Corp.
4.96%, 08/09/99* (B) 2,984,978
1,691,000 Chase Manhattan Corp.
7.75%, 11/01/99 1,725,158
2,500,000 Chemical Banking Corp., MTN
5.58%, 10/26/99 * 2,505,786
2,345,000 Citicorp
9.00%, 04/15/99 2,369,100
2,000,000 First Chicago Corp.
9.00%, 06/15/99 2,027,709
1,000,000 First Interstate Bancorp, Senior
Subordinated Note
8.63%, 04/01/99 1,006,673
3,500,000 First Union National Bank, MTN
4.98%, 04/30/99 * 3,500,000
3,500,000 Fleet Credit Card, MTN
5.89%, 04/15/99 * 3,502,483
3,000,000 Key Bank N.A., MTN
4.87%, 01/14/99 * 2,999,971
3,000,000 Rabobank Nederland, MTN
6.45%, 08/16/99 3,014,216
------------
25,636,074
------------
Communication - 0.59%
2,000,000 MCI Communications Corp.
5.41%, 03/16/99 * 2,000,555
Industrial - 0.45%
1,000,000 Sears Roebuck & Co., MTN
5.86%, 01/22/99 999,993
500,000 Sears Roebuck & Co., Debenture
8.20%, 04/15/99 * 503,202
------------
1,503,195
------------
Utilities - 0.30%
1,000,000 Virginia Electric & Power Co., MTN, Series C
9.30%, 06/09/99 1,015,036
------------
Total Corporate Notes and Bonds 114,353,334
------------
(Cost $114,353,334)
<CAPTION>
U.S. GOVERNMENT AGENCY OBLIGATION (A) - 4.46%
<C> <S> <C>
Federal Home Loan Bank - 4.46%
15,000,000 4.60%, 11/03/99 15,000,000
------------
Total U.S. Government
Agency Obligation 15,000,000
(Cost $15,000,000) ------------
</TABLE>
See Notes to Financial Statements.
F-1
<PAGE>
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS, Continued * December 31, 1998
---------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- --------- --------
MUNICIPAL BOND - 2.08%
<C> <S> <C>
Connecticut - 2.08%
$ 7,000,000 Connecticut State Housing Finance Authority
6.00%, 11/15/16 * $ 7,000,000
------------
Total Municipal Bond 7,000,000
(Cost $7,000,000) ------------
<CAPTION>
COMMERCIAL PAPER (A) - 46.66%
<C> <S> <C>
Finance - 28.17%
1,000,000 American Honda Finance Corp.
5.47%, 01/15/99 997,912
1,989,000 Barton Capital Corp.
5.46%, 01/12/99 (C) 1,985,742
3,000,000 Barton Capital Corp.
5.45%, 02/02/99 (C) 2,985,760
2,500,000 Bayerische Vereinsbank, AG
5.87%, 02/02/99 2,498,781
8,000,000 Block Financial Corp.
5.35%, 02/26/99 7,934,418
4,000,000 Credit Suisse First Boston, Inc.
5.27%, 02/24/99 (C) 3,968,800
5,000,000 Equilon Enterprises
5.35%, 02/25/99 4,959,743
7,000,000 Frontier Corp.
5.63%, 01/04/99 (C) 6,996,733
3,742,000 Frontier Corp.
5.57%, 01/06/99 (C) 3,739,115
4,000,000 Frontier Corp.
5.16%, 03/29/99 (C) 3,950,700
2,500,000 Holland Ltd Securitization, Inc.
5.34%, 03/24/99 (C) 2,469,990
10,000,000 Iowa Student Loan
5.63%, 01/20/99 9,970,445
2,871,000 Mont Blanc Capital Corp.
5.69%, 01/26/99 (C) 2,859,735
5,000,000 National Rural Utilities Cooperative
Finance Corp.
5.08%, 02/08/99 4,973,611
1,500,000 Pegasus Three, Ltd.
5.49%, 02/26/99 (C) 1,487,353
5,000,000 Republic Industrial Funding Corp.
5.58%, 01/13/99 4,990,750
10,000,000 Trident Capital Finance, Inc.
5.95%, 01/04/99 (C) 9,995,042
8,000,000 Vattenfall Treasury, Inc.
5.98%, 01/05/99 7,994,693
2,000,000 Westways Funding I, Ltd.
5.40%, 01/29/99 (C) 1,991,725
8,000,000 Westways Funding II, Ltd.
5.48%, 01/27/99 (C) 7,968,627
------------
94,719,675
------------
Industry - 10.02%
$ 9,000,000 Cooperative Association Tractor Dealers
5.46%, 01/15/99 $ 8,980,925
2,300,000 Dakota
5.55%, 01/08/99 2,297,540
7,000,000 Dakota
5.32%, 01/13/99 6,987,750
10,000,000 GTE Corp.
5.65%, 01/22/99 (C) 9,967,217
500,000 Lexington Parker Capital Co.
5.67%, 01/19/99 (C) 498,600
5,000,000 Lexington Parker Capital Co.
5.61%, 01/27/99 (C) 4,979,958
------------
33,711,990
------------
Securities Brokers and Dealers - 6.22%
4,000,000 Donaldson Lufkin & Jenrette, Inc.
5.83%, 01/12/99 3,992,972
8,000,000 Goldman Sachs Group
5.37%, 02/26/99 7,934,791
7,000,000 Morgan Stanley, Dean Witter Discover & Co.
5.45%, 01/22/99 6,978,154
2,000,000 Paine Webber Group, Inc.
5.76%, 01/25/99 1,992,507
------------
20,898,424
------------
Banking - 1.46%
5,000,000 UniBanco - Grand Cayman
5.54%, 04/15/99 4,921,451
Utilities - 0.79%
2,707,000 Songs Fuel Co.
5.15%, 06/21/99 2,642,452
------------
Total Commercial Paper 156,893,992
------------
(Cost $156,893,992)
<CAPTION>
CERTIFICATES OF DEPOSIT - 4.76%
<C> <S> <C>
5,000,000 National Bank of Canada
5.21%, 02/17/99 5,000,065
4,500,000 National Bank of Canada
5.73%, 06/07/99 4,498,888
6,500,000 Sanwa Bank, Ltd., New York
5.66%, 04/05/99 6,500,165
-----------
Total Certificates of Deposit 15,999,118
-----------
(Cost $15,999,118)
</TABLE>
See Notes to Financial Statements.
F-2
<PAGE>
MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS, Continued * December 31, 1998
---------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value (Note 2)
- --------- --------
REPURCHASE AGREEMENT - 6.32%
<C> <S> <C>
$ 21,241,626 Lehman Brothers Holdings, Inc.
Repurchase Agreement
4.95%, 01/07/99, Dated 12/03/98
Repurchase Price $21,318,156
(Collateralized by Government Agencies
7.00% - 7.50%, Due 08/01/10 thru 10/01/25,
Total Par $21,306,437,
Market Value $21,944,998) $ 21,241,626
------------
Total Repurchase Agreement 21,241,626
------------
(Cost $21,241,626)
<CAPTION>
INVESTMENT COMPANIES - 0.95%
<C> <S> <C>
783,415 SSgA Prime Money Market Fund $ 783,415
2,396,817 Scudder Institutional Money Market Fund 2,396,817
------------
Total Investment Companies 3,180,232
------------
(Cost $3,180,232)
Total Investments - 99.23% 333,668,302
------------
(Cost $333,668,302)
Net Other Assets and Liabilities - 0.77% 2,585,045
------------
Net Assets - 100.00% $336,253,347
============
</TABLE>
* Variable rate security. The rate shown reflects rate in effect at
December 31, 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 December 31, 1998,
these securities amounted to $14,984,978 or 4.46% 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 December 31, 1998, these securities amounted to
$65,845,097 or 19.58% of net assets.
MTN Medium Term Note
Federal Income Tax Information (see Note 2)
At December 31, 1998, the aggregate cost of investment securities for tax
purposes was $333,668,302.
As of December 31, 1998, the Portfolio had capital loss carryforwards which
expire as follows: $347 in 2002, $144 in 2003, $35,977 in 2004, $8,154 in 2005;
and $52,338 in 2006.
Other Information
The composition of ratings of both long-term and short-term debt holdings as a
percentage of total value of investments in securities is as follows:
Moody's Ratings (unaudited)
Aaa 92.68%
NR (Not Rated) 7.32
------
100.00%
======
See Notes to Financial Statements.
F-3
<PAGE>
ALLMERICA INVESTMENT TRUST
STATEMENT OF ASSETS AND LIABILITIES (in 000's) * December 31, 1998
--------------------------------------------------------------------
<TABLE>
<CAPTION>
Money
Market
Fund
--------
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost.............. $312,427
Repurchase agreements at cost.... 21,241
--------
Total investments at value....... 333,668
Cash.................................. 10
Receivable for shares sold............ 2,480
Interest and dividend receivables..... 1,941
--------
Total Assets..................... 338,099
--------
Liabilities:
Payable for investments purchased..... 1,749
Payable for shares repurchased........ 2
Advisory fee payable (Note 3)......... 70
Trustees' fees and expenses payable... 1
Accrued expenses and other payables... 24
--------
Total Liabilities................ 1,846
--------
Net Assets............................ $336,253
========
Net Assets consist of
Paid-in capital (Note 5).............. $336,350
Accumulated (distribution in excess
of) net realized gain (loss) on
investments sold, foreign currency
transactions and futures contracts.. (97)
--------
Total Net Assets...................... $336,253
========
Shares of beneficial interest
outstanding (unlimited
authorization, no par value)
(in 000's).......................... 336,352
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
STATEMENT OF OPERATIONS (in 000's) * For the year ended December 31, 1998
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money
Market
Fund
-------
<S> <C>
INVESTMENT INCOME
Interest (Note 2)................................ $15,544
Dividends (Note 2)............................... 264
-------
Total investment income...................... 15,808
-------
EXPENSES
Investment advisory fees (Notes 3 and 4)......... 731
Custodian and securities lending fees (Note 3)... 26
Fund accounting fees (Note 3).................... 52
Legal fees....................................... 6
Audit fees....................................... 18
Trustees' fees and expenses (Note 3)............. 9
Reports to shareholders.......................... 33
Insurance........................................ 6
Miscellaneous.................................... 7
-------
Total expenses............................... 888
-------
NET INVESTMENT INCOME 14,920
-------
NET REALIZED AND UNREALIZED
(LOSS) ON INVESTMENTS (NOTE 2):
Net realized (loss) on investments sold.......... (52)
-------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS........................ $14,868
=======
</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
-----------------------
Years Ended December 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
NET ASSETS at beginning of year.............................. $ 260,619 $217,256
--------- --------
Increase (decrease) in net assets
resulting from operations:
Net investment income................................... 14,920 12,775
Net realized (loss) on
investments sold...................................... (52) (8)
--------- --------
Net increase in net assets
resulting from operations............................. 14,868 12,767
--------- --------
Distributions to shareholders from:
Net investment income................................... (14,920) (12,775)
Distribution in excess of net
investment income..................................... (2) --
--------- --------
Total distributions..................................... (14,922) (12,775)
--------- --------
Capital share transactions:
Net proceeds from sales of shares....................... 327,728 198,110
Issued to shareholders in reinvestment
of distributions...................................... 14,922 12,775
Cost of shares repurchased.............................. (266,962) (167,514)
--------- --------
Net increase from capital share
transactions.......................................... 75,688 43,371
--------- --------
Total increase in net assets............................ 75,634 43,363
--------- --------
NET ASSETS at end of year.................................... $ 336,253 $260,619
--------- --------
OTHER INFORMATION:
Share transactions:
Sold.................................................... 327,728 198,110
Issued to shareholders in reinvestment
of distributions...................................... 14,922 12,775
Repurchased............................................. (266,962) (167,514)
--------- --------
Net increase in shares outstanding...................... 75,688 43,371
========= ========
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
This page left blank intentionally.
F-7
<PAGE>
ALLMERICA INVESTMENT TRUST
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
--------------------------------- ------------------
Distri- Net
Net Net Realized butions Increase
Asset Net and Dividends from Net Distri- in
Value Investment Unrealized Total from from Net Realized butions Return Total Net
Year Ended Beginning Income Gain on Investment Investment Capital in of Distri- Asset
December 31, of Year (Loss) Investments Operations Income Gains Excess Capital butions Value
- ------------- ----------- ----------- ----------- ---------- ----------- ------------- ------ ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money Market
Fund
1998 $1.000 $0.054 $ - $0.054 $(0.054) $ - $ - $ - $(0.054) $ -
1997 1.000 0.053 - 0.053 (0.053) - - - (0.053) -
1996 1.000 0.052 - 0.052 (0.052) - - - (0.052) -
1995 1.000 0.057 - 0.057 (0.057) - - - (0.057) -
1994 1.000 0.039 - 0.039 (0.039) - - - (0.039) -
</TABLE>
(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.
See Notes to Financial Statements.
F-8
<PAGE>
ALLMERICA INVESTMENT TRUST
Ratios/Supplemental Data
------------------------
Ratios To Average Net Assets
----------------------------
<TABLE>
<CAPTION>
Net Net
Asset Assets Net
Value End of Invest- Portfolio
End of Total Year ment Operating Expenses Management Fee Turnover
Year Return (000's) Income (A) (B) (C) Gross Net Rate
------- ------ ------- ------ ----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1.000 5.51% $336,253 5.36% 0.32% 0.32% 0.32% 0.26% 0.26% 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
</TABLE>
F-9
<PAGE>
ALLMERICA INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS
-----------------------------
1. ORGANIZATION
Allmerica Investment Trust (the "Trust") is registered under the Investment
Company Act of 1940 (the "1940 Act"), 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 of the Portfolio are valued utilizing the
amortized cost valuation method permitted in accordance with Rule 2a-7 under the
1940 Act. 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 coupon 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.
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.
Paid-in capital, undistributed net investment income and accumulated net
realized gain (loss) have been adjusted in the Statement of Assets and
Liabilities for permanent book-tax differences for the Portfolio for the year
ended December 31, 1998.
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.
F-10
<PAGE>
ALLMERICA INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
----------------------------------------
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. Each
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 schedules:
<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 Sub-Adviser Agreements 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.
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.
F-11
<PAGE>
ALLMERICA INVESTMENT TRUST
NOTES TO FINANCIAL STATEMENTS, Continued
----------------------------------------
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 by a percentage of
average net assets (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.
F-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders
of Allmerica Investment Trust
In our opinion, the accompanying statements of assets and liabilities, including
the portfolios of investments (except for Moody's and S&P Ratings), and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Money Market Fund, (one of the funds constituting the Allmerica Investment
Trust, hereafter referred to as the "Trust") at December 31, 1998, the results
of their operations, the changes in their net assets, and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments at December 31, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 23, 1999
F-13
<PAGE>
ALLMERICA INVESTMENT TRUST
REGULATORY DISCLOSURES
----------------------
The performance data quoted represents past results and is not an indication of
future performance.
An investment in the Money Market Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Portfolio seeks to preserve the value of your investment at a stable net
asset value of $1.00 per share, it is possible to lose money by investing in the
Portfolio.
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 and Allmerica Investment Trust, which include important
information related to charges and expenses.
CLIENT NOTICES
--------------
Year 2000 (unaudited): Some computer software cannot distinguish between dates
in the year 2000 and dates in the year 1900 because of the way that dates are
encoded and calculated. The services provided to the Trust by the Manager, Sub-
Advisers, Custodian and other external service providers depend on the proper
functioning of their computer software. Failure to correct or replace any non-
compliant software could adversely affect, among other things, the handling of
securities trades, the payment of interest and dividends, the pricing of the
Trust's securities and of the Trust's shares, and account services. The Trust
has requested information from its service providers with respect to their plans
to be Year 2000 compliant. The Trust has been advised by its service providers
that they either are Year 2000 compliant now or expect to be compliant prior to
December 31, 1999. However, there can be no guarantee that the Trust's
operations will not be adversely affected by non-compliant computer systems of
its service providers or other third parties which interact with such service
providers.
* * * * * *
This 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 are not provided.
F-14
<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.
[IMSA-(Insurance Marketplace Standards Association) Logo Appears Here]
[Allmerica Financial/R/ Logo Appears Here]
First Allmerica Financial Life Insurance Company. Allmerica Financial Life
Insurance and Annuity Company (licensed in all states except NY). 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
