<PAGE>
[LETTERHEAD OF ALLMERICA FINANCIAL APPEARS HERE]
August 29, 1997
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
RE: Allmerica Funds
File Nos. 033-40443; 811-6308
Dear Sir/Madam:
Pursuant to Rule 30b2-1 (Form N-30D) under the Investment Company Act, as
amended, we are filing on behalf of the Trust the semi-annual report to
shareholders for the six months ended June 30, 1997.
If you have any questions regarding this filing, please contact me at (508)
855-3498.
Please provide an electronic confirmation of your receipt of this filing.
Sincerely,
/s/ Thomas P. Cunningham
Treasurer
TCP/jfd
cc: George M. Boyd, Esq.
<PAGE>
ALLMERICA FUNDS
INVESTMENT GRADE INCOME FUND
Semi-Annual Report to Shareholders
Six Months Ended June 30, 1997
[LOGO OF ALLMERICA FINANCIAL APPEARS HERE]
<PAGE>
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INVESTMENT GRADE INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT SUB-ADVISER:
Allmerica Asset Management, Inc.
ABOUT THE FUND:
The Fund's objective is to generate a high level of total return, as is
consistent with prudent investment management.
PORTFOLIO COMPOSITION:
As of June 30, 1997 the sector allocation of net assets was:
[PIE CHART APPEARS HERE]
<TABLE>
<S> <C>
Corporate Notes & Bonds 35%
U.S. Government & Agency Obligations 42%
Asset-Backed Securities 16%
Cash Equivalents & Other 7%
</TABLE>
For the six-month period ended June 30, 1997, the Investment Grade Income Fund
posted a 3.17% total return, beating the Lehman Brothers Aggregate Bond Index
return of 3.09%.
After declining slightly in the first quarter, the U.S. bond market
increased more than 3% during the second quarter. Strong consumer demand and low
inflation fueled expansion in U.S. corporations and higher levels of investment
spending. In fact, corporate spending currently equals nearly 11.5% of real GDP
on business investments. Despite this market activity, yield spreads remain
narrow between Treasuries and other sectors of the bond market, particularly
with regard to corporates and mortgage-backed securities.
Given the narrow spreads, the managers have focused more on individual
security selection. Within the corporate sector, one of the Fund's largest
positions is Telecommunications, Inc. (TCI), a dominant cable provider.
In the banking sector, the Fund also holds several Trust preferred
positions. In selecting these issues, the Fund's management first identifies
well-run institutions and then looks for smaller companies which are attractive
acquisition candidates for larger banks seeking expansion into new regions.
Based on this criteria, the Fund's managers have added First Empire, an upstate
New York bank and Compass Bank, headquartered in Alabama, to the Fund's
holdings.
On the utility front, the Fund's holdings in Connecticut Light & Power
(CL&P) disappointed as they were downgraded by S&P when the state legislature
deferred any decision on utility deregulation until 1998. Mortgage-backed
securities, in contrast, were strong contributors to performance as they
represented the best performing sector of the Lehman Brothers Aggregate Bond
Index. To protect the Fund from declining rates, the Fund is also invested in
whole loan collateralized mortgage-backed securities (CMOs).
Because a stronger economy is projected for the rest of 1997, management
plans to gain incremental return from selective investments in spread assets.
GROWTH OF A $10,000 INVESTMENT SINCE 1992
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Investment Grade Lehman Brothers Aggregate
Income Fund Bond Index
---------------- -------------------------
<S> <C> <C>
8/92 $10,000 $10,000
6/97 $12,172 $13,680
</TABLE>
The Investment Grade Income Fund is a portfolio of the Allmerica Funds.
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.
The Lehman Brothers Aggregate Bond Index is an unmanaged index of average yield
U.S. investment grade bonds. Performance numbers for the Fund are net of all
fund operating expenses.
AVERAGE ANNUAL TOTAL RETURNS
<TABLE>
<CAPTION>
Years ended June 30, 1997 1 year 5 year Life of Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Grade Income Fund 7.44% N/A 5.12%
Lehman Brothers Aggregate Bond Index 8.15% N/A 8.70%
</TABLE>
<PAGE>
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ALLMERICA INVESTMENT GRADE INCOME FUND
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PORTFOLIO OF INVESTMENTS . June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value Moody's Ratings (Note 2)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 41.71%
<C> <S> <C> <C>
Federal National Mortgage Association - 14.59%
$ 69,198 7.37%,08/17/03, Class A, Series 1996-M6
CMO, REMIC (B) Aaa $ 70,993
40,768 9.50%, 11/01/04, Pool #070452 (B) Aaa 42,621
33,963 9.00%, 02/01/10, Pool #303165 (B) Aaa 35,371
70,738 6.50%, 09/01/10, Pool #327824 (B) Aaa 69,464
28,572 8.00%, 04/01/22, Pool #124267 (B) Aaa 29,426
56,592 8.00%, 01/01/23, Pool #125178 (B) Aaa 58,284
47,176 8.00%, 04/01/23, Pool #124834 (B) Aaa 48,586
35,401 6.50%, 11/01/23, Pool #050929 (B) Aaa 34,124
44,701 7.00%, 11/01/23, Pool #249703 (B) Aaa 44,089
112,545 7.00%, 11/01/23, Pool #050930 (B) Aaa 111,003
129,143 6.50%, 01/01/24, Pool #050965 (B) Aaa 124,483
22,608 7.00%, 02/01/24, Pool #050993 (B) Aaa 22,276
65,714 7.50%, 10/01/25, Pool #321152 (B) Aaa 66,001
55,000 7.50%, 07/01/26 (C) Aaa 55,120
117,620 7.50%, 12/01/26, Pool #362034 (B) Aaa 117,989
---------------
929,830
---------------
Federal Home Loan Mortgage Corporation (B) - 9.50%
25,134 9.50%, 03/01/01, Pool #200029 Aaa 25,913
8,754 6.50%, 06/01/04, Pool #548801 Aaa 8,702
12,785 6.50%, 08/01/04, Pool #181863 Aaa 12,548
62,738 7.50%, 01/01/07, Pool #E00071 Aaa 63,901
32,703 8.00%, 04/01/07, Pool #170014 Aaa 33,672
174,968 7.00%, 08/01/10, Pool #E20187 Aaa 174,961
106,845 7.00%, 08/01/11, Pool #E65030 Aaa 106,772
49,118 7.90%, 07/01/16, Pool #W30001 Aaa 51,252
59,313 8.75%, 05/01/17, Pool #A00870 Aaa 62,853
60,432 9.50%, 08/01/19, Pool #555229 Aaa 64,747
---------------
605,321
---------------
U.S. Treasury Notes - 6.76%
20,000 5.88%, 03/31/99 Aaa 19,950
50,000 6.25%, 01/31/02 Aaa 49,735
25,000 7.50%, 05/15/02 Aaa 26,156
295,000 5.75%, 08/15/03 Aaa 284,859
50,000 6.50%, 08/15/05 Aaa 49,875
---------------
430,575
---------------
U.S. Treasury Bonds - 5.82%
110,000 7.25%, 05/15/16 Aaa 114,710
249,000 7.13%, 02/15/23 (D) Aaa 256,314
---------------
371,024
---------------
Government National Mortgage Association - 4.25%
65,708 9.50%, 02/15/06, Pool #780238 Aaa 69,169
39,519 9.00%, 10/15/08, Pool #025495 (B) Aaa 42,349
19,202 6.50%, 06/15/09, Pool #376548 (B) Aaa 18,944
16,599 8.00%, 08/15/22, Pool #323199 (B) Aaa 17,077
120,835 8.00%, 09/15/26, Pool #431329 (B) Aaa 123,710
---------------
271,249
---------------
Federal Home Loan Bank - 0.79%
50,000 7.89%, 12/23/97 Aaa 50,498
---------------
Total U.S. Government and Agency Obligations 2,658,497
(Cost $2,621,860) ---------------
CORPORATE NOTES AND BONDS - 34.99%
Finance - 12.20%
30,000 Advanta Corp., Series A, MTN
7.16%, 03/01/98 Ba 30,067
100,000 BCH Cayman Islands
Yankee Subordinated Note
Guaranteed: Banco Central Hispanoamericano
6.50%, 02/15/06 A 94,451
50,000 Conseco Financing Trust III
8.80%, 04/01/27 Ba 51,418
50,000 Donaldson Lufkin & Jenrette, Inc.
6.88%, 11/01/05 Baa 48,562
75,000 First Empire Capital Trust I
Guaranteed: First Empire State Corp.
8.23%, 02/01/27 A 75,776
100,000 Ford Capital BV, Yankee Debenture
9.38%, 01/01/98 A 101,649
50,000 General Motors Acceptance Corp.
7.00%, 03/01/00 A 50,514
50,000 Merita Bank, Ltd., Yankee Subordinated Note
6.50%, 01/15/06 A 47,673
50,000 Money Store, Inc.
8.05%, 04/15/02 Ba 50,591
50,000 Paine Webber Group, Inc., Debenture
9.25%, 12/15/01 Baa 54,271
70,000 Salomon, Inc., Senior Note
7.25%, 05/01/01 Baa 70,796
50,000 Santander Financial Issuances, Ltd.
Yankee Subordinated Note
Guaranteed: Banco Santander
7.75%, 05/15/05 A 51,639
50,000 Star Banc Corp., Senior MTN
6.97%, 05/01/00 NR 50,259
---------------
777,666
---------------
Utilities - 4.10%
75,000 Connecticut Light & Power Co.
First Mortgage, Series D
7.88%, 10/01/24 Ba 77,081
50,000 Empresa Electrica Pehuenche S.A.
Yankee Note
7.30%, 05/01/03 NR 50,227
50,000 Philadelphia Electric Co., First Mortgage
7.50%, 01/15/99 Baa 50,816
50,000 Sithe Independence Funding Corp., Series A
9.00%, 12/30/13 Baa 54,734
30,000 Texas Utilities Electric Co., First Mortgage
7.38%, 10/01/25 Baa 28,488
---------------
261,346
---------------
</TABLE>
See Notes to Financial Statements
- --------------------------------------------------------
<PAGE>
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ALLMERICA INVESTMENT GRADE INCOME FUND
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PORTFOLIO OF INVESTMENTS, Continued . June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value Moody's Ratings (Note 2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone and Telecommunications - 2.92%
$ 50,000 GTE Corp., Debenture
8.85%, 03/01/98 A $ 50,898
35,000 GTE Corp., Debenture
8.75%, 11/01/21 A 40,030
100,000 TCI Communications, Inc., Senior Debenture
7.88%, 02/15/26 Ba 95,320
----------
186,248
----------
Oil, Gas, and Petroleum - 2.83%
50,000 Parker & Parsley Petroleum Co., Senior Note
8.88%, 04/15/05 Baa 55,142
50,000 Tennessee Gas Pipeline Co.
7.50%, 04/01/17 Baa 50,076
75,000 Valero Energy Corp., MTN
7.50%, 05/31/01 Ba 74,856
----------
180,074
----------
Transportation - 2.61%
50,000 AMR Corp., Debenture
9.50%, 05/15/01 Baa 54,370
50,000 Consolidated Freightways, Inc.
9.13%, 08/15/99 Baa 52,186
55,000 United Air Lines, Inc.
9.00%, 12/15/03 Baa 59,565
----------
166,121
----------
Manufacturing - 2.35%
50,000 Black & Decker Corp.
6.63%, 11/15/00 Baa 49,893
50,000 Boise Cascade Corp., Series A, MTN
6.40%, 04/01/98 Baa 50,041
50,000 Chesapeake Corp., Debenture
7.20%, 03/15/05 Baa 50,096
----------
150,030
----------
Printing and Publishing - 2.06%
75,000 News America Holdings, Inc.
7.38%, 10/17/08 Baa 74,052
30,000 Time Warner, Inc.
8.05%, 01/15/16 Ba 29,969
25,000 Time Warner, Inc.
9.15%, 02/01/23 Ba 27,592
----------
131,613
----------
Industrial - 1.55%
50,000 Georgia Gulf Corp.
7.63%, 11/15/05 Ba 48,303
50,000 USX-Marathon Group, Debenture
8.88%, 09/15/97 Baa 50,273
----------
98,576
----------
Processed Foods - 1.19%
75,000 Ralston Purina Co., Debenture
7.75%, 10/01/15 Baa 75,589
----------
Health Products - 1.18%
75,000 Allegiance Corp.
7.30%, 10/15/06 Baa 75,234
----------
Foreign - 0.83%
50,000 Republic of Colombia, Series E, MTN
8.66%, 10/07/16 (A) Ba 53,164
----------
Engineering and Construction - 0.77%
50,000 Pulte Corp., Senior Note
7.00%, 12/15/03 Baa 49,161
----------
Consumer Products - 0.40%
25,000 Time Warner Entertainment Co., LP
Senior Debenture
8.38%, 03/15/23 Baa 25,624
----------
Total Corporate Notes and Bonds 2,230,446
(Cost $2,230,417) ----------
ASSET-BACKED SECURITIES (B) - 16.09%
75,000 Associates Manufactured Housing
Class A2, Series 1996-1
6.70%, 03/15/27 Aaa 75,450
73,996 Bear Stearns Mortgage Securities, Inc.
Class 1A, CMO
6.48%, 05/25/10 Aaa 72,140
50,000 Bear Stearns Mortgage Securities, Inc.
Class A10, CMO
7.75%, 06/25/27 NR 50,598
34,224 Contimortgage Home Equity Loan Trust
Class A1, Series 1994-3
7.63%, 05/15/09 Aaa 34,448
60,000 CWMBS, Inc., Class A3, Series 1996-A10, CMO
7.50%, 11/25/11 NR 60,461
49,941 Financial Asset Securitization, Inc., CMO
7.75%, 05/25/27 NR 51,298
30,000 First Plus Home Improvement Loan Trust
Class A3, Series 1996-3
7.05%, 11/20/08 NR 30,251
49,985 First Plus Home Loan Owner Trust
Class A5, Series 1996-2
7.47%, 02/20/11 NR 50,905
98,583 General Motors Acceptance Corp.
Commercial Mortgage Securities, Inc.
Class A2A, Series 1996-C1, CMO
6.79%, 09/15/03 Aaa 97,412
</TABLE>
See Notes to Financial Statements
---------------------------------------------------------
2
<PAGE>
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ALLAMERICA INVESTMENT GRADE INVOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, Continued . June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Par Value Moody's Ratings (Note 2)
- --------------------------------------------------------------------------------
<C> <S> <C> <C>
ASSET-BACKED SECURITIES (continued)
$ 100,000 Green Tree Financial Corp.,
Class A3, Series 1994-1
6.90%, 04/15/19 Aa $ 101,006
50,000 Green Tree Financial Corp.,
Class A3, Series 1994-8
8.25%, 04/15/20 Aa 51,126
26,524 Green Tree Recreational Equipment & Consumer Trust
Class A1, Series 1996-A
5.55%, 02/15/18 Aaa 25,781
20,085 NationsBank Auto Grantor Trust
Class B, Series 1995-A
6.00%, 06/15/02 NR 20,113
50,000 Olympic Automobile Receivables Trust
Class A4, Series 1996-A
5.85%, 07/15/01 NR 49,720
50,000 Premier Auto Trust
Class A3, Series 1996-2
6.35%, 01/06/00 Aaa 50,243
50,000 Premier Auto Trust
Class A4, Series 1995-4
6.00%, 05/06/00 Aaa 50,015
50,000 Resolution Trust Corp.
Class A4C, Series 1995-C1, CMO
6.85%, 02/25/27 Aaa 49,687
11,979 Structured Asset Securities Corp.
Class A1B, Series 1996-CFL, CMO
5.75%, 02/25/28 NR 11,923
25,000 Vendee Mortgage Trust, CMO, REMIC
7.50%, 09/15/01 NR 25,205
9,043 Western Financial Grantor Trust
Class A2, Series 1994-2
6.38%, 09/01/99 Aaa 9,087
8,453 Western Financial Grantor Trust
Class A2, Series 1995-2
7.10%, 07/01/00 Aaa 8,537
50,000 WFS Financial Owner Trust
Class A3, Series 1997-A
6.50%, 09/20/01 NR 50,313
-------------
Total Asset-Backed Securities 1,025,719
(Cost $1,026,730) -------------
COMMERCIAL PAPER (E) - 2.35%
150,000 Federal Home Loan Bank
5.45%, 07/09/97 149,818
-------------
Total Commercial Paper 149,818
(Cost $149,818) -------------
<CAPTION>
Value
Shares (Note 2)
- --------------------------------------------------------------------------------
<C> <S> <C>
INVESTMENT COMPANY - 0.02%
1,218 State Street Bank & Trust Company $ 1,218
-------------
Total Investment Company 1,218
(Cost $1,218) -------------
Total Investments - 95.16% 6,065,698
(Cost $6,030,043) -------------
Net Other Assets and Liabilities - 4.84% 308,391
-------------
Net Assets - 100% $ 6,374,089
=============
</TABLE>
- ---------------------------------
(A) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold, in transactions exempt from
registration, to qualified institutions buyers. At June 30, 1997, these
securities amounted to $53,164 or 0.83% of net assets.
(B) Pass Through Certificates
(C) Forward Commitment.
(D) Collateral on Forward Commitment.
(E) Effective yield at time of purchase.
CMO Collateralized Mortgage Obligations
MTN Medium Term Notes
REMIC Real Estate Mortgate Investment Conduit
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At June 30, 1997, the aggregate cost of investment securities for tax purposes
was $6,030,043. Net realized appreciation (depreciation) aggregated $35,655, of
which $94,269 related to appreciated investment securities and $(58,614) related
to depreciated investment securities.
As of December 31, 1996, the Portfolio had capital loss carryforwards which
expire as follows: $11,905 in 2000; $629,070 in 2002; $306,802 in 2003; and
$28,284 in 2004.
For the year ended December 31, 1996, the Portfolio has elected to defer to 1997
$1,125 attributable to Post October Capital Losses.
OTHER INFORMATION
For the six months ended June 30, 1997, the aggregated cost of purchases and the
proceeds of sales, other than from short-term investments, included $667,680 and
$585,805 from non-governmental issuers, respectively, and $710,467 and $872,391
from U.S. Government and Agency issuers, respectively.
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
<TABLE>
<S> <C>
Aaa 51.62%
Aa 2.51
A 8.45
Baa 17.79
Ba 8.88
NR (not rated) 10.75
-------
100.00%
=======
</TABLE>
See Notes to Financial Statements
- ---------------------------------------------------------
3
<PAGE>
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ALLMERICA INVESTMENT GRADE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES . June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments (Note 2):
Investments at cost ..................................................................... $ 6,030,043
Net unrealized appreciation(depreciation)................................................ 35,655
------------
Total investments at value ............................................................ 6,065,698
Cash........................................................................................... 282,852
Receivable for investments sold ............................................................... 7,252
Interest and dividends receivable.............................................................. 80,062
------------
Total Assets........................................................................... 6,435,864
------------
LIABILITIES:
Advisory fee payable (Note 3) ................................................................. 3,093
Payable for investments purchased ............................................................. 55,052
Accrued expenses and other payables ........................................................... 3,630
------------
Total Liabilities...................................................................... 61,775
------------
NET ASSETS............................................................................................. $ 6,374,089
============
NET ASSETS consist of:
Par value (Note 4)............................................................................. $ 658
Paid-in capital ............................................................................... 7,291,162
Undistributed net investment income ........................................................... 7,905
Accumulated (distribution in excess of) net
realized gain (loss) on investments sold ................................................... (961,291)
Net unrealized appreciation(depreciation) of investments....................................... 35,655
------------
TOTAL NET ASSETS ...................................................................................... $ 6,374,089
============
Shares of beneficial interest outstanding (unlimited shares with par value of $0.001).................. 657,825
NET ASSET VALUE, redemption price per share (Net Assets / Shares Outstanding).......................... $ 9.69
============
MAXIMUM offering price per share (100 / 95.50 of NAV) ................................................. $ 10.15
============
</TABLE>
See Notes to Financial Statements
---------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT GRADE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS . For the Six Months Ended June 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest (Note 2) .............................................................................. $ 245,845
Dividends (Note 2).............................................................................. 5,169
------------
Total investment income ................................................................... 251,014
------------
EXPENSES:
Investment advisory fees (Note 3) ............................................................. 18,452
Custodian fees.................................................................................. 5,500
Fund accounting fees (Note 3)................................................................... 18,191
Audit fees ..................................................................................... 2,450
Trustees' fees and expenses (Note 3)............................................................ 44
Reports to shareholders ........................................................................ 700
Insurance....................................................................................... 143
Miscellaneous expense........................................................................... 428
------------
Total expenses............................................................................. 45,908
------------
NET INVESTMENT INCOME ................................................................................. 205,106
------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (Note 2):
Net realized gain (loss) on investments sold.................................................... 31,692
Net change in unrealized appreciation
(depreciation) of investments.............................................................. (40,789)
------------
NET GAIN(LOSS) ON INVESTMENTS.......................................................................... (9,097)
------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS....................................................................... $ 196,009
============
</TABLE>
See Notes to Financial Statements
- ---------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT GRADE INCOME FUND
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
June 30, 1997 Year Ended
(Unaudited) December 30, 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSETS at beginning of period........................................ $ 6,178,080 $ 6,037,799
------------ ------------
Increase (Decrease) in net assets resulting from operations:
Net investment income............................................. 205,106 331,123
Net realized gain (loss) on investments sold...................... 31,692 868
Net change in unrealized appreciation
(depreciation) of investments.................................... (40,789) (191,710)
------------ ------------
Net increase (decrease) in net assets resulting
from operations ............................................. 196,009 140,281
------------ ------------
Distributions to shareholders from:
Net investment income............................................. (205,106) (331,123)
------------ ------------
Capital Share Transactions:
Net proceeds from sales of shares................................ -- --
Issued to shareholders in reinvestment of dividends............... 205,106 331,123
Cost of shares repurchased....................................... -- --
------------ ------------
Net increase (decrease) from capital share transactions....... 205,106 331,123
------------ ------------
Total increase (decrease) in net assets...................... 196,009 140,281
------------ ------------
NET ASSETS at end of period (including A)................................ $ 6,374,089 $ 6,178,080
============ ============
(A) Undistributed net investment income.................................. $ 7,905 $ 7,905
============ ============
OTHER INFORMATION:
Share Transactions:
Sold.............................................................. -- --
Issued to shareholders in reinvestment of dividends............... 21,287 34,334
Repurchased...................................................... -- --
------------ ------------
Net increase (decrease) in shares outstanding................. 21,287 34,334
============ ============
</TABLE>
See Notes to Financial Statements
---------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT GRADE INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended
June 30, 1997 Years Ended December 31,
(Unaudited) 1996 1995 1994 1993 1992(A)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, beginning of period........... $ 9.71 $ 10.03 $ 9.12 $ 10.10 $ 9.69 $ 10.00
---------- ---------- ---------- ---------- --------- ---------
Income from Investment Operations:
Net investment income (B).................. 0.39 0.54 0.42 0.54 0.63 0.22
Net realized and unrealized gain (loss)
on investments........................... (0.02) (0.32) 0.91 (0.98) 0.41 (0.31)
---------- ---------- ---------- ---------- --------- ---------
Total from Investment Operations:....... 0.37 0.22 1.33 (0.44) 1.04 (0.09)
---------- ---------- ---------- ---------- --------- ---------
Less Distributions:
Dividends from net investment income ...... (0.39) (0.54) (0.42) (0.54) (0.63) (0.22)
---------- ---------- ---------- ---------- --------- ---------
Net increase (decrease) in net asset value..... (0.02) (0.32) 0.91 (0.98) 0.41 (0.31)
---------- ---------- ---------- ---------- --------- ---------
Net Asset Value, end of period................. $ 9.69 $ 9.71 $ 10.03 $ 9.12 $ 10.10 $ 9.69
========== ========== ========== ========== ========= =========
Total Return (C)............................... 3.17%** 2.32% 14.82% (4.46)% 10.86% (0.72)%**(D)
Ratios/Supplemental Data:
Net Assets, end of period(000's) .............. $ 6,374 $ 6,178 $ 6,038 $ 5,260 $ 12,245 $ 5,458
Ratios to average net assets:
Net investment income (B).................. 6.67%* 5.53% 4.38% 5.69% 6.11% 6.70%*
Operating expenses (B)..................... 1.49%* 1.70% 3.04% 1.29% 1.20% 1.20%*
Gross management fee....................... 0.60%* 0.60% 0.60% 0.60% 0.60% N/A
Net management fee......................... 0.60%* 0.60% 0.60% 0.00% 0.00% N/A
Portfolio Turnover Rate ....................... 23%** 104% 135% 129% 102% 130%
</TABLE>
- ----------------------------------
* Annualized
** Not annualized
(A) The Fund commenced operations on August 21, 1992.
(B) Net investment income per share and the operating expense ratios before
reimbursement of fees by the investment adviser for the years ended December
31, 1994, 1993 and 1992 were $0.47 and 1.97%, $0.53 and 2.16% and $0.17 and
2.70% (annualized), respectively.
(C) Total returns do not include the one time sales charge.
(D) Unaudited
See Notes to Financial Statements
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7
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ALLMERICA INVESTMENT GRADE INCOME FUND
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NOTES TO FINANCIAL STATEMENTS . June 30, 1997 (Unaudited)
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1. ORGANIZATION
Allmerica Funds (the "Trust") was organized as a Massachusetts business trust
on June 4, 1990 and is registered under the Investment Company Act of 1940, as
amended, as an open-end, diversified management investment company. The Trust
offers one managed investment portfolio, the Investment Grade Income Fund (the
"Portfolio"). The Declaration of Trust permits the Trustees to create additional
series each of which may issue one or more classes of shares. The accompanying
financial statements and financial highlights are those of the Investment Grade
Income Fund. At a Meeting of Trustees held on May 13, 1997, trustees approved
the liquidation and termination of Allmerica Funds.
2. SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make 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 consistently followed by the Portfolio in the preparation
of its financial statements.
Security Valuation: 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, quotations 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. Short-term
investments that mature in 60 days or less are valued at amortized cost.
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 zero coupon bonds, original issue discount
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 Portfolio intends to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying, the Portfolio will not be subject to
Federal income taxes to the extent it distributes all of its taxable income and
net realized gain 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, the Portfolio will not
be subject to Federal excise tax. Therefore, no Federal income tax provision is
required. 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 year ended December 31,
1996.
Distributions to Shareholders: Dividends from net investment income are
declared daily and paid monthly by the Portfolio. Net realized capital gains, if
any, are declared and paid 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 on
securities, including "Post October Losses" and permanent differences due to
differing treatment for paydown gains/losses on certain securities, market
discounts and losses deferred due to wash sales. Any taxable income or gain
remaining at fiscal year end will be 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: Most expenses of the Trust can be directly attributable to the
Trust. Expenses which can not be directly attributable to the Trust are
allocated based upon relative net assets among the Trust and two other
registered investment companies within First Allmerica Financial Life Insurance
Company.
Forward Commitments: The Portfolio may from time to time purchase securities
on a forward commitment basis. Debt securities are often issued on this basis.
The yield of such securities is fixed at the time a commitment to purchase is
made, with actual payment and delivery of the security generally taking place 15
to 45 days later. During the period between purchase and settlement, typically
no payment is made by a Portfolio and no interest accrues to the Portfolio. The
market value of forward commitments may be more or less than the purchase price
payable at settlement date.
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ALLMERICA INVESTMENT GRADE INCOME FUND
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NOTES TO FINANCIAL STATEMENTS . (Continued) (Unaudited)
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3. INVESTMENT ADVISORY, ADMINISTRATION AND OTHER RELATED PARTY TRANSACTIONS
Allmerica Investment Management Company, Inc. (the "Manager"), a
wholly-owned subsidiary of First Allmerica Financial Life Insurance Company
("First Allmerica"), is the Investment Adviser of the Portfolio. The Manager
administers all aspects of the Portfolio's day-to-day operations, subject to the
supervision of the Board of Trustees. Under the terms of the management
agreement, the Portfolio pays management fees, calculated daily and payable
monthly, at an annual rate of 0.60% of the Portfolio's average daily net assets.
Under the terms of the sub-advisory agreement with the Manager, Allmerica
Asset Management, Inc. ("AAM") manages the investment portfolio for the
Portfolio. Fees related to these services are borne directly by the Manager.
The Manager has entered into an Administrative Services Agreement with
First Data Investor Services Group, Inc. ("FDISG"), a wholly-owned subsidiary of
First Data Corporation, whereby FDISG performs 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
administrative fee to FDISG. In a separate agreement, FDISG receives separate
fees from the Portfolio for certain fund accounting services provided in its
capacity as pricing and bookkeeping agent.
The Portfolio pays no salaries or compensation to any of its officers.
Trustees who are not directors, officers, or employees of the Trust or the
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. 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 Portfolio, with a par
value of $0.001. It allows for one or more classes of shares within the series,
which, regardless of class designation represent an equal proportionate interest
in the Portfolio with each other share of that series. As of June 30, 1997 and
throughout the period, Allmerica Investments, Inc., a wholly-owned subsidiary of
First Allmerica, owned 100% of the Portfolio's shares outstanding.
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9
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ALLMERICA INVESTMENT GRADE INCOME FUND
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GENERAL INFORMATION
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Investment Manager
Allmerica Investment Management Co., Inc.
440 Lincoln Street
Worcester, MA 01653
Independent Accountants
Price Waterhouse 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
PO Box 5108
Boston, MA 02110
Administrator
First Data Investor Services Group
4400 Computer Drive
Westborough, MA 01581
Officers of Allmerica Funds
Richard M. Reilly, President
Thomas P. Cunningham, Treasurer
General Distributor
Allmerica Investments, Inc.
440 Lincoln Street
Worcester, MA 01653
Investment Sub-Adviser
Allmerica Asset Management, Inc.
440 Lincoln Street
Worcester, MA 01653
Board of Trustees of Allmerica Funds
John F. O'Brien, Chairman
Russell E. Fuller*
Gordon Holmes*
John P. Kavanaugh
Bruce E. Langton*
Attiat F. Ott*
Richard M. Reilly
Ranne P. Warner*
* Independent Trustees
10
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ALLMERICA INVESTMENT GRADE INCOME FUND
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REGULATORY DISCLOSURES
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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.
This report is not authorized for distribution to prospective purchasers of
Allmerica Investment Grade Income Fund unless accompanied or preceded by an
effective prospectus which includes information related to charges and expenses.
11
