<PAGE>
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Annual Report
December 31, 1997
Allmerica Select
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. Allmerica Select Resource
. Allmerica Select Resource II
. Allmerica Select Life
. Allmerica Select Inheiritage
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Allmerica Select gives you access to some of the
world's leading money managers, selected and monitored
by independent industry experts.
It offers you an array of advantages typically reserved for the
nation's largest and most sophisticated investors including:
Access to a range of highly respected money managers.
The comprehensive research capabilities of a nationally recognized
pension consulting firm, to help identify the most qualified and best suited
money managers representing a range of investment approaches.
The opportunity to diversify across investment categories and investment
styles - to better meet your investment needs.
Objective monitoring of the money managers' performance by
Allmerica Select's Manager Evaluation Committee, made up of
highly experienced industry professionals.
Personalized performance reports and timely market updates
to help keep you on target.
Significant tax advantages, including tax-deferred growth and
tax-free transfers between investment options.
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<PAGE>
General Information
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OFFICERS OF FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY
AND ALLMERICA FINANCIAL LIFE
INSURANCE AND ANNUITY COMPANY
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 Investment
Management Company, Inc.
440 Lincoln Street, Worcester, MA 01653
GENERAL DISTRIBUTOR
Allmerica Investments, 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, 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
Thomas P. Cunningham, Treasurer
George M. Boyd, Secretary
BOARD OF TRUSTEES OF AIT
John F. O'Brien, Chairman
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-ADVISERS
Allmerica Asset Management, Inc.
440 Lincoln Street, Worcester, MA 01653
Money Market Fund
Bank of Ireland Asset Management
(U.S.) Limited
U.S. Offices:
20 Horseneck Lane, Greenwich, CT 06830
Main Offices:
26 Fitzwilliam Place, Dublin 2, Ireland
Select International Equity Fund
Janus Capital Corporation
100 Fillmore Street - Suite 300
Denver, CO 80206-4923
Select Capital Appreciation Fund
John A. Levin & Co., Inc.
One Rockefeller Plaza, 25th Floor
New York, NY 10022
Select Growth and Income Fund
Nicholas-Applegate Capital
Management, L.P.
600 West Broadway - Suite 2900
San Diego, CA 92101
Select Aggressive Growth Fund
Putnam Investment Management, Inc.
One Post Office Square, Boston, MA 02109
Select Growth Fund
Standish, Ayer & Wood, Inc.
One Financial Center, Boston, MA 02111
Select Income Fund
Investment Advisers
Fidelity Management & Research Company
82 Devonshire Street, Boston, MA 02108
Fidelity VIP2 Equity-Income Portfolio
Fidelity VIP2 Growth Portfolio
Fidelity VIP2 High Income Portfolio
Rowe Price-Fleming International, Inc.
100 E. Pratt Street, Baltimore, MD 21202
T. Rowe Price International Stock Portfolio
/2/ VIP refers to Variable Insurance Products Fund.
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CONTENTS
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A Letter From the Chairman ......................................2
Fund Performance Summary ........................................3
Product Performance Summaries ...................................4
Allmerica Select Resource/Resource II
Variable Annuity .............................................4
Allmerica Select Life
Variable Universal Life ......................................5
Allmerica Select Inheiritage (FAFLIC)
Variable Universal Survivorship Life .........................6
Allmerica Select Inheiritage (AFLIAC)
Variable Universal Survivorship Life .........................7
Domestic & International Equity Market Overview .................8
Select Aggressive Growth Fund ..................................10
Select Capital Appreciation Fund ...............................11
T. Rowe Price International Stock Portfolio ....................12
Select International Equity Fund ...............................13
Fidelity VIP2 Growth Portfolio .................................14
Select Growth Fund .............................................15
Fidelity VIP2 Equity-Income Portfolio ..........................16
Select Growth and Income Fund ..................................17
Bond & Money
Market Overview ................................................18
Fidelity VIP2 High Income Portfolio ............................20
Select Income Fund .............................................21
Money Market Fund ..............................................22
Financials ....................................................F-1
For further information, see the accompanying annual reports.
See Client Notices on page F-35.
1
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A LETTER FROM THE CHAIRMAN
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[PHOTO OF JOHN E. O'BRIEN APPEARS HERE]
Dear Client:
During 1997, investors benefited from generally healthy U.S. financial
markets. The stock market delivered an unprecedented third consecutive year of
returns over 20% and the bond market also enjoyed its best results since 1995.
This year's exceptional performance, however, masks the volatility which
occurred, particularly in the U.S. equity markets. In fact, market volatility in
1997 was the fourth highest in the last 50 years. However, not only did almost
all of the gain in the S&P 500(R) occur during the first seven months of the
year, returns were concentrated in just a handful of large company stocks.
Understandably, this proved particularly frustrating to investors in smaller
company stocks and to those large-cap managers with broadly diversified
portfolios.
Internationally, the markets proved quite challenging. The larger developed
countries in the Morgan Stanley EAFE Index delivered solid returns through July
but ended the year with a modest total return of approximately 2%. While Europe
delivered strong returns to investors, a 21% decline in the Japanese market and
the effects of a strong U.S. dollar eroded results. Emerging markets in Asia had
a particularly tough year as many of these markets declined dramatically in the
face of spiraling debt and asset deflation.
As a result of 1997's international turmoil, many investors sought shelter
in the relative safety of the U.S. bond market which returned over 9% for the
year.
Looking ahead to 1998, many economists are optimistic about the market's
potential and are anticipating good, but more "normal" equity returns. We
caution that the equity markets offer no guarantees. This is why we encourage
you to continue to work with your financial advisor to develop, implement and
monitor a disciplined investment program.
In addition, we encourage you to set realistic return expectations and
remain focused on your long-term goals. As we've stressed in the past, we
believe one prudent way to participate in any future market potential is through
long-term, tax-deferred professionally managed investment vehicles.
Finally, as we look at the overall performance of our managers, we are
pleased with the results. For calendar year 1997, 50% outperformed their peer
group, as measured by Lipper Analytical Services. For the more meaningful
three-year period, 89% of our managers outperformed their competitors. We feel
these results validate our disciplined approach to investment management which
includes careful definition of investment parameters and rigorous monitoring of
managers' results.
As we begin a new year, a tax issue has arisen that warrants our attention.
As part of its Fiscal 1999 budget submission, the Administration has proposed
troubling taxes on new variable annuity and variable life policyholders. While
the details are not yet final and are subject to change, and would as proposed
apply only to policies acquired after the effective date of any new legislation,
we believe the spirit of these proposals is inconsistent with broad national,
social and tax policies and would make it more difficult for Americans to save
for retirement and achieve financial security. On your behalf and the behalf of
others who seek to plan responsibly for retirement, we have joined a strong,
broad-based industry coalition to defeat this legislation. We are confident our
voice will be heard. We continue to work hard to earn your trust and look
forward to continuing to serve your future investment and retirement needs.
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
2
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FUND PERFORMANCE SUMMARY
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Average Annual Total Returns as of 12/31/97
For easy reference, the total returns for the Funds are summarized below.
Keep in mind that these returns are net of all Fund charges. For returns that
reflect the deduction of product charges, please refer to the Product
Performance Summaries on the following pages beginning on page 4.
<TABLE>
<CAPTION>
Ten Years
Fund or Life
Inception One Five of Fund
Funds Date Year Years (if less)
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<S> <C> <C> <C> <C>
ALLMERICA INVESTMENT TRUST
Select Aggressive Growth Fund 8/21/92 18.71% 16.80% 19.57%
Select Capital Appreciation Fund 4/28/95 14.28% N/A 22.89%
Select International Equity Fund 5/2/94 4.65% N/A 11.14%
Select Growth Fund 8/21/92 34.06% 15.15% 16.37%
Select Growth and Income Fund 8/21/92 22.51% 16.57% 15.36%
Select Income Fund 8/21/92 9.17% 6.86% 6.51%
Money Market Fund 4/29/85 5.47% 4.71% 5.80%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio 3/31/94 3.09% N/A 8.07%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (VIP)
Fidelity VIP Growth Portfolio 10/9/86 23.48% 18.00% 17.19%
Fidelity VIP Equity-Income Portfolio 10/9/86 28.11% 20.16% 16.72%
Fidelity VIP High Income Portfolio 9/19/85 17.67% 13.91% 12.81%
</TABLE>
Fund performance returns given above reflect an investment in the underlying
funds listed on the date of inception of each Fund.
Fund 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.
3
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PRODUCT PERFORMANCE SUMMARY
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ALLMERICA SELECT RESOURCE/RESOURCE II - Variable Annuity
Average Annual Total Returns as of 12/31/97
For easy reference, the total returns for the Allmerica Select
Resource/Resource II sub-accounts of FAFLIC and AFLIAC are summarized below.
Keep in mind that these returns are net of all product charges except for the
annual contract fee. For returns that do not reflect the deduction of product
charges, please refer to the individual Portfolio Reviews beginning on page 10.
<TABLE>
<CAPTION>
WITHOUT SURRENDER CHARGE WITH SURRENDER CHARGE
---------------------------------- ----------------------------------
TEN YEARS TEN YEARS
FUND OR LIFE OR LIFE
INCEPTION ONE FIVE OF FUND ONE FIVE OF FUND
SUB-ACCOUNTS DATE YEAR YEARS (IF LESS) YEAR YEARS (IF LESS)
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<S> <C> <C> <C> <C> <C> <C> <C>
ALLMERICA INVESTMENT TRUST
Select Aggressive Growth Fund 8/21/92 17.07% 15.19% 17.89% 10.57% 14.85% 17.71%
Select Capital Appreciation Fund 4/28/95 12.70% N/A 21.17% 6.20% N/A 19.80%
Select International Equity Fund 5/2/94 3.20% N/A 9.58% -2.83% N/A 8.72%
Select Growth Fund 8/21/92 32.22% 13.62% 14.74% 25.72% 13.26% 14.53%
Select Growth and Income Fund 8/21/92 20.83% 14.96% 13.74% 14.33% 14.62% 13.53%
Select Income Fund 8/21/92 7.66% 5.38% 5.02% 1.36% 4.88% 4.71%
Money Market Fund 4/29/85 4.01% 3.26% 4.31% -2.07% 2.73% 4.31%
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
T. Rowe Price International
Stock Portfolio 3/31/94 1.67% N/A 6.55% -4.28% N/A 5.65%
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND (VIP AND VIP II)
Fidelity VIP Growth Portfolio 10/9/86 21.78% 16.34% 15.55% 15.28% 16.01% 15.55%
Fidelity VIP Equity-Income
Portfolio 10/9/86 26.34% 18.47% 15.08% 19.84% 18.17% 15.08%
Fidelity VIP High Income Portfolio 9/19/85 16.05% 12.31% 11.23% 9.55% 11.93% 11.23%
</TABLE>
Performance returns given above are for the Allmerica Select
Resource/Resource II sub-accounts of FAFLIC and AFLIAC and assume an investment
in the underlying funds listed on the date of inception of each Fund. 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 6.5%.
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.
For more information about the performance of the underlying funds, see the
Performance Reviews beginning on page 10.
4
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PRODUCT PERFORMANCE SUMMARY
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ALLMERICA SELECT LIFE - Variable Universal Life
Average Annual Total Returns as of 12/31/97
For easy reference, the total returns for the Allmerica Select Life sub-accounts
of AFLIAC are summarized below. Keep in mind that these returns are net of
product charges. For returns that do not reflect the deduction of product
charges, please refer to the individual Portfolio Reviews beginning on page 10.
<TABLE>
<CAPTION>
WITHOUT SURRENDER AND WITH SURRENDER AND
MONTHLY POLICY CHARGES MONTHLY POLICY CHARGES
-------------------------------- --------------------------------
TEN YEARS TEN YEARS
FUND OR LIFE OR LIFE
INCEPTION ONE FIVE OF FUND ONE FIVE OF FUND
SUB-ACCOUNTS DATE YEAR YEARS (IF LESS) YEAR YEARS (IF LESS)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLMERICA INVESTMENT TRUST
Select Aggressive Growth Fund 8/21/92 17.76% 15.86% 18.61% -98.19% 5.55% 9.48%
Select Capital Appreciation Fund 4/28/95 13.37% N/A 21.90% -100.00% N/A -9.57%
Select International Equity Fund 5/2/94 3.81% N/A 10.25% -100.00% N/A -8.86%
Select Growth Fund 8/21/92 33.00% 14.23% 15.44% -84.61% 3.75% 6.04%
Select Growth and Income Fund 8/21/92 21.54% 15.64% 14.43% -94.82% 5.31% 4.93%
Select Income Fund 8/21/92 8.30% 6.00% 5.66% -100.00% -5.48% -4.82%
Money Market Fund 4/29/85 4.63% 3.87% 4.95% -100.00% -7.92% 0.60%
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
T. Rowe Price International
Stock Portfolio 3/31/94 2.27% N/A 7.20% -100.00% N/A -11.58%
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND (VIP)
Fidelity VIP Growth Portfolio 10/9/86 22.50% 17.05% 16.25% -93.97% 6.85% 12.49%
Fidelity VIP Equity-Income
Portfolio 10/9/86 27.09% 19.20% 15.78% -89.88% 9.20% 12.00%
Fidelity VIP High Income Portfolio 9/19/85 16.73% 13.00% 11.91% -99.10% 2.39% 7.96%
</TABLE>
Performance returns given above are for the Allmerica Select Life sub-accounts
of AFLIAC and are net of all product charges (including surrender charges) for a
representative policy. In addition, the returns assume an investment in the
underlying funds listed on the date of inception of each Fund. All full
surrenders or withdrawals in excess of the free amount may be subject to a
declining surrender charge.
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.
5
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PRODUCT PERFORMANCE SUMMARY
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ALLMERICA SELECT INHEIRITAGE - Variable Universal Survivorship Life
Average Annual Total Returns as of 12/31/97
For easy reference, the total returns for the Allmerica Select Inheiritage
sub-accounts of FAFLIC are summarized below. Keep in mind that these returns are
net of product charges. For returns that do not reflect the deduction of product
charges, please refer to the individual Portfolio Reviews beginning on page 10.
<TABLE>
<CAPTION>
WITHOUT SURRENDER AND WITH SURRENDER AND
MONTHLY POLICY CHARGES MONTHLY POLICY CHARGES
---------------------------------- ----------------------------------
TEN YEARS TEN YEARS
FUND OR LIFE OR LIFE
INCEPTION ONE FIVE OF FUND ONE FIVE OF FUND
SUB-ACCOUNTS DATE YEAR YEARS (IF LESS) YEAR YEARS (IF LESS)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLMERICA INVESTMENT TRUST
Select Aggressive Growth Fund 8/21/92 17.36% 15.45% 18.19% -85.58% 7.99% 12.03%
Select Capital Appreciation Fund 4/28/95 12.98% N/A 21.47% -89.79% N/A -4.49%
Select International Equity Fund 5/2/94 3.46% N/A 9.86% -98.93% N/A -7.50%
Select Growth Fund 8/21/92 32.55% 13.82% 15.03% -70.99% 6.10% 8.45%
Select Growth and Income Fund 8/21/92 21.13% 15.23% 14.03% -81.96% 7.74% 7.30%
Select Income Fund 8/21/92 7.91% 5.63% 5.28% -94.66% -3.65% -2.97%
Money Market Fund 4/29/85 4.27% 3.50% 4.58% -98.15% -6.27% 2.37%
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
T. Rowe Price International
Stock Portfolio 3/31/94 1.93% N/A 6.82% -100.00% N/A -10.44%
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND (VIP)
Fidelity VIP Growth Portfolio 10/9/86 22.09% 16.64% 15.84% -81.04% 9.36% 14.31%
Fidelity VIP Equity-Income
Portfolio 10/9/86 26.66% 18.78% 15.37% -76.65% 11.80% 13.82%
Fidelity VIP High Income Portfolio 9/19/85 16.34% 12.60% 11.51% -86.56% 4.68% 9.78%
</TABLE>
Performance returns given above are for the Allmerica Select Inheiritage
sub-accounts of FAFLIC and are net of all product charges (including surrender
charges) for a representative policy. In addition, the returns assume an
investment in the underlying funds listed above on the date of inception of each
Fund. All full surrenders or withdrawals in excess of the free amount may be
subject to a declining surrender charge.
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.
6
<PAGE>
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PRODUCT PERFORMANCE SUMMARY
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ALLMERICA SELECT INHEIRITAGE - Variable Universal Survivorship Life
Average Annual Total Returns as of 12/31/97
For easy reference, the total returns for the Allmerica Select Inheiritage
sub-accounts of AFLIAC are summarized below. Keep in mind that these returns are
net of product charges. For returns that do not reflect the deduction of product
charges, please refer to the individual Portfolio Reviews beginning on page 10.
<TABLE>
<CAPTION>
WITHOUT SURRENDER AND WITH SURRENDER AND
MONTHLY POLICY CHARGES MONTHLY POLICY CHARGES
---------------------------------- ----------------------------------
TEN YEARS TEN YEARS
FUND OR LIFE OR LIFE
INCEPTION ONE FIVE OF FUND ONE FIVE OF FUND
SUB-ACCOUNTS DATE YEAR YEARS (IF LESS) YEAR YEARS (IF LESS)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALLMERICA INVESTMENT TRUST
Select Aggressive Growth Fund 8/21/92 17.36% 15.45% 18.19% -87.31% 7.32% 11.43%
Select Capital Appreciation Fund 4/28/95 12.98% N/A 21.47% -91.47% N/A -5.86%
Select International Equity Fund 5/2/94 3.46% N/A 9.86% -100.00% N/A -8.64%
Select Growth Fund 8/21/92 32.55% 13.82% 15.03% -72.91% 5.43% 7.84%
Select Growth and Income Fund 8/21/92 21.13% 15.23% 14.03% -83.74% 7.07% 6.69%
Select Income Fund 8/21/92 7.91% 5.63% 5.28% -96.27% -4.37% -3.64%
Money Market Fund 4/29/85 4.27% 3.50% 4.58% -99.72% -7.01% 2.09%
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
T. Rowe Price International
Stock Portfolio 3/31/94 1.93% N/A 6.82% -100.00% N/A -11.57%
FIDELITY VARIABLE INSURANCE
PRODUCTS FUND (VIP)
Fidelity VIP Growth Portfolio 10/9/86 22.09% 16.64% 15.84% -82.83% 8.70% 14.06%
Fidelity VIP Equity-Income
Portfolio 10/9/86 26.66% 18.78% 15.37% -78.50% 11.15% 13.57%
Fidelity VIP High Income Portfolio 9/19/85 16.34% 12.60% 11.51% -88.28% 4.00% 9.52%
</TABLE>
Performance returns given above are for the Allmerica Select Inheiritage
sub-accounts of AFLIAC and are net of all product charges (including surrender
charges) for a representative policy. In addition, the returns assume an
investment in the underlying funds listed above on the date of inception of each
Fund. All full surrenders or withdrawals in excess of the free amount may be
subject to a declining surrender charge.
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.
7
<PAGE>
DOMESTIC & INTERNATIONAL EQUITY MARKET OVERVIEW
1992: U.S. economy continues its slow recovery. Larger companies downsize while
smaller firms thrive.
1993: A year of low interest rates and strong growth in the emerging markets.
1994: Federal Reserve Board raises interest rates six times stalling equity
markets even while corporate earnings continued to grow.
1995: Favorable economic conditions result in large gains for the U.S. equity
markets. Europe turns in strongest performance of international equity markets.
1996: Despite a volatile marketplace, the U.S. stock market performs well.
Internationally, European countries post the most impressive gains.
1997: Robust economic growth, declining interest rates and low unemployment
produce a third consecutive year of unprecedented gains for the U.S. stock
market.
Robust economic growth, strong corporate earnings, decreasing interest
rates and a stronger dollar all combined to produce a third consecutive year of
unprecedented gains for the stock market in 1997.
After a first quarter tightening of interest rates by the Federal Reserve,
the economy settled into a slow-growth, low-inflation pattern. Both inflation
and long-term interest rates fell, creating ideal conditions for the U.S. stock
market to flourish, albeit in the face of developing weakness in Asia.
Overall, the Dow Jones Industrial Average rose 22.6% and the S&P 500(R)
stock index soared 33.4%, the first time both had risen more than 20% for three
straight years. But 1997 was also characterized by greater volatility as
demonstrated by the mini-correction on October 27, when the Dow Jones Industrial
Average plummeted more than 550 points in what proved to be the biggest
point-drop ever. Even though the stock market rebounded with a 4.7% gain the
next day, this activity clearly shook investor confidence.
Overall, U.S. equity performance was dominated by large-cap companies as it
had been in the last two years. Although small- and mid-cap stocks rallied for a
short time during the third quarter, the brand name value and diversified
structure of large caps prevailed. In fact, the same big companies which led the
Dow Jones Industrial Average above 7000 in February and over 8000 in July proved
to be the year's winners. These companies included Coca-Cola, International
Business Machines, General Electric and Gillette.
In terms of sector performance, financial services companies led the
market's record-smashing gains, as surging merger and acquisition activity
caused valuations to climb on these issues along with their prices.
In addition, telecommunications, cable, airline and electric-utility stocks
all posted particularly healthy returns for the year.
Technology stocks, however, accounted for a large number of the market's
most disappointing stocks in 1997. As weakening demand and declining profits
mounted, these stocks fell from their posi-
[TIME LINE APPEARS HERE]
Despite skepticism, the robust U.S. economy continues its momentum from 1996.
Dow Jones Industrial Average climbs to a record-breaking 7000.
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
In response to signs of rising inflation, the Federal Reserve raises the Federal
Funds Rate by .25%.
Technology stocks decline amidst worries about declining demand and profits.
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
Japanese stocks deliver strong returns in the second quarter.
8
<PAGE>
tion as one of the best performing groups in recent years to a lagging industry.
Worst hit were semiconductor companies, considered most vulnerable to a slump in
Asian demand for high-tech goods.
On the global front, political and financial turmoil throughout much of
Asia characterized international markets in 1997. An environment of spiraling
debt, asset deflation and collapsing economic growth caused a significant loss
of investor confidence, particularly in Thailand, Malaysia and Singapore.
Although Japan gained 22% during the second quarter, this increase occurred in
spite of the disarray in the country's financial sector and domestic economy.
The gain, however, was short-lived as the effects of the financial crisis in
other parts of Asia began to move into Japan.
Because the crisis in Asia was felt in other parts of the world,
international equity markets as a whole produced widely divergent results.
European markets were generally good performers, with Switzerland and Italy
finishing the year on top with returns in excess of 35%. In the United Kingdom,
strong corporate earnings results, particularly from the financial services
sector, proved to be the foundation for a solid year.
The emerging markets of Latin America and Eastern Europe, which had
experienced some spectacular gains during the first half of 1997, didn't escape
the impact of the Asian currency crisis. Throughout the first half of the year,
Latin American markets rose sharply, benefiting from the region's strong export
growth, low inflation, massive foreign capital inflows and surging local capital
markets. Most notably, Mexico performed with surprising resilience. But results
were pared back in the Fall as investors worried about the fundamental strength
of Latin American economies.
As 1998 begins, the outlook for the U.S. stock market is mixed. While a
steady U.S. economy with stable inflationary characteristics generally bodes
well for stocks, there is concern about the financial turmoil in Southeast Asia
and its potential affects on domestic equities. Given this outlook, more normal
returns from domestic stocks are forecast by many Wall Street analysts.
But several factors could disrupt international equity markets as well.
Tighter labor markets, slowing corporate earnings, deflationary pressure from
weak Asian currencies and the unknown effect of the upcoming European Monetary
Union in 1999 could all bring volatility. Many forecasters expect stock prices
to be torn between upward influences from lower interest rates which boost
price/earnings multiples and downward pressure from softening profits.
[TIME LINE APPEARS HERE]
The Dow Jones Industrial Average tops 8000 in one of the market's largest gains
of the year.
[GRAPHIC APPEARS HERE]
Consumer Price Index (CPI) indicates slowing inflation, posting one of the
lowest growth rates ever.
[GRAPHIC APPEARS HERE]
On Oct. 27, the Dow Jones plunges more than 550 points, the biggest point-drop
ever, shaking investor confidence.
[GRAPHIC APPEARS HERE]
Financial and political turmoil grips Asia, producing seven of the year's worst
performing markets.
Italy and Switzerland draw top honors for the year's best-performing global
markets for U.S. investors.
9
<PAGE>
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SELECT AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
INVESTMENT SUB-ADVISER:
Nicholas-Applegate Capital Management, L.P.
ABOUT THE FUND:
Invests in companies whose potential for rapidly growing earnings is not fully
reflected in their stock price.
PORTFOLIO COMPOSITION:
As of December 31, 1997, the sector allocation of net assets was:
[PIE CHART APPEARS HERE]
Technology 14%
Durable Goods 13%
Finance 11%
Computers and
Software 11%
Retail 10%
Energy 8%
Electronics 7%
Consumer Products 5%
Cash Equivalents 1%
Other 20%
The Select Aggressive Growth Fund is a portfolio of the Allmerica Investment
Trust.
Portfolio composition will vary over time.
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 Russell 2500 Index is an unmanaged composite of 2,500 small-to-mid
capitalization stocks. The Lipper Capital Appreciation Fund Average is a
non-weighted index of 233 funds within the capital appreciation investment
objective. 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.
The Select Aggressive Growth Fund returned 18.71% for the one-year period
ended December 31, 1997, yet trailed the 24.36% return of the Russell 2500 Index
for the same period.
Most of this Fund's underperformance occurred in the fourth quarter as the
effects of the Asian financial crisis pushed small- and mid-cap stocks sharply
lower, especially technology issues. Because the Fund had 25% of its holdings
allocated to technology-related sectors versus 16% for its Index, the downturn
in Asia hit the Fund rather hard. This overweighting, plus an exposure to
manufacturing and consumer services, two sectors which also suffered, were the
prime factors in the underperformance.
On the brighter side, stock selection in the financial services and energy
sectors benefited performance. Financial services holdings such as Bear Stearns
Cos. Inc., North Fork Bancorp, and Greenpoint Financial Corp., all reported
strong gains due to record-setting performance, earlier merger activity and
increased loan growth.
Despite concerns over oil price declines and the possibility of the United
Nations lifting the Iraqi trade embargo, energy stocks were also a bright spot
for the Fund. These stocks benefited from strong industry trends, healthy
business in oilfield services and increasing demand in contract drilling.
The Fund's managers outlook for 1998 is cautiously optimistic. While low
inflation, moderate growth and high employment rates continue to provide a
favorable backdrop for the U.S. economy, the Asian financial crisis poses a
threat to the global economy. Concerned about the effects this crisis could have
on U.S. companies' earnings, the Fund's managers anticipate an economic slowdown
in the U.S. in 1998. In fact, signs of this slowing demand from Asian buyers is
already evident in actions such as Thai Airways recently canceled airplane order
with Boeing.
As the U.S. economy slows, the Fund's managers believe that growth stocks
represent the most attractive potential. Because of their reliable earnings'
stream, these stocks have historically outperformed value stocks during similar
periods. In addition, small- and mid-cap stocks continue to exhibit excellent
growth rates and valuations, especially after four years of underperformance
relative to large-cap stocks.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE 1992
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Select Aggressive Russell 2500
Date Growth Fund Index
---- ----------------- ------------
8/92 $10,000 $10,000
12/97 $26,049 $26,057
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, 1997 One Year Five Years Life of Fund
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Select Aggressive Growth Fund 18.71% 16.80% 19.57%
Russell 2500 Index 24.36% 17.59% 19.60%
Lipper Capital Appreciation Fund Average 20.27% 15.17% 16.38%
</TABLE>
10
<PAGE>
- --------------------------------------------------------------------------------
SELECT CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
With a return of 14.28% for the one-year period ended December 31, 1997,
the Select Capital Appreciation Fund significantly underperformed the Russell
2500 Index of 24.36% for the same period.
Contributing to this Fund's underperformance was the continuing appeal of
large-cap stocks over small and mid-sized stocks and the disappointing
performance of certain industry sectors. As small- and mid-caps came under
tremendous pricing pressures, investors grew infatuated with more liquid issues
and favored larger global company stocks in the first half of the year. When
investors finally did focus on the small- and mid-sized stocks, it was mostly in
the technology and energy sectors, which were underweighted in this Fund.
Several investments within the Fund proved disappointing. In particular,
the Fund's holdings in the wireless communications, restaurant and discretionary
consumer services sectors did not perform as expected. This factor along with
underweighting key sectors, held back performance for the year. Consequently,
the Fund's superior performance from earlier periods was eroded.
As 1997 progressed, even seemingly good news for some of the Fund's top
holding didn't translate into expected results. Papa John's, Barnett and
Omnicare, for example, all experienced impressive sequential earnings growth.
But these stocks only received lukewarm response from the market. In addition,
Fastenal, a long-time holding, retraced earlier gains as a larger sales force
was required to market several of its newest products. Unanticipated expenses
from these added resources forced the company to miss earnings expectations,
which hurt the stock price.
Although 1997 was difficult, the Fund's manager has a positive long-term
outlook and continues to focus on companies that can deliver dramatic earnings
growth, regardless of economic conditions. If the economy slows as projected,
the Fund's manager believes that the market will take notice of these kinds of
companies and drive up the price of their stocks.
INVESTMENT SUB-ADVISER:
Janus Capital Corporation
ABOUT THE FUND:
The Fund seeks to construct a con-centrated portfolio of rapidly growing
reasonably valued stocks.
PORTFOLIO COMPOSITION:
As of December 31, 1997, the sector allocation of net assets was:
[PIE CHART APPEARS HERE]
Finance 14%
Foreign Common
Stocks 13%
Communications 11%
Retail 9%
Business
Services 8%
Health Services 8%
Consumer Services 6%
Electronics 6%
Cash and Equivalents 4%
Other 21%
The Select Capital Appreciation Fund is a portfolio of the Allmerica
Investment Trust.
Portfolio composition will vary over time.
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 Russell 2500 Index is an unmanaged composite of 2,500 small-to-mid
capitalization stocks. The Lipper Capital Appreciation Fund Average is a
non-weighted index of 233 funds within the capital appreciation investment
objective. 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.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE 1995
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
Select Capital Russell 2500
Date Appreciation Fund Index
----- ----------------- ------------
4/95 $10,000 $10,000
12/97 $17,352 $18,023
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, 1997 One Year Five Years Life of Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Select Capital Appreciation Fund 14.28% N/A 22.89%
Russell 2500 Index 24.36% 17.59% 24.24%
Lipper Capital Appreciation Fund Average 20.27% 15.17% 21.12%
</TABLE>
11
<PAGE>
- --------------------------------------------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ADVISER:
Rowe Price-Fleming International, Inc.
ABOUT THE FUND:
The Portfolio seeks long-term growth through
a highly diversified portfolio of foreign stocks.
PORTFOLIO COMPOSITION:
As of December 31, 1997, the geographic
allocation of net assets was:
[PIE CHART APPEARS HERE]
Japan 18%
United Kingdom 19%
Netherlands 10%
France 9%
Switzerland 7%
Germany 6%
Italy 4%
Brazil 4%
Sweden 3%
Spain 2%
Other 18%
Portfolio composition will vary over time.
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 Morgan Stanley EAFE Index is an unmanaged index of European, Australian
& Far East stocks. The Lipper International Fund Average is a non-weighted index
of 426 funds within the International Fund 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.
Despite Asian market volatility, the T. Rowe Price International Stock
Portfolio achieved a 3.09% return for the one-year period ended December 31,
1997. This outpaced the Morgan Stanley EAFE Index of 2.06% for the same period.
Political and financial turmoil throughout much of Asia characterized
international markets in 1997. Spiraling debt, asset deflation and collapsing
economic growth caused investors to lose confidence in this part of the world.
Against this backdrop, international equity markets produced widely
divergent results. European markets generally fared well, with Switzerland and
Italy ending the year as the best performers. Latin American markets rose
sharply despite their Asia-induced stumble at year-end. But results from Asia
were quite poor, as this area produced seven of the worst-performing equity
markets of the year.
Portfolio performance remained ahead of the benchmark in 1997. Positive
country allocation compensated for negative stock selection. Underweighted
holdings in Japan and overweighted positions in Latin America added value to the
Portfolio. These results, however, were eroded by an underweighting in the
United Kingdom and an overweighted position in smaller Asian markets during the
first half of the year.
The Portfolio's stock selection did not fare well this year. In Europe, the
managers' favorite growth picks in both the Netherlands and Germany started out
slow. However, stock selection in Japan added value as internationally
competitive manufacturing companies had a good year, primarily aided by a weaker
yen.
As the year progressed, the managers adjusted the Portfolio's allocations.
They reduced positions in European companies with substantial business in Asia.
They reduced exposure to Malaysia, Singapore and Hong Kong even further, selling
out of financial and real estate companies. In Latin America, the Portfolio's
managers took profits in Brazil and Argentina and added to media company,
Televisa in Mexico.
Looking ahead, the Portfolio's managers expect performance to be driven by
the European and Latin American equity markets. While they also believe there
could be brief rallies in some of the Asian markets, the structural problems
there may take years to resolve.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE 1994
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
T. Rowe Price Morgan Stanley
Date International Stock Portfolio EAFE Index
---- ----------------------------- --------------
3/94 $10,000 $10,000
12/97 $13,384 $12,815
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, 1997 One Year Five Years Life of Fund
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
T. Rowe Price International
Stock Portfolio 3.09% N/A 8.07%
Morgan Stanley EAFE Index 2.06% 11.71% 6.44%
Lipper International Fund Average 5.49% 12.10% 6.75%
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
SELECT INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
For the one-year period ended December 31, 1997 the Select International
Equity Fund returned 4.65%, outperforming the 2.06% return of the Morgan Stanley
EAFE Index for the same period.
Despite the financial turmoil in South East Asia and the Far East, global
equity markets fared well during 1997. Steady economic growth and low inflation
were the springboard for rising stock prices, especially in Europe. Switzerland
finished the year as the best-performing market. Solid returns were also posted
by the Dutch, Italian and German exchanges.
The Fund's manager uses a value-oriented thematic investment style. During
1997, the Positive Banking Environment theme added significant value to the
portfolio. Barclays Bank, for instance, was the biggest contributor to this
theme's performance. Banco de Santander also contributed favorably due to good
earnings news.
In the Health Care theme, Novartis, the Fund's largest holding, benefited
as the merger of Ciba Geigy and Sandoz proceeded better than expected. Glaxo
Wellcome also performed well as it announced plans to release new drugs in the
coming years to treat asthma, AIDS and migraines.
Consumer-oriented stocks also enjoyed strong results. Here, one of the
Fund's largest holdings, B.A.T Industries, added value by announcing plans to
merge its financial services divisions with Zurich Insurance Group. The proposed
merger will create an insurance giant with a market capitalization of $37
billion, making it the second largest insurer in Europe.
Looking ahead, the Fund's managers expect the recovery in Asia to take
time. They observe that because government leaders have been slow to admit the
extent of their problems, they have eroded investor confidence. The managers
believe, however, that selected companies in Japan that have restructured their
operations can deliver strong earnings growth despite worsening GDP forecasts.
The Fund's managers anticipates that the European Monetary Union will play
a strong role in equity market performance over the next few years. Increased
merger and acquisition activity is likely to create a favorable market,
particularly for financial, pharmaceuticals and telecommunications stocks.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE 1994
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Select Morgan Stanley
Date International Fund EAFE Index
----- ------------------ --------------
5/94 $10,000 $10,000
12/97 $14,733 $12,118
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, 1997 One Year Five Years Life of Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Select International Equity Fund 4.65% N/A 11.14%
Morgan Stanley EAFE Index 2.06% 11.71% 5.38%
Lipper International Fund Average 5.49% 12.10% 6.11%
</TABLE>
INVESTMENT SUB-ADVISER:
Bank of Ireland Asset Management
(U.S.) Limited
ABOUT THE FUND:
Seeks maximum long-term total return by investing in established non-U.S.
companies based on fundamental value and strong opportunities for growth.
PORTFOLIO COMPOSITION:
As of December 31, 1997, the geographic allocation of net assets was:
[PIE CHART APPEARS HERE]
United Kingdom 32%
Japan 16%
Switzerland 13%
Netherlands 10%
Germany 7%
Australia 6%
Singapore 4%
France 2%
Cash Equivalents 2%
Other 8%
The Select International Equity Fund is a portfolio of the Allmerica Investment
Trust.
Portfolio composition will vary over time.
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 Morgan Stanley EAFE Index is an unmanaged index of European, Australian &
Far East stocks. The Lipper International Fund Average is a non-weighted index
of 426 funds within the International Fund 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.
13
<PAGE>
- --------------------------------------------------------------------------------
FIDELITY VIP* GROWTH PORTFOLIO
- --------------------------------------------------------------------------------
INVESTMENT ADVISER:
Fidelity Management & Research Company
ABOUT THE FUND:
The Portfolio seeks long-term capital appreciation by investing principally in
common stocks with above-average growth prospects.
PORTFOLIO COMPOSITION:
As of December 31, 1997, the sector allocation of net assets was:
[PIE CHART APPEARS HERE]
Technology 21%
Health Care 17%
Finance 10%
Non-Durables 9%
Retail & Wholesale 9%
Media & Leisure 8%
Energy 7%
Utilities 5%
Industrial
Machine & Equipment 2%
Services 2%
Cash Equivalents 5%
Other 5%
Portfolio composition will vary over time.
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 S&P 500(R) Index is an unmanaged index of 500 leading stocks. S&P 500(R)
Index is a registered trademark of the Standard & Poor's Corporation. The Lipper
Capital Appreciation Fund Average is a non-weighted index of 233 capital
appreciation mutual funds. 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.
Posting a gain of 23.48% for the one-year period ended December 31, 1997,
the Fidelity VIP* Growth Portfolio outpaced the 20.27% return of the Lipper
Capital Appreciation Fund Average but trailed the S&P 500(R) Index of 33.35% for
the same period.
As the U.S. economy continued its advance from 1996, it was characterized
by modest expansion, low inflation, and declining unemployment in 1997, all of
which boded well for the U.S. equity market.
Throughout the year, large-cap securities dominated the market. During the
second half, this trend was reinforced as the financial crisis in Asia fostered
concerns over the health of the global economy and sent investors fleeing toward
the megacap portion of the market.
More specifically, investors seemed to focus on the value segment of large
caps as the Russell 1000 Value Index outpaced the Russell 1000 Growth Index by
2.24%. For example, the financial services sector, typically aligned with the
value end of the market, turned in tremendous year-long performance. By contrast
the technology sector, dominated by growth stocks, suffered a dramatic downturn
in the fourth quarter, as turmoil spread throughout the Asian markets.
Given this scenario, the Portfolio's return was impacted by disappointing
stock selection in the technology sector, which included positions in the
depressed networking group. Stocks such as Cisco Systems, Intel and Oracle
suffered large declines during the first quarter based on concerns over
weakening demand. Although the Portfolio benefited from this sector's strong
rebound during the third quarter, investors eventually rotated out of the
technology sector altogether in the wake of the crisis in the Far East.
A significant underweighting in finance companies also held back
performance. Although this sector benefited from consolidations and declining
interest rates during the year, the underweighted position caused the Portfolio
to miss out on fully capturing these gains.
In keeping with the Portfolio's investment objective, the managers will
continue to seek long-term capital appreciation by investing in common stocks
with solid growth prospects.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE 1987
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
S&P
Fidelity VIP 500
Date Growth Portfolio Index
---- ---------------- -----
12/87 $10,000 $10,000
12/97 $48,846 $52,448
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, 1997 One Year Five Years Ten Years
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity VIP* Growth Portfolio 23.48% 18.00% 17.19%
S&P 500(R)Index 33.35% 20.25% 18.02%
Lipper Capital Appreciation Fund Average 20.27% 15.17% 14.47%
*VIP refers to Variable Insurance Products Fund.
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
SELECT GROWTH FUND
- --------------------------------------------------------------------------------
With an outstanding return of 34.06% for the one-year period ended December
31, 1997, the Select Growth Fund outperformed both the Lipper Growth Fund
Average of 25.18% and the 33.35% return of the S&P 500(R) Index for the same
period.
After a first quarter tightening of interest rates by the Federal Reserve,
the economy settled into a slow-growth, low-inflation pattern. Both interest
rates and long-bond yields fell, creating ideal conditions for the U.S. stock
market to flourish, albeit in the face of developing weakness in Asia.
As concern regarding the Asian economic slowdown and its effect on
corporate earnings mounted, volatility increased, punctuated by a 7% decline on
October 27th. This uneasiness prompted investors to favor large-cap stocks, as
they had for much of 1997, specifically in domestic industries.
Given this backdrop, the Fund captured performance from several sources. An
overweighting in top-performing sectors, such as finance and consumer products,
proved favorable as did strong stock selection among banks and computer
software.
The Fund's outperformance can also be attributed to maintaining
underweighted positions in lagging sectors, such as energy and basic industry,
strong stock selection even in these groups aided performance for the year.
Two key allocation decisions hindered the Fund's performance in 1997.
First, it was overweighted in the technology sector, which retreated in the
fourth quarter. It also maintained an underweighted position in utilities, which
staged a late-year rally. Some of the Fund's holdings in cyclical industries
were also a drag on performance.
The Fund's managers continue to identify corporations whose earnings growth
can sustain the uncertainties of the global economy, yet benefit from U.S.
economic growth. The managers continue to overweight holdings in technology,
though less heavily than previously. They are also overweighting exposure to
finance, major pharmaceuticals and consumer products, such as retail, lodging
and publishing.
Conversely, the managers are reducing exposure to health services, energy,
capital goods and basic industry, as they predict that the less-than-robust
global outlook could mar performance of these cyclicals.
- --------------------------------------------------------------------------------
GROWTH OF A $10,000 INVESTMENT SINCE 1992
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Date Select Growth Fund S&P 500 Index
- ---- ------------------ -------------
8/92 $10,000 $10,000
12/97 $22,522 $26,715
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31, 1997 One Year Five Years Life of Fund
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Select Growth Fund 34.06% 15.15% 16.37%
S&P 500(R)Index 33.35% 20.25% 20.23%
Lipper Growth Fund Average 25.18% 16.44% 17.51%
</TABLE>
INVESTMENT SUB-ADVISER:
Putnam Investment Management, Inc. (Sub-Adviser since 7/1/96.)
ABOUT THE FUND:
Seeks long-term growth of capital by investing in stocks of companies believed
to have significant potential for capital appreciation.
PORTFOLIO COMPOSITION:
As of December 31, 1997, the sector allocation of net assets was:
[PIE CHART APPEARS HERE]
Finance 18%
Durable Goods 14%
Chemicals and Drugs 12%
Retail 12%
Technology 8%
Consumer Products 7%
Energy 4%
Food and Beverage 4%
Cash Equivalents 2%
Other 19%
The Select Growth Fund is a portfolio of the Allmerica Investment Trust.
Portfolio composition will vary over time.
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 S&P 500(R) Index is an unmanaged index of 500 leading stocks. S&P 500(R)
Index is a registered trademark of the Standard & Poor's Corporation. The Lipper
Growth Fund Average is a non-weighted index of 833 funds within the growth
investment objective. 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.
15
<PAGE>
- --------------------------------------------------------------------------------
FIDELITY VIP* EQUITY-INCOME PORTFOLIO
- --------------------------------------------------------------------------------
The Fidelity VIP Equity-Income Portfolio returned 28.11% for the one-year
period ended December 31, 1997, trailing the S&P 500(R) Index of 33.35% but
staying ahead of the Lipper Equity Income Average of 27.44% for the same period.
Investors began 1997 fearful of a major market correction and worried about
inflation. By the end of the first quarter, the Federal Reserve raised interest
rates in a preemptive strike against inflation and an overheating economy.
While the U.S. economy grew at a steady pace for much of the year, market
volatility increased during the third quarter. First, currency devaluation in
Thailand set the stage for broader economic problems in other Asian markets.
Then, on October 27th, the Dow Jones Industrial Average sank 554 points as the
"Asian flu" spread across the globe. Despite this late-year market volatility,
the S&P gained over 20% for a third consecutive year.
The main contributor to the Portfolio's performance for the year was an
overweighted position in the top-performing finance sector. Good stock selection
in names like Fannie Mae and BankAmerica helped significantly. The technology
sector, however, was hit hard late in the year as Asian turmoil cut into profit
growth expectations. Because the Portfolio was underweighted in technology
throughout the year, this position ultimately helped performance when this
sector dipped in the fourth quarter. The Portfolio also benefited from an
underweighted position in durables.
A modest cash position of just over 4% for the year, proved to be a drag on
performance in such a strong market. Poor stock selection and an underweighted
position in the health care sector also hurt performance, as did overweighting
the basic industries and energy sectors which underperformed the market. Poor
stock selection in the media and leisure sector also hurt performance.
The VIP Equity-Income Portfolio seeks reasonable income by investing
primarily in income-producing equity securities. As of the end of 1997, the
Portfolio was overweighted in the finance, aerospace/defense and energy sectors
and underweighted in technology, non-durables, health care and utilities.
GROWTH OF A $10,000 INVESTMENT SINCE 1987
[GRAPH APPEARS HERE]
Fidelity
Equity-Income S&P 500
Date Fund Index
---- ------------- -------
12/87 $10,000 $10,000
12/97 $46,943 $52,448
AVERAGE ANNUAL TOTAL RETURNS
Years ended December 31, 1997 One Year Five Years Ten Years
- -----------------------------------------------------------------------------
Fidelity VIP* Equity-Income Portfolio 28.11% 20.16% 16.72%
S&P 500(R) Index 33.35% 20.25% 18.02%
Lipper Equity Income Fund Average 27.44% 17.00% 14.65%
*VIP refers to Variable Insurance Products Fund.
INVESTMENT ADVISER:
Fidelity Management & Research Company
ABOUT THE FUND:
Seeks reasonable income by investing
primarily in income-producing equity
securities.
PORTFOLIO COMPOSITION:
As of December 31, 1997 the sector
allocation of net assets was:
[PIE CHART APPEARS HERE]
Finance 23%
Energy 12%
Utilities 7%
Non-Durables 7%
Health 7%
Basic Industries 7%
Industrial Machine and Equipment 6%
Aerospace and Defense 6%
Media and Leisure 5%
Retail and Wholesale 4%
Cash Equivalents 5%
Other 11%
Portfolio composition will vary over time.
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 S&P 500(R) Index is an unmanaged index of 500 leading stocks. S&P 500(R)
Index is a registered trademark of the Standard & Poor's Corporation. The Lipper
Equity Income Fund Average is a non-weighted average of 183 funds seeking high
current income and growth of income by investing more than 60% of its portfolio
in equities. 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.
16
<PAGE>
- --------------------------------------------------------------------------------
SELECT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
For the one-year period ended December 31, 1997, the Select Growth and
Income Fund returned 22.51%, yet trailed the Lipper Growth and Income Fund
Average of 26.99% for the same period.
Although the stock market delivered its third year of positive returns,
1997 proved to be a challenging time for this Fund. The overall market
demonstrated continued strength, but in a tiered fashion with the very largest
companies producing some of the best returns. Stocks of industry leaders sold at
ever higher premiums and increasingly higher multiples of earnings, while
dividend yields reached historically low levels.
During the year the Fund followed its long-term, value-oriented strategy of
selling holdings that had appreciated and buying issues that were relatively
undervalued. A number of equities in the media and communications sectors such
as U.S. West Media Group, Airtouch Communications and Time-Warner, performed
well. Some utility stocks, such as Bell Atlantic, turned in strong performance
too, as investors sought to distance themselves from cyclical and foreign
exposure.
Selective utility issues such as Consolidated Edison and Long Island
Lighting both represented value for the Fund due to merger and restructuring
activities. Texas Utilities also appeared undervalued -- and a good buy for the
Fund -- relative to other utilities in high population growth areas.
The Fund's managers outlook for 1998 is mixed. While they believe that a
number of global economic conditions could result in lower than expected
corporate earnings, they also foresee positive long-term factors, which could
contribute upward momentum to the market.
Given these predictions, the Fund's managers remain committed to a
disciplined investment strategy. They are focused on constructing the portfolio
to capture major portions of rising markets while resisting market declines. In
so doing, they continue to seek a combination of long-term growth of capital and
current income, primarily through dividend-paying stocks and convertible
securities.
GROWTH OF A $10,000 INVESTMENT SINCE 1992
[GRAPH APPEARS HERE]
Select S&P
Growth & 500
Date Income Fund Index
---- ----------- -----
8/92 $10,000 $10,000
12/97 $21,501 $26,715
AVERAGE ANNUAL TOTAL RETURNS
Years ended December 31, 1997 One Year Five Years Life of Fund
- -----------------------------------------------------------------------------
Select Growth and Income Fund 22.51% 16.57% 15.36%
S&P 500(R) Index 33.35% 20.25% 20.23%
Lipper Growth & Income Fund Average 26.99% 17.53% 17.90%
INVESTMENT SUB-ADVISER:
John A. Levin & Co., Inc.
ABOUT THE FUND:
Seeks a combination of long-term growth of capital and current income by
investing primarily in dividend-paying stocks and convertible securities.
PORTFOLIO COMPOSITION:
As of December 31, 1997, the sector allocation of net assets was:
[PIE CHART APPEARS HERE]
Finance 13%
Chemicals and Drugs 12%
Consumer Staples 8%
Utilities 7%
Aerospace-Airlines 7%
Printing and Publishing 7%
Technology 6%
Energy 6%
Corporate Bond and Notes 5%
Other 29%
The Select Growth and Income Fund is a portfolio of the Allmerica Investment
Trust.
Portfolio Composition will vary over time.
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 S&P 500(R) Index is an unmanaged index of 500 leading stocks. S&P 500(R)
Index is a registered trademark of the Standard & Poor's Corporation. The Lipper
Growth & Income Fund Average is a non-weighted index of 624 funds within the
growth and income investment objective. 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.
17
<PAGE>
BOND & MONEY MARKET OVERVIEW
1992: Government and corporate bonds outperform the stock market.
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.
1997 proved to be a very good year for bond investors. Falling inflation,
declining interest rates and a healthy economy were just some of the key factors
contributing to the positive market environment.
During 1997, fixed income markets enjoyed outstanding results. The year
began cautiously as economic indicators showed robust growth and favorable
employment continuing from 1996. This prompted the Federal Reserve Board to
increase the Federal Funds Rate by 25 basis points to 5.50% in a preemptive
strike against inflation. The move proved to be successful and rates were left
unchanged for the remainder of the year, as economic indices continued to
exhibit signs of a strong economy, with little evidence of inflation.
As economic growth continued at a strong pace, the budget deficit began to
evaporate. This decreased the need for Treasury financing in the bond market and
fostered lower yields. These factors led to a strong rally and as prices rose,
interest rates on the thirty-year bond, declined from 6.64% at the start of the
year to 5.92% by year-end.
Increased activity in the fixed income markets also surfaced in the third
quarter when the August consumer price index (CPI) indicated the lowest rate of
inflation since May 1966. The announcement sparked a strong rally in the bond
market. Later in the year, investor concerns about the financial crisis in Asia
- -- and its possible effects on the domestic economy -- also caused bonds to
rally as nervous investors once again retreated from the stock market in favor
of bonds.
In terms of performance, bond investors enjoyed their best gains since 1995
largely because of low inflation and decreasing interest rates. For instance,
the
[TIME LINE APPEARS HERE]
Convinced domestic growth will slow from 1996 levels, investors favor bonds at
the start of the year.
[GRAPHIC APPEARS HERE]
Signs of a strong economy raise fears over increasing interest rates and the
market softens.
To ward off inflation, the Federal Reserve raises interest rates .25%. In
response, the bond market declines.
[GRAPHIC APPEARS HERE]
The budget deficit significantly declines, decreasing the need for Treasury
financing. The bond market rallies.
[GRAPHIC APPEARS HERE]
Stable-to-declining interest rates bode well for corporate and high-yield bonds
as well as mortgage-backed securities.
18
<PAGE>
Lehman Brothers Aggregate Bond Index turned in an impressive 9.65% total
return for the year, up considerably from 1996's dismal showing of 3.61%. Longer
maturity bonds did quite well and 30-year U.S. Treasury bonds returned as much
as 15% this year. Investment-grade bonds and high-yield issues also rewarded
investors with gains of 9.7% and 13.2% respectively. Strong returns in both the
bond and stock markets caused some investors to review the asset mix of their
portfolios. Many large institutions tended to favor bonds later in the year to
rebalance their portfolios, take advantage of rising prices and avoid what they
judged to be an overvalued stock market.
Overall winners for the year were corporate, high-yield and emerging market
bonds. Amid the turmoil in world markets, high-grade U.S. bonds emerged as an
attractive investment later in the year.
Even the money market, which was generally characterized by stability
during 1997, produced solid returns. At year-end, the average yield on a
one-year Treasury Bill was 5.48%, essentially even with the 5.49% yield at the
end of 1996 but only 0.44% less than the yield on a 30-year Treasury bond.
Banking issues in Japan and currency problems in many Asian countries increased
the demand for domestic commercial paper and certificates of deposits as
investors felt more comfortable investing in high-quality issues.
Going forward, the fundamentals of the bond market remain intact. Inflation
is under control and the strong dollar encourages foreign investors to buy U.S.
bonds. And even though unemployment is at a 24-year low and wages are climbing,
productivity gains appear to be keeping a lid on prices.
Despite these strong underpinnings, industry experts point out that there
is limited capital appreciation potential for bonds due to falling interest
rates. Rates are not expected to move significantly lower unless real weakness
in the economy emerges and the prospect of interest rate cuts by the Federal
Reserve develops. The outlook for bond investors then, focuses on their yield
which continues to deliver strong real returns to investors in this low
inflation environment.
While the outlook for the bond and money markets remains generally
favorable, the European Monetary Union slated to take place in January 1999
could emerge as an important issue during the latter part of this year. At that
point, investors will have to consider the possibility that a strong union could
hurt the U.S. dollar and dollar-denominated bonds.
[TIME LINE APPEARS HERE]
[GRAPHIC APPEARS HERE]
CPI indicates the lowest rate of inflation since May 1966 which causes the bond
market to rally.
[GRAPHIC APPEARS HERE]
Institutional investors take advantage of rising bond prices, avoiding what they
consider to be an overvalued stock market.
[GRAPHIC APPEARS HERE]
Concerns grow over the crisis in Asian markets and its possible effect on the
U.S. economy. Investors flee to high-quality U.S. bonds.
Bond investors enjoy their best gains since 1995 largely due to low inflation
and stable to declining interest rates.
19
<PAGE>
- --------------------------------------------------------------------------------
FIDELITY VIP* HIGH INCOME PORTFOLIO
- --------------------------------------------------------------------------------
For the twelve-month period ended December 31, 1997, the 17.67% return of
the Fidelity VIP* High Income Portfolio handily outperformed the Lipper High
Current Yield Fund Average of 12.96% for the same period.
During the past year, favorable sector performance fueled the Portfolio's
results. The telecommunications area, in particular, led the way as it met with
success on various fronts, including cellular, satellite communications and
competitive local exchange carriers (CLEC).
For example, Millicom, an emerging market cellular service provider,
appreciated when it announced a restructuring designed to maximize shareholder
value. Similarly, satellite companies Orion and Panamsat rose as they also
underwent restructuring in an effort to improve earnings. CLECs, such as
Nextlink, Intermedia and Hyperion, all successfully installed and acquired
customers for their fiber optic networks.
The media and cable sectors were also strong contributors to performance.
Radio companies were by far the best performers as a flurry of takeovers boosted
valuations in the industry. Alternative audio and video programming delivery
methods, such as direct broadcast satellite and wireless cable companies, were
also in the limelight as they challenged traditional cable companies. In
addition, Echostar, a direct-broadcast satellite company, appreciated given its
revenue and subscriber growth, and its decision to merge with a joint venture
between News Corp. and MCI Communications.
On the downside, individual credit deterioration accounted for a few
performance shortfalls during the year. However, their collective impact on the
Portfolio was relatively small.
At the end of 1997, the Portfolio's managers made some modest adjustments
in the Portfolio's allocations. They've increased exposure in major industry
sectors, particularly finance, telecommunications, paper, energy and gaming
while reducing positions in cable and broadcasting. Credit quality in the
Portfolio remains unchanged from December 1996, while the equity position has
declined.
GROWTH OF A $10,000 INVESTMENT SINCE 1987
[LINE GRAPH APPEARS HERE]
Fidelity VIP* High Salomon Brothers
Date Income Portfolio High-Yield Index
---- ---------------- ----------------
12/87 $10,000 $10,000
12/97 $33,378 $31,470
AVERAGE ANNUAL TOTAL RETURNS
Years ended December 31, 1997 One Year Five Years Ten Years
- -----------------------------------------------------------------------------
Fidelity VIP* High Income Portfolio 17.67% 13.91% 12.81%
Salomon Brothers High-Yield Index 13.18% 11.81% 12.13%
Lipper High Current Yield Fund Average 12.96% 11.36% 10.66%
*VIP refers to Variable Insurance Products Fund.
INVESTMENT ADVISER:
Fidelity Management & Research Company
ABOUT THE FUND:
Seeks high income and growth of capital by investing primarily in high-yielding,
lower-rated, fixed-income securities.
PORTFOLIO COMPOSITION:
As of December 31, 1997 the sector allocation of net assets was:
[PIE CHART APPEARS HERE]
Equities 23%
Telecommunications 20%
Cable TV 9%
Broadcasting 6%
Paper 5%
Hotel/Gaming 4%
Energy 4%
Publishing/Printing 4%
Aero/Elec/Computer 4%
Diversified Media 3%
Cash Equivalents 9%
Other 9%
Portfolio composition will vary over time.
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 Salomon Brothers High-Yield Index tracks the performance of high yield
securities trades in the U.S. Bond Market. The Lipper High Current Yield Fund
Average is a non-weighted average of 181 funds that seek high current yield from
fixed income securities. 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.
20
<PAGE>
- --------------------------------------------------------------------------------
SELECT INCOME FUND
- --------------------------------------------------------------------------------
With a total return of 9.17% for the one-year period ended December 31,
1997, the Select Income Fund slightly trailed the return of the Lehman Brothers
Aggregate Bond Index of 9.65% for the same period.
Following a difficult first quarter, each of the succeeding quarters of
1997 led to strong returns for the fixed income market. The Asian financial
crisis, which developed during the fourth quarter, summoned investors to leave
their emerging market investments for the safety of U.S. Treasuries.
To benefit from market activity, the managers dramatically repositioned
several of this Fund's holdings during the year. First, the low interest rate
environment caused a surge of prepayments and refinancing and dampened near-term
prospects for mortgage investments. As a result, the Fund's exposure to this
sector was reduced from 29% to 15%. Instead, the managers began to favor U.S.
Treasuries and Agencies and increased holdings in this sector from 16% to 19%.
Significant changes were also made to the Fund's corporate bond component,
which is now its largest segment. While the managers believe that the current
economic recovery will continue, they have altered the investment structure of
the Fund to reflect the potential long-term impact of the Asian financial
crisis. Industrial exposure, which previously dominated holdings in this sector
was reduced from 9% to 4%, and finance holdings were increased from 20% to 22%.
Because the Fund's managers believe interest rates will test historical
lows, they have increased the Fund's sensitivity to changes in interest rates
while continuing to purchase intermediate-term bonds with three-to-twelve year
maturities.
In looking ahead, the Fund's managers foresee favorable prospects for
continued strength in the bond market. Bond investors have benefited from the
best of all worlds with a moderating economic outlook, continued low inflation
and no further increases expected in the Federal Funds rate. Although the market
will remain volatile, the managers continue to have a positive outlook for bonds
during the coming year.
GROWTH OF A $10,000 INVESTMENT SINCE 1992
[GRAPH APPEARS HERE]
Select Income Lehman Brothers
Date Fund Government Bond Fund
---- ------------- --------------------
8/92 $10,000 $10,000
12/97 $14,018 $14,553
AVERAGE ANNUAL TOTAL RETURNS
Years ended December 31, 1997 One Year Five Years Life of Fund
- -----------------------------------------------------------------------------
Select Income Fund 9.17% 6.86% 6.51%
Lehman Brothers Aggregate Bond Index 9.65% 7.48% 7.29%
Lipper Intermediate Investment Grade
Fund Average 8.57% 6.77% 6.55%
INVESTMENT SUB-ADVISER:
Standish, Ayer & Wood, Inc.
ABOUT THE FUND:
The Fund seeks above-average income from corporate bonds, mortgages and bonds
issued by the U.S. Government.
PORTFOLIO COMPOSITION:
As of December 31, 1997, the sector allocation of net assets was:
[PIE CHART APPEARS HERE]
Corporate Notes and Bonds 49%
U.S. Treasuries and Agencies 19%
Mortgage-Backed Securities 15%
Asset-Backed Securities 6%
Cash Equivalents 11%
The Select Income Fund is a portfolio of the Allmerica Investment Trust.
Portfolio composition will vary over time.
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 all fixed rate debt issues with an invested grade
rating at least one year to maturity and an outstanding par value of at least
$100 million. Lipper Intermediate Investment Grade Fund Average tracks the
performance of 195 funds investing in intermediate-term corporate and government
debt securities. 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.
21
<PAGE>
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
For the one-year period ended December 31, 1997, the Money Market Fund
posted a 5.47% return significantly outpacing the Lipper Money Market Fund
Average return of 4.90% for the same period.
The money market was generally characterized by stability during 1997. As
economic indicators showed robust growth and favorable employment continuing
from 1996 into the beginning of the new year, the Federal Reserve Board moved to
increase Federal Funds Rate by 25 basis points to 5.50%. These rates were left
unchanged for the remainder of the year as economic indices continued to exhibit
signs of a strong, yet stable economy.
Later in the year, concerns about the potential impact of the financial
crisis in Asia -- and its possible effects on the domestic economy -- led to a
rally in the bond market. Banking issues in Japan and currency problems in many
Asian countries increased the demand for domestic commercial paper and
certificates of deposits as investors felt more comfortable investing in
high-quality paper. Thus, prices rose and the yields on those assets declined
quite rapidly.
To take advantage of this rally, the Fund's managers invested the Fund's
assets in top-tier commercial paper, agency discount notes, repurchase
agreements and floating rate notes. The portfolio also maintained a longer
average weighted maturity than the Fund's benchmark to capture incremental yield
in a declining interest rate environment.
Currently, the portfolio is concentrated in commercial paper and has a 27%
position in floating rate notes which the managers believe adds yield for the
Fund.
Throughout 1997, the Fund's managers focused on three primary investment
objectives: preserving capital, maintaining liquidity and seeking attractive
current income. As 1998 begins, the Money Market Fund is structured to
capitalize on short-term technical factors. For example, the quarterly funding
of the U.S. Treasury often causes rates to rise for a brief period. This
sometimes creates a good investment opportunity for nimble, short-term
investors.
GROWTH OF A $10,000 INVESTMENT SINCE 1987
IBC/Donoghue
Money First Tier
Market Money Market
Fund Index
------ ------------
12/87 $10,000 $10,000
12/97 $12,569 $16,344
[GRAPH APPEARS HERE]
AVERAGE ANNUAL TOTAL RETURNS
Years ended December 31, 1997 One Year Five Years Ten Years
- -----------------------------------------------------------------------------
Money Market Fund 5.47% 4.71% 5.80%
IBC/Donoghue First Tier Money
Market Index 5.01% 4.33% 5.44%
Lipper Money Market Fund Average 4.90% 4.31% 5.40%
INVESTMENT SUB-ADVISER:
Allmerica Asset Management, Inc.
ABOUT THE FUND:
Strives to maximize current income for investors with preservation of capital
and liquidity.
PORTFOLIO COMPOSITION:
As of December 31, 1997, the sector allocation of net assets was:
[PIE CHART APPEARS HERE]
Cash Equivalents 35%
U.S. Government and Agency Obligations 10%
Repurchase Agreements 10%
Corporate Notes and Bonds 28%
Other 17%
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 303
funds within the Money Market category.
22
<PAGE>
Financials
<PAGE>
This page intentionally left blank.
<PAGE>
- --------------------------------------------------------------------------------
SELECT AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS . December 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
- --------------------------------------------------------------------------------
COMMON STOCKS - 98.85%
Technology - 13.55%
125,900 Adaptec, Inc.* $ 4,674,038
170,900 AirTouch Communications, Inc.* 7,103,031
184,900 Applied Materials, Inc.* 5,570,113
221,700 Avid Technology, Inc.* 5,930,475
216,700 Cirrus Logic, Inc. 2,302,438
142,750 Compaq Computer Corp.* 8,056,453
309,886 Creative Technology, Ltd.* 6,289,911
167,100 EMC Corp.* 4,584,806
274,400 Helix Technology Corp. 5,350,800
28,600 Microsoft Corp.* 3,696,550
158,000 Natural Microsystems Corp. 7,347,000
120,124 Network Associates, Inc.* 6,351,557
150,700 Orbotech, Ltd.* 4,803,563
141,600 Yahoo!, Inc.* 9,805,800
--------------
81,866,535
--------------
Durable Goods - 12.61%
97,500 Ameritech Corp.* 7,848,750
162,900 Arvin Industries, Inc. 5,426,606
122,500 Caterpillar, Inc. 5,948,906
141,000 CIBER, Inc.* 8,178,000
117,200 Cooper Cameron Corp.* 7,149,200
131,300 Dana Corp. 6,236,750
142,000 Federal-Mogul Corp. 5,751,000
95,200 General Motors Corp. 5,771,500
229,800 Jabil Circuit, Inc.* 9,134,550
123,700 Tellabs, Inc.* 6,540,638
383,000 Varco International, Inc.* 8,210,563
--------------
76,196,463
--------------
Computers and Software - 11.26%
122,400 BMC Software, Inc.* 8,032,500
253,600 Cadence Design Systems, Inc.* 6,213,200
107,400 Citrix Systems, Inc.* 8,162,400
373,200 Compuware Corp.* 11,942,400
104,400 Comverse Technology, Inc.* 4,071,600
125,800 Dell Computer Corp.* 10,567,200
212,000 PeopleSoft, Inc.* 8,268,000
166,800 Pomeroy Computer Resources, Inc. 2,960,700
107,200 Quantum Corp.* 2,150,700
440 Siebel Systems, Inc.* 18,384
245,200 Smart Modular Technologies, Inc.* 5,639,600
--------------
68,026,684
--------------
Finance - 10.95%
113,570 Bear Stearns Cos., Inc. 5,394,575
135,100 Capital One Financial Corp. 7,320,731
149,800 Equitable Cos., Inc. 7,452,550
94,700 Greenpoint Financial Corp. 6,871,669
231,875 MBNA Corp. 6,333,086
218,000 Mutual Risk Management, Ltd.* 6,526,375
206,500 North Fork Bancorp., Inc. 6,930,656
109,600 State Street Corp. 6,377,350
140,600 Torchmark Corp. 5,913,988
130,449 Travelers Group, Inc. 7,027,940
--------------
66,148,920
--------------
Retail - 10.46%
170,500 Costco Cos., Inc.* 7,608,563
290,700 Fingerhut Cos., Inc. 6,213,713
167,100 Fleming Cos., Inc. 2,245,406
124,100 Jones Apparel Group, Inc.* 5,336,300
215,600 Michaels Stores, Inc.* 6,306,300
109,900 Payless Shoesource, Inc.* 7,377,038
364,200 Pier 1 Imports, Inc. 8,240,025
262,000 Ross Stores, Inc. 9,530,250
286,200 Stride Rite Corp. 3,434,400
200,400 TJX Cos., Inc. 6,888,750
--------------
63,180,745
--------------
Energy - 7.56%
86,400 BJ Services Co.* 6,215,400
118,400 Cliffs Drilling Co.* 5,905,200
238,200 Global Marine, Inc.* 5,835,900
244,700 Marine Drilling Cos., Inc.* 5,077,525
211,300 Pool Energy Services Co.* 4,701,425
115,200 Tidewater, Inc. 6,350,400
106,800 USX-Marathon Group 3,604,500
202,100 Veritas DGC, Inc.* 7,982,950
--------------
45,673,300
--------------
Electronics - 6.56%
254,500 American Power Conversion Corp.* 6,012,563
243,900 Cellstar Corp. 4,847,513
133,300 Dallas Semiconductor Corp. 5,431,975
395,000 Digital Microwave Corp.* 5,727,500
64,100 Electronics For Imaging, Inc.* 1,065,663
102,300 Philips Electronics NV,
New York Shares* 6,189,150
144,000 Vitesse Semiconductor Corp.* 5,436,000
208,900 VLSI Technology, Inc.* 4,935,263
--------------
39,645,627
--------------
Consumer Products - 5.21%
234,100 Best Buy Co., Inc.* 8,632,438
250,100 Intimate Brands, Inc. 6,018,031
219,900 Nautica Enterprises, Inc.* 5,112,675
175,000 Safeskin Corp.* 9,931,250
42,500 Sunbeam Corp. 1,790,313
--------------
31,484,707
--------------
See Notes to Financial Statements.
- --------------------------------------------------------
F-1
<PAGE>
- --------------------------------------------------------------------------------
SELECT AGGRESSIVE GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, Continued . December 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
- --------------------------------------------------------------------------------
Consumer Staples - 3.48%
104,900 Danaher Corp.* $ 6,621,813
139,700 Dexter Corp. 6,033,294
144,600 Interstate Bakeries Corp. 5,404,425
27,500 McKesson Corp.* 2,975,147
--------------
21,034,679
--------------
Health Services - 3.39%
220,900 General Nutrition Cos., Inc.* 7,510,600
159,500 HBO & Co. 7,656,000
97,900 Immunex Corp.* 5,286,600
--------------
20,453,200
--------------
Transportation Services - 3.34%
120,600 Airborne Freight Corp. 7,492,275
160,300 CNF Transportation, Inc. 6,151,513
259,900 Yellow Corp.* 6,529,988
--------------
20,173,776
--------------
Aerospace-Airlines - 2.32%
141,400 Continental Airlines, Inc., Class B* 6,804,875
144,400 Northwest Airlines Corp., Class A* 6,913,150
6,071 Raytheon Co., Class A* 299,371
--------------
14,017,396
--------------
Capital Goods - 2.13%
54,400 Nacco Industries, Inc., Class A 5,831,000
283,800 Navistar International Corp.* 7,041,788
--------------
12,872,788
--------------
Chemicals And Drugs - 1.55%
247,300 Lyondell Petrochemical Co. 6,553,450
54,900 Medicis Pharmaceutical Corp.,
Class A* 2,806,763
--------------
9,360,213
--------------
Metals And Mining - 1.37%
576,000 Bethlehem Steel Corp.* 4,968,000
192,200 Inland Steel Industries, Inc. 3,291,425
--------------
8,259,425
--------------
Consumer Cyclical - 1.17%
136,800 EVI, Inc.* 7,079,400
--------------
Real Estate - 1.05%
143,200 Fairfield Communities, Inc.* 6,318,700
--------------
Recreational Equipment - 0.72%
78,500 Anchor Gaming* 4,376,375
--------------
Consumer Service - 0.17%
26,100 Robert Half International, Inc.* 1,044,000
--------------
Total Common Stocks 597,212,933
(Cost $469,887,665) --------------
Par
Value
---------
COMMERCIAL PAPER (A) - 0.62%
$3,752,000 American Express Credit Corp.
6.65% 01/02/98 3,751,307
--------------
Total Commercial Paper 3,751,307
(Cost $3,751,307) --------------
Shares
----------
INVESTMENT COMPANIES - 0.33%
3,757 ILA Prime Obligation Money
Market Fund 3,757
1,971,906 ILA Prime Obligation Portfolio
Fund, Class B 1,971,906
--------------
Total Investment Companies 1,975,663
(Cost $1,975,663) --------------
Total Investments - 99.80% 602,939,903
(Cost $475,614,635) --------------
Net Assets and Other Liabilities - 0.20% 1,183,258
--------------
Net Assets - 100.00% $ 604,123,161
==============
- ----------------------------------------
* Non income producing security.
(A) Effective yield at time of purchase.
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At December 31, 1997, the aggregate cost of investment securities for tax
purposes was $475,614,635. Net unrealized appreciation (depreciation) aggregated
$127,325,268, of which $148,711,505 related to appreciated investment securities
and $(21,386,237) related to depreciated investment securities.
Distributions from long-term capital gains for the year ended December 31,
1997 were $47,182,652.
For the year ended December 31, 1997, the Portfolio has elected to defer
$1,924,266 of capital losses attributable to Post-October Losses.
OTHER INFORMATION
For the year ended December 31, 1997, the aggregate cost of purchases and
the proceeds of sales, other than from short-term investments, included
$581,746,883 and $472,109,629 of non-governmental issuers, respectively.
See Notes to Financial Statements.
----------------------------------------------------------
F-2
<PAGE>
- --------------------------------------------------------------------------------
SELECT CAPITAL APPRECIATION FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS . December 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
- --------------------------------------------------------------------------------
COMMON STOCKS - 83.72%
Finance - 14.18%
59,900 American Capital Strategies, Ltd. $ 1,085,687
85,375 Capital Trust, Inc., Class A* 960,469
17,025 Federal Agricultural Mortgage Corp.* 1,038,525
3,650 First Empire State Corp. 1,697,250
28,925 Healthcare Financial Partners, Inc.* 1,026,837
226,825 Insignia Financial Group, Inc.,
Class A* 5,216,975
98,400 Medallion Financial Corp. 2,164,800
20,775 Northern Trust Corp. 1,449,056
32,675 Progressive Corp. 3,916,916
25,425 Protective Life Corp. 1,519,144
33,025 Regions Financial Corp. 1,393,242
136,950 Schwab (Charles) Corp. 5,743,341
70,700 Security Capital Group, Inc., Class B* 2,297,750
23,250 Star Banc Corp.* 1,333,969
51,000 UICI* 1,778,625
31,525 Vornado Realty Trust, Inc. 1,479,705
--------------
34,102,291
--------------
Communications - 11.33%
67,750 Chancellor Media Corp., Class A* 5,055,844
118,725 Clear Channel Communications, Inc.* 9,431,217
118,825 Heftel Broadcasting Corp., Class A* 5,555,069
373,207 PriCellular Corp., Class A* 3,895,347
47,675 Univision Communications, Inc.,
Class A* 3,328,311
--------------
27,265,788
--------------
Retail - 9.47%
61,925 CompUSA, Inc.* 1,919,675
52,300 Family Golf Centers, Inc.* 1,640,912
236,675 Fastenal Co. 9,052,819
28,825 Meyer (Fred), Inc.* 1,048,509
27,700 MSC Industrial Direct Co., Class A * 1,173,788
41,850 O'Reilly Automotive, Inc.* 1,098,563
255,533 Petco Animal Supplies, Inc.* 6,132,792
10,475 Quality Food Centers, Inc.* 701,825
--------------
22,768,883
--------------
Business Services - 8.08%
75,337 Outdoor Systems, Inc.* 2,891,057
268,450 Paychex, Inc. 13,590,281
74,825 Profit Recovery Group
International, Inc.* 1,328,144
19,000 Robert Half International* 760,000
23,225 Snyder Communications, Inc.* 847,712
--------------
19,417,194
--------------
Health Services - 7.56%
70,825 AmeriPath, Inc.* 1,204,025
440,600 Omnicare, Inc. 13,658,600
77,425 Pediatrix Medical Group, Inc.* 3,309,919
--------------
18,172,544
--------------
Electronics - 5.67%
134,900 Berg Electronics Corp.* 3,068,975
134,850 Maxim Integrated Products, Inc.* 4,652,325
14,300 Sanmina Corp.* 968,825
122,200 SIPEX Corp.* 3,696,550
33,375 Vitesse Semiconductor Corp.* 1,259,906
--------------
13,646,581
--------------
Consumer Services - 5.56%
27,225 America Online, Inc.* 2,428,130
198,250 Apollo Group, Inc., Class A* 9,367,313
64,675 Coinmach Laundry Corp.* 1,584,537
--------------
13,379,980
--------------
Building and Construction - 5.34%
166,650 Barnett,Inc.* 3,666,300
167,000 Littelfuse, Inc.* 4,154,125
10,050 Littlefuse, Inc. (Warrants),
exp. 12/27/01* 221,100
51,750 Rental Service Corp.* 1,271,109
57,350 Sealed Air Corp.* 3,541,363
--------------
12,853,997
--------------
Energy - 3.87%
162,275 AES Corp.* 7,566,072
41,400 Hanover Compressor Co.* 846,112
45,725 Trigen Energy Corp. 903,069
--------------
9,315,253
--------------
Leisure-Entertainment - 3.46%
49,400 Premier Parks, Inc.* 2,000,700
50,875 Regal Cinemas, Inc.* 1,418,141
91,950 Royal Caribbean 4,902,084
--------------
8,320,925
--------------
Food Services - 3.44%
77,325 JP Foodservice, Inc.* 2,856,192
155,393 Papa John's International, Inc.* 5,419,331
--------------
8,275,523
--------------
Technology - 2.47%
242,025 Cadence Design Systems, Inc.* 5,929,613
--------------
Medical Equipment - 1.23%
45,525 Sofamor Danek Group, Inc.* 2,961,970
--------------
Transportation - 0.84%
80,950 Ryanair Holdings Plc, ADR* 2,033,869
--------------
Automotive Equipment - 0.71%
58,750 OEA, Inc 1,700,078
--------------
Chemical and Drugs - 0.33%
15,675 Culligan Water Technologies, Inc.* 787,669
--------------
See Notes to Financial Statements.
- ---------------------------------------------------------
F-3
<PAGE>
SELECT CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS, Continued - December 31, 1997
----------------------------------------------------------------
Value
Shares (Note 2)
----------------------------------------------------------------
Education - 0.18%
13,275 DeVRY, Inc.* $ 423,141
------------
Total Common Stock $201,355,299
(Cost $171,126,918) ------------
FOREIGN COMMON STOCKS - 12.50%
United Kingdom
867,971 Pizzaexpress, Plc 10,711,213
31,848 Pizzaexpress, Restricted Shares 393,021
2,228,750 Wetherspoon (J.D.) 12,285,090
594,434 Capita Group, Plc 3,609,129
358,677 Amvescap, Plc 3,077,726
------------
Total Foreign Common Stocks 30,076,179
Cost ($19,028,376) ------------
Value
Par Value (Note 2)
----------------------------------------------------------------
COMMERCIAL PAPER (A) - 4.03%
$9,700,000 General Electric Capital Corp.*
6.70%, 01/02/98 $ 9,698,194
------------
Total Commercial Paper 9,698,194
Cost ($9,698,194) ------------
Total Investments - 100.25% 241,129,672
Cost ($199,853,488) ------------
Net Other Assets and Liabilities - (0.25)% (604,122)
------------
Net Assets - 100.00% $240,525,550
============
- ---------------------------------------------------
* Non income producing security.
(A) Effective yield at time of purchase.
ADR American Depository Receipt
FORWARD FOREIGN CURRENCY CONTRACTS SOLD:
<TABLE>
<CAPTION>
Unrealized
Currency Contracts To Settlement Contracts At In Exchange Appreciation
Value Deliver Dates Value For U.S. $ (Depreciation)
- ----------- -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
850,000 GBP 01/20/98 $ 1,401,438 $ 1,429,700 $ 28,262
2,900,000 GBP 02/25/98 4,776,462 4,572,111 (204,351)
2,500,000 GBP 02/26/98 4,117,477 4,167,500 50,023
640,000 GBP 03/04/98 1,053,771 1,022,080 (31,691)
5,000 GBP 03/11/98 8,229 8,410 181
3,900,000 GBP 05/06/98 6,400,376 6,532,695 132,319
1,050,000 GBP 05/11/98 1,722,758 1,758,750 35,992
----------- ----------- ---------
$19,480,511 $19,491,246 $ 10,735
=========== =========== =========
</TABLE>
- ------------------------------------
GBP British Pound
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At December 31, 1997, the aggregate cost of investment securities for tax
purposes was $200,154,330. Net unrealized appreciation (depreciation) aggregated
$40,975,342, of which $44,131,171 related to appreciated investment securities
and $(3,155,829) related to depreciated investment securities.
As of December 31, 1997, the Portfolio had a capital loss carryforward of
$1,543,496 which expires in 2004. During 1997, the Portfolio utilized $816,962
of its capital loss carryforward.
OTHER INFORMATION
For the year ended December 31, 1997, the aggregate cost of purchases and
the proceeds of sales, other than from short-term investments, included
$295,606,461 and $227,780,526 of non-governmental issuers, respectively.
See Notes to Financial Statements.
----------------------------------------------------------
F-4
<PAGE>
- --------------------------------------------------------------------------------
SELECT INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - December 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
----------------------------------------------------------------
COMMON STOCKS - 97.46%
Australia - 5.58%
103,540 Broken Hill Proprietary Co., Ltd. $ 961,350
726,520 National Australia Bank, Ltd. 10,144,448
1,321,000 News Corp Ltd. 7,290,291
1,062,800 Telestra Corp. 2,243,651
447,934 WMC Ltd. 1,561,444
-----------
22,201,184
-----------
France - 2.46%
64,100 Michelin, Class B 3,228,515
60,160 Total SA, Class B 6,550,150
-----------
9,778,665
-----------
Germany - 6.85%
124,595 Hoechst AG 4,317,065
18,365 Mannesmann AG 9,223,136
81,710 Siemens AG 4,930,658
89,760 Veba AG 6,115,315
4,873 Viag AG 2,669,516
-----------
27,255,690
-----------
Hong Kong - 1.56%
251,400 HSBC Holdings 6,197,179
-----------
Indonesia - 0.83%
992,000 Gudang Garam 1,511,964
1,200,000 PT Hanjaya Mandala Sampoerna 906,305
1,675,000 Telekomunikasi Indonesia 891,632
-----------
3,309,901
-----------
Ireland - 0.74%
1,043,350 Smurfit (Jefferson) Group 2,944,493
-----------
Italy - 1.70%
158,835 ENI 901,085
917,560 Telecom Italia 5,864,508
-----------
6,765,593
-----------
Japan - 16.09%
487,000 Canon, Inc 11,386,460
233,000 Dai Nippon Printing Co., Ltd. 4,390,442
279,000 Honda Motor Co., Ltd. 10,278,410
281,000 Kao Corp. 4,063,033
19,000 Keyence Corp. 2,820,312
107,000 Murata Manufacturing Co., Ltd. 2,699,254
44,000 Rohm Co., Ltd. 4,500,808
264,000 Shiseido Co., Ltd. 3,614,183
118,100 Sony Corp. 10,536,445
340,000 Takeda Chemical Industries, Ltd. 9,727,653
-----------
64,017,000
-----------
Malaysia - 0.54%
700,000 Development & Commercial
Bank Holdings, Berhad 338,098
349,000 Hume Industries, Berhad 365,824
1,181,200 Sime-Darby, Berhad 1,134,962
363,000 United Engineers, Berhad 302,161
-----------
2,141,045
-----------
Mexico - 0.61%
811,700 Grupo Financiero Banamex, Series B* 2,426,499
-----------
Netherlands - 9.70%
257,412 ABN-Amro Holdings 5,015,607
283,495 Elsevier NV 4,586,875
402,792 ING Groep NV 16,968,223
95,455 Nutricia Ver Bedrijven 2,895,819
79,860 Royal Dutch Petroleum 4,384,520
114,030 Royal PTT Nederland, ADR 4,758,687
-----------
38,609,731
-----------
Philippines - 0.24%
748,130 San Miguel, Class B 937,530
-----------
Portugal - 0.31%
64,542 Electricidade De Portugal 1,223,474
-----------
Singapore - 3.74%
673,000 City Developments, Ltd. 3,115,484
633,000 Development Bank of Singapore 5,409,810
436,600 Fraser and Neave, Ltd. Ord. 1,891,570
356,800 Singapore Press 4,468,103
-----------
14,884,967
-----------
Spain - 1.32%
157,810 Banco De Santander 5,270,156
-----------
Switzerland - 13.38%
4,987 Alusuisse Lonza Holdings, REGD 4,797,063
6,849 Nestle SA 10,279,011
11,122 Novartis AG* 18,072,141
728 Roche Holdings AG 7,239,815
6,871 Schweiz Ruckverisch, REGD 12,870,014
-----------
53,258,044
-----------
United Kingdom - 31.81%
366,900 Barclays Bank, Plc 9,749,726
1,285,150 B.A.T. Industries, Plc 11,725,396
1,343,427 BTR, Plc 4,122,542
517,000 Cable & Wireless, Plc 4,546,848
397,480 Cadbury Schweppes, Plc 3,956,789
538,114 Diageo, Plc 4,945,038
171,204 EMI Group, Plc 1,476,810
612,290 General Electric Co., Plc 4,019,779
347,250 Glaxo Wellcome, Plc 8,216,244
501,850 Granada Group, Plc 7,737,233
306,950 Kingfisher, Plc 4,282,878
See Notes to Financial Statements.
- ---------------------------------------------------------
F-5
<PAGE>
- --------------------------------------------------------------------------------
SELECT INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, CONTINUED - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
----------------------------------------------------------------
<S> <C> <C>
United Kingdom - (Continued)
667,250 Ladbroke Group, Plc 2,898,443
697,550 Lloyds TSB Group, Plc 9,021,319
279,100 Premier Farnell, Plc 2,022,916
753,900 Prudential Corp., Plc 8,763,913
686,600 Safeway, Plc 3,897,580
282,000 Scottish Power, Plc 2,489,379
944,050 Shell Transportation and Trading, Plc 6,858,006
347,300 Siebe, Plc 6,514,511
545,750 TI Group, Plc 4,184,580
905,650 Vodafone Group, Plc 6,608,854
242,650 Zeneca Group, Plc 8,544,098
-----------
126,582,882
-----------
Total Common Stocks 387,804,033
-----------
(Cost $356,660,501)
PREFERRED STOCK - 0.19%
153,835 News Corp Ltd. (Australia) 761,175
-----------
Total Preferred Stock 761,175
(Cost $632,568) -----------
INVESTMENT COMPANIES - 1.48%
3,542,337 Federated Investors 3,542,337
353,494 ILA Prime Obligation Portfolio Fund,
Class B 353,494
1,990,010 State Street Bank Temporary Fund 1,990,010
-----------
Total Investment Companies 5,885,841
(Cost $5,885,841) -----------
Total Investments - 99.13% 394,451,049
(Cost $363,178,910) -----------
Net Assets and Other Liabilities - 0.87% 3,464,266
-----------
Net Assets - 100.00% 397,915,315
===========
</TABLE>
- ----------------------------------------------
* Non income producing security.
ADR American Depository Receipt
- --------------------------------------------------------------------------------
Industry Concentration of Common and Preferred Stocks
-----------------------------------------------------
as Percentage of Net Assets:
----------------------------
Finance 23.54%
Chemicals and Drugs 14.42
Telecommunications 9.81
Consumer Goods and Services 9.79
Electronics 9.48
Durable Goods 8.01
Energy 4.72
Utilities 4.08
Tobacco 3.56
Food and Beverage 3.23
Basic Materials 2.11
Business Services 1.10
Retail 1.08
Building and Construction 0.86
Paper 0.74
Leisure and Entertainment 0.73
Metals and Mining 0.39
-------
Total 97.65%
=======
See Notes to Financial Statements.
---------------------------------------------------------
F-6
<PAGE>
- --------------------------------------------------------------------------------
SELECT INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, Continued - December 31, 1997
- --------------------------------------------------------------------------------
FORWARD FOREIGN CURRENCY CONTRACTS SOLD:
<TABLE>
<CAPTION>
Unrealized
Currency Contracts To Settlement Contracts At In Exchange Appreciation
Value Deliver Dates Value For U.S. $ (Depreciation)
- ------------- -------------- ------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
12,288,000 CHF 01/07/98 $ 8,398,640 $ 8,453,508 $ 54,868
9,880,000 DEM 01/14/98 5,504,638 5,674,476 169,838
6,800,000 GBP 01/26/98 11,211,502 11,047,280 (164,222)
9,238,000 CHF 01/30/98 6,344,998 6,605,318 260,320
7,400,000 CHF 02/13/98 5,090,192 5,386,127 295,935
5,640,000 GBP 02/24/98 9,289,763 9,498,888 209,125
675,862,000 JPY 02/27/98 5,222,997 5,398,259 175,262
1,862,625,000 JPY 03/09/98 14,416,405 14,800,358 383,953
675,862,000 JPY 03/16/98 5,236,834 5,270,537 33,703
----------- ----------- ----------
$70,715,969 $72,134,751 $1,418,782
=========== =========== ==========
</TABLE>
- -------------------------------------
CHF Swiss Francs
DEM German Mark
GBP British Pound
JPY Japanese Yen
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At December 31, 1997, the aggregate cost of investment securities for tax
purposes was $363,178,967. Net unrealized appreciation (depreciation) aggregated
$31,272,082, of which $67,192,241 related to appreciated investment securities
and $(35,920,159) related to depreciated investment securities.
Distributions from long-term capital gains for the year ended December 31,
1997 were $10,114,719.
For the year ended December 31, 1997, the Portfolio has elected to defer
$3,563,670 of capital losses attributable to Post-October Losses.
The amounts per share which represent income derived from sources within,
and taxes paid to, foreign countries or possessions of the United States are as
follows (Unaudited):
Paydate Income Taxes
-------- ------ ------
12/31/97 $ .032 $ .004
OTHER INFORMATION
For the year ended December 31, 1997, the aggregated cost of purchases and
the proceeds of sales, other than from short-term investments, included
$219,246,639 and $62,172,360 of non-governmental issuers, respectively.
See Notes to Financial Statements.
- ---------------------------------------------------------
F-7
<PAGE>
- --------------------------------------------------------------------------------
SELECT GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
----------------------------------------------------------------
COMMON STOCKS - 97.41%
Finance - 18.18%
129,000 American Express Co. $11,513,250
66,450 American International Group, Inc. 7,226,438
21,100 Associates First Capital Corp.* 1,500,738
153,100 BankAmerica Corp. 11,176,300
53,700 Comerica, Inc. 4,846,425
120,400 Conseco, Inc. 5,470,675
17,500 Fifth Third Bancorp 1,430,625
84,100 First Chicago NBD Corp. 7,022,350
47,200 Franklin Resources, Inc. 4,103,450
247,000 MBNA Corp. 6,746,188
89,100 Morgan Stanley, Dean Witter,
Discover & Co. 5,268,038
1,400 SouthTrust Corp. 88,813
7,900 SunTrust Banks, Inc. 563,863
202,449 Travelers Group, Inc. 10,906,940
119,700 Washington Mutual, Inc. 7,638,356
-----------
85,502,449
-----------
Durable Goods - 14.13%
89,000 BMC Software, Inc.* 5,840,625
197,400 CBS Corp. 5,810,963
86,300 CompUSA, Inc.* 2,675,300
102,500 Compuware Corp. 3,280,000
46,500 Dell Computer Corp.* 3,906,000
222,600 General Electric Co. 16,333,275
104,500 Ingersoll - Rand Co. 4,232,250
165,600 PeopleSoft, Inc.* 6,458,400
80,100 Tellabs, Inc.* 4,235,288
74,800 Texas Instruments, Inc. 3,366,000
228,500 Tyco International, Ltd. 10,296,781
-----------
66,434,882
-----------
Chemicals and Drugs - 12.31%
115,300 Bristol-Myers Squibb Co. 10,910,262
77,800 Clorox Co. 6,151,062
73,400 Lilly (Eli) & Co. 5,110,475
74,800 Merck & Co., Inc. 7,947,500
141,800 Pfizer, Inc. 10,572,963
116,600 Schering-Plough Corp. 7,243,776
80,400 Warner-Lambert Co. 9,969,600
-----------
57,905,638
-----------
Retail - 11.86%
102,400 Consolidated Stores Corp.* 4,499,200
144,900 Costco Cos., Inc.* 6,466,163
165,900 CVS Corp. 10,627,969
92,800 Dayton - Hudson Corp. 6,264,000
60,400 Home Depot, Inc. 3,556,050
52,400 Safeway, Inc.* 3,314,300
165,400 TJX Cos., Inc. 5,685,626
172,500 Walgreen Co. 5,412,188
252,800 Wal-Mart Stores, Inc. 9,969,800
-----------
55,795,296
-----------
Technology - 8.22%
92,200 Compaq Computer Corp. 5,203,538
134,288 Computer Associates International,
Inc 7,100,452
158,800 EMC Corp.* 4,357,075
56,000 Lucent Technologies, Inc. 4,472,987
89,900 Microsoft Corp.* 11,619,575
73,400 Parametric Technology Corp.* 3,477,325
27,100 Pitney Bowes, Inc.* 2,437,306
-----------
38,668,258
-----------
Consumer Products - 6.59%
71,500 Colgate-Palmolive Co. 5,255,250
163,600 Halliburton Co. 8,496,975
47,900 Jones Apparel Group, Inc.* 2,059,700
41,800 Lauder (Estee) Cos., Inc., Class A 2,150,088
70,200 Liz Claiborne, Inc. 2,935,238
126,600 Procter & Gamble Co. 10,104,263
-----------
31,001,514
-----------
Energy - 4.21%
120,500 Exxon Corp. 7,373,094
52,400 Mobil Corp. 3,782,625
107,200 Schlumberger, Ltd. 8,629,600
-----------
19,785,319
-----------
Food and Beverage - 3.61%
61,900 Campbell Soup Co. 3,597,938
171,100 Coca-Cola Enterprises, Inc. 6,084,744
99,900 ConAgra, Inc. 3,277,969
71,500 Sara Lee Corp. 4,026,344
-----------
16,986,995
-----------
Health Services - 3.38%
51,000 Cardinal Health, Inc. 3,831,375
140,500 HBO & Co. 6,744,000
192,500 HEALTHSOUTH Corp.* 5,341,875
-----------
15,917,250
-----------
Communications - 3.16%
64,400 Ericsson (L.M.)
Telefonaktiebolaget, Class A* 2,402,925
149,300 Sprint Corp. 8,752,713
131,200 Tele-Communications, Inc., TCI
Venture 3,714,600
-----------
14,870,238
-----------
Hotels-Leisure - 2.92%
92,200 Carnival Corp., Class A 5,105,575
94,600 Marriott International, Inc. 6,551,050
36,300 Starwood Hotels and Resorts Trust 2,100,863
-----------
13,757,488
-----------
Business Services - 2.40%
142,800 Cendant Corp.* 4,908,750
85,500 Interpublic Group of Companies,
Inc. 4,258,969
55,300 Quintiles Transnational Corp.* 2,115,225
-----------
11,282,944
-----------
See Notes to Financial Statements.
-------------------------------------------------------------
F-8
<PAGE>
- --------------------------------------------------------------------------------
SELECT GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, CONTINUED - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
----------------------------------------------------------------
Printing and Publishing - 2.32%
176,400 Gannett Co., Inc. $10,903,725
-----------
Utilities - 1.91%
61,900 SBC Communications, Inc.* 4,534,175
112,900 USA Waste Services, Inc.* 4,431,325
-----------
8,965,500
-----------
Aerospace-Aircraft - 1.29%
97,200 Textron, Inc. 6,075,000
-----------
Building and Construction- 0.92%
83,900 Masco Corp. 4,268,413
-----------
Total Common Stocks 458,120,909
(Cost $364,915,595) -----------
Par Value
---------
CORPORATE BONDS - 0.74%
$1,000,000 Green Tree Lease Finance, LLC
5.99%, 01/20/99 1,000,000
2,500,000 New England Education Loan
Marketing Corp. 6.01%, 07/17/98 2,498,958
-----------
Total Corporate Bonds 3,498,958
(Cost $3,502,115) -----------
CERTIFICATES OF DEPOSIT - 1.17%
2,500,000 Skandinaviska Enskilda Banken
5.88%, 06/03/98 2,499,000
3,000,000 Bayerische Vereinsban AG
6.30%, 11/25/98 2,990,400
-----------
Total Certificates of Deposit 5,489,400
(Cost $5,500,020) -----------
Value
Par Value (Note 2)
----------------------------------------------------------------
COMMERCIAL PAPER - 1.56%
$1,500,000 New York, NY
5.50%, 02/01/98 $1,499,103
5,860,000 Federal Home Loan Mortgage Corp.
5.70%, 01/05/98 (A) 5,856,289
-----------
Total Commercial Paper 7,355,392
(Cost $7,355,763) -----------
Shares
----------
INVESTMENT COMPANIES - 0.72%
4,025 ILA Prime Obligation Portfolio
Fund, Class B 4,025
3,405,795 State Street Bank Temporary Fund 3,405,795
-----------
Total Investment Companies 3,409,820
(Cost $3,409,820) -----------
Total Investments - 101.60% 477,874,479
(Cost $384,683,313) ------------
Net Assets and Other Liabilities - (1.60)% (7,518,506)
------------
Net Assets - 100.00% $470,355,973
============
- --------------------------------------------
* Non income producing security.
(A) Effective yield at time of purchase.
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At December 31, 1997, the aggregate cost of investment securities for tax
purposes was $384,850,540. Net unrealized appreciation (depreciation) aggregated
$93,023,939 of which $97,436,276 related to appreciated investment securities
and $(4,412,337) related to depreciated investment securities.
Distributions from long-term capital gains for the year ended December 31, 1997
were $12,681,625.
OTHER INFORMATION
For the year ended December 31, 1997, the aggregated cost of purchases and the
proceeds of sales, other than from short-term investments, included $395,127,759
and $250,498,372 of non-governmental issuers, respectively.
See Notes to Financial Statements.
- ---------------------------------------------------------
F-9
<PAGE>
- --------------------------------------------------------------------------------
SELECT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
----------------------------------------------------------------
COMMON STOCKS - 89.85%
Finance - 13.18%
59,200 ACE, Ltd. $ 5,712,800
205,000 Aetna Life & Casualty Co. 14,465,313
84,900 American International Group, Inc. 9,232,875
32,900 Citicorp 4,159,794
34,500 EXEL, Ltd. 2,186,438
102,400 Northern Trust Corp. 7,142,400
108,000 PartnerRE, Ltd. 5,008,500
95,300 The CIT Group, Inc., Class A* 3,073,425
206,000 TIG Holdings, Inc. 6,836,625
79,600 Tokio Marine & Fire Insurance Co.,
ADR 4,596,900
------------
62,415,070
------------
Chemicals and Drugs - 11.83%
79,500 Air Products & Chemicals, Inc. 6,538,875
145,800 duPont (E.I.) deNemours & Co. 8,757,113
78,100 Genentech, Inc.* 4,734,813
69,100 Grace (W.R.) & Co. 5,558,231
134,200 Monsanto Co. 5,636,400
179,200 Pfizer, Inc. 13,361,600
72,000 Rhone-Poulenc SA, ADR
(Warrants), exp. 11/05/01* 234,000
192,500 Rhone-Poulenc SA, ADR 8,542,188
21,400 Warner-Lambert Co. 2,653,600
------------
56,016,820
------------
Consumer Staples - 7.83%
198,500 Black & Decker Corp. 7,753,906
235,200 Fortune Brands, Inc. 8,717,100
89,500 Litton Industries, Inc. * 5,146,244
127,300 Minnesota Mining & Manufacturing
Co. 10,446,556
134,200 RJR Nabisco Holdings Corp. 5,032,500
------------
37,096,306
------------
Utilities - 6.90%
108,380 Bell Atlantic Corp. 9,862,580
58,800 Consolidated Edison Co. of New York 2,410,800
426,200 Long Island Lighting Co. 12,839,275
182,300 Texas Utilities Co. 7,576,844
------------
32,689,499
------------
Aerospace-Airlines - 6.55%
58,200 AMR Corp. * 7,478,700
39,093 Boeing Co. 1,913,130
147,000 Lockheed Martin Corp. 14,479,500
142,700 Sundstrand Corp. 7,188,513
------------
31,059,843
------------
Printing and Publishing - 6.51%
119,100 Time Warner, Inc. 7,384,200
221,500 Tribune Co. 13,788,375
333,800 U.S. West, Inc., Media Group* 9,638,475
------------
30,811,050
------------
Technology - 6.00%
96,800 AirTouch Communications, Inc.* 4,023,250
204,900 Electronic Data Systems Corp. 9,002,794
73,100 Honeywell, Inc. 5,007,350
99,600 International Business Machines
Corp. 10,414,425
------------
28,447,819
------------
Energy - 5.83%
147,500 Amerada Hess Corp. 8,094,063
105,300 Chevron Corp. 8,108,100
135,000 Oryx Energy Co.* 3,442,500
204,700 Unocal Corp. 7,944,919
------------
27,589,582
------------
Consumer Products - 5.39%
254,200 Anheuser-Busch Cos., Inc. 11,184,800
173,200 Ikon Office Solutions, Inc. 4,871,250
124,600 Kimberly-Clark Corp. 6,144,338
30,100 Seagram Co., Ltd. 972,606
60,000 Tenneco, Inc. 2,370,000
------------
25,542,994
------------
Durable Goods - 4.82%
115,200 General Electric Co. 8,452,800
274,700 Rockwell International Corp. 14,353,075
------------
22,805,875
------------
Retail - 2.78%
96,500 Penney (J.C.) Co., Inc. 5,820,156
115,900 Wal-Mart Stores, Inc. 4,570,806
135,500 Woolworth Corp.* 2,760,813
------------
13,151,775
------------
Manufacturing - 2.72%
340,000 Owens-Illinois, Inc.* 12,898,750
------------
Metals and Mining - 2.71%
254,500 Allegheny Teledyne, Inc. 6,585,188
114,200 Getchell Gold Corp.* 2,740,800
56,000 Phelps Dodge Corp. 3,486,000
------------
12,811,988
------------
Health Services - 2.70%
123,300 Baxter International, Inc. 6,218,944
199,200 Columbia/HCA Healthcare Corp. 5,901,300
9,800 Johnson & Johnson 645,575
------------
12,765,819
------------
Business Services - 2.14%
346,200 First Data Corp. 10,126,350
------------
See Notes to Financial Statements.
- -----------------------------------------------------
F-10
<PAGE>
- --------------------------------------------------------------------------------
SELECT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, CONTINUED - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
- --------------------------------------------------------------------------------
Automotive - 1.38%
55,800 General Motors Corp. $ 3,382,875
85,401 General Motors Corp., Class H 3,154,484
------------
6,537,359
------------
Paper and Forest - 0.58%
258,800 MacMillan Bloedel, Ltd. 2,749,750
------------
Total Common Stocks 425,516,649
(Cost $351,177,637) ------------
PREFERRED STOCKS - 1.87%
30,100 AirTouch Communications, Inc.,
Class B 1,072,313
93,600 Globalstar Telecommunications, Ltd. 7,780,500
------------
Total Preferred Stocks 8,852,813
(Cost $5,358,131) ------------
Par Value
-------------
CORPORATE NOTES AND BONDS - 4.87%
$ 1,000,000 Chase Manhattan Bank Corp.
10.38%, 03/15/99 1,048,512
10,700,000 Hewlett-Packard Co.
3.13%, 10/14/17 (A) (C) 5,564,000
1,300,000 Merrill Lynch & Co., Inc.,
Series B, MTN 6.65%, 01/15/99 1,307,394
2,500,000 Morgan Stanley Group, Inc.,
Series C 6.43%, 03/09/98 2,502,380
2,292,000 National Semiconductor Corp.
6.50%, 10/01/02 2,237,565
2,500,000 New England Education Loan
Marketing Corp. 6.01%, 07/17/98 2,498,958
2,500,000 Rabobank Nederland
5.95%, 10/06/99 2,502,780
6,250,000 Roche Holdings, Inc.
5.43%, 05/06/12 (A) (C) 2,875,000
1,500,000 VW Credit, Inc.
5.75%, 11/15/98 (A) 1,495,598
1,000,000 Xerox Credit Corp., Series D,
MTN 6.84%, 06/01/00 1,016,855
------------
Total Corporate Notes and Bonds 23,049,042
(Cost $23,206,532) ------------
ASSET-BACKED SECURITIES - 1.16%
2,500,000 Asset Backed Capital
5.76%, 09/23/98 2,498,250
1,000,000 Case Equipment Loan Trust,
1997-A, A3 6.45%, 03/15/04 1,009,590
2,000,000 Green Tree Lease Finance
5.99%, 01/20/99 2,000,000
------------
Total Asset-Backed Securities 5,507,840
(Cost $5,499,681) ------------
U.S. GOVERNMENT OBLIGATION - 0.43%
2,000,000 U.S. Treasury Note
6.25% 06/30/02 2,040,626
------------
Total U.S. Government Obligation 2,040,626
(Cost $2,034,375) ------------
CERTIFICATES OF DEPOSIT - 0.95%
2,000,000 Bayerische Vereinsbank AG
6.30%, 11/25/98 1,993,600
2,500,000 Skandinaviska Enskilda Banken
5.88%, 06/03/98 2,499,000
------------
Total Certificates of Deposit 4,492,600
(Cost $4,500,000) ------------
COMMERCIAL PAPER (B) - 0.53%
2,500,000 New York, NY, Series E, GO
5.50%, 02/01/98 2,498,505
------------
Total Commercial Paper 2,498,505
(Cost $2,499,124) ------------
REPURCHASE AGREEMENT - 3.17%
15,000,000 First Union Repurchase Agreement
7.50%, 01/02/98, Dated 12/31/97
Repurchase Price $15,006,250
(Collateralized by Green Tree
Lease Finance 6.17%, Due 2005.
Total Par $15,500,000;
Market Value $15,751,875) 15,000,000
------------
Total Repurchase Agreement 15,000,000
(Cost $15,000,000) ------------
See Notes to Financial Statements.
- --------------------------------------------------------
F-11
<PAGE>
- --------------------------------------------------------------------------------
SELECT GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, CONTINUED - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (Note 2)
- --------------------------------------------------------------------------------
INVESTMENT COMPANY - 0.87%
4,099,319 State Street Bank Temporary Fund $ 4,099,319
------------
Total Investment Company 4,099,319
------------
(Cost $4,099,319)
Total Investments - 103.70% 491,057,394
------------
(Cost $413,374,799)
Net Other Assets and Liabilities - (3.70)% (17,504,900)
------------
Net Assets - 100.00% $473,552,494
============
- --------------------------------------
* Non income producing security.
(A) Security exempt from registration under rule 144A of the
Securities Act of 1933. These securities may be resold, in
transactions exempt from registration, to qualified
institutional buyers. At December 31, 1997, these securities
amounted to $9,934,598 or 2.10% of net assets.
(B) Effective yield at time of purchase.
(C) Zero coupon bond. Rate shown reflects effective yield to maturity.
ADR American Depository Receipt
GO General Obligation
MTN Medium Term Note
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At December 31, 1997, the aggregate cost of investment securities for tax
purposes was $413,980,273. Net unrealized appreciation (depreciation) aggregated
$77,077,121, of which $83,857,910 related to appreciated investment securities
and $(6,780,789) related to depreciated investment securities.
Distributions from long-term capital gains for the year ended December 31, 1997
were $31,781,244.
OTHER INFORMATION
For the year ended December, 1997, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $371,466,205
and $258,551,224 of non-governmental issuers, respectively, and $2,034,375 and
$0 of U.S. Government Agency issuers, respectively.
See Notes to Financial Statements.
--------------------------------------------------------
F-12
<PAGE>
- --------------------------------------------------------------------------------
SELECT INCOME FUND
- --------------------------------------------------------------------------------
Portfolio of investments - December 31, 1997
- --------------------------------------------------------------------------------
Moody's Ratings Value
Par Value (Unaudited) (Note 2)
- --------------------------------------------------------------------------------
CORPORATE NOTES AND BONDS - 47.59%
Finance - 20.24%
$ 700,000 Chase Commercial Mortgage
Securities 7.37%, 05/19/07 NR $ 713,230
1,000,000 Chase Commercial Mortgage
Securities 6.23%, 06/18/08 NR 1,007,813
500,000 Duke Realty, LP
7.25%, 09/22/02 Baa 515,526
400,000 Franchise Finance Corp. of
America 7.00%, 11/30/00 Baa 406,130
600,000 General Electric Capital
Corp. 6.66%, 05/01/18 Aaa 608,001
900,000 General Motors Acceptance
Corp. 7.09%, 11/15/10 NR 910,125
725,000 Green Tree Financial Corp.
7.54%, 04/15/28 NR 761,480
1,625,000 Green Tree Financial Corp.
7.53%, 07/15/28 NR 1,720,728
650,000 Green Tree Financial Corp.
7.24%, 11/15/28 NR 676,307
850,000 Green Tree Financial Corp.
7.22%, 02/15/29 NR 886,921
850,000 Green Tree Financial Corp.
6.95%, 05/15/29 NR 869,457
125,000 Greyhound Financial Corp.
8.50%, 02/15/99 Baa 128,219
1,100,000 Highwoods/Forsyth, LP
6.75%, 12/01/03 Baa 1,109,538
875,000 Homeside Lending, Inc., MTN
6.88%, 06/30/02 Baa 891,333
500,000 Integra Financial Corp.
6.50%, 04/15/00 A 504,390
800,000 Keystone Financial
Mid-Atlantic Funding
Senior Note 7.30%, 05/15/04 Baa 830,785
575,000 Mortgage Capital Funding,
Inc. 7.90%, 02/15/06 NR 610,581
1,050,000 Norwest Asset Securities
Corp. 7.00%, 02/15/13 (D) NR 1,057,214
625,000 Sears Roebuck Acceptance
Corp. Series II, MTN
6.69%, 04/30/01 A 633,545
600,000 Security Connecticut Corp.,
MTN 7.13%, 03/01/03 A 611,266
500,000 Simon DeBartolo Group, LP
6.88%, 11/15/06 Baa 504,696
900,000 Susa Partnership, LP, REIT
8.20%, 06/01/17 Baa 984,602
1,575,000 The Money Store, Inc.
8.38%, 04/15/04 Ba 1,626,818
450,000 TIG Holdings, Inc.
8.13%, 04/15/05 Baa 485,723
1,150,000 United Companies Financial
Corp. Senior Note
7.70%, 01/15/04 Ba 1,207,372
750,000 Wharf Capital International,
Ltd. 8.88%, 11/01/04 Baa 835,841
------------
21,097,641
------------
Real Estate - 8.76%
500,000 Avalon Properties, Inc.
Senior Note, REIT
7.38%, 09/15/02 Baa 513,197
300,000 Colonial Realty, LP, MTN
7.16%, 01/17/03 Baa 308,335
750,000 Colonial Realty, LP, MTN
6.96%, 07/26/04 Baa 760,613
325,000 Equity Residential Properties
Trust 7.13%, 10/15/17 A 329,459
400,000 ERP Operating, LP
8.50%, 05/15/99 (A) Baa 410,704
200,000 ERP Operating, LP
7.95%, 04/15/02 A 209,658
750,000 IRT Property Co., REIT
7.25%, 08/15/07 Baa 771,323
900,000 JDN Realty Corp.
6.80%, 08/01/04 Baa 907,506
500,000 La Quinta Inns, Inc., MTN
7.11%, 10/17/01 Baa 508,224
650,000 Meditrust, REIT
7.82%, 09/10/26 Baa 688,214
450,000 Security Capital Industrial
Trust 7.63%, 07/01/17 Baa 471,797
500,000 Shopping Center Associates
6.75%, 01/15/04 (A) Aaa 501,455
875,000 Simon Debartolo, LP, MTN
7.13%, 06/24/05 Baa 890,386
450,000 Spieker Properties, LP
6.65%, 12/15/00 Baa 450,497
750,000 Summit Properties, Inc.
7.20%, 08/15/07 Baa 771,900
625,000 Trinet Corporate Realty
Trust, Inc. 7.30%, 05/15/01 Baa 638,708
------------
9,131,976
------------
Securities Broker and Dealers - 5.78%
190,000 Bear Stearns Cos., Inc.
Senior Note
6.75%, 08/15/00 A 192,790
1,150,000 Goldman Sachs Group, LP
7.20%, 03/01/07 (A) A 1,191,111
1,000,000 Merrill Lynch Mortgage
Investors, Inc. 6.96%,
11/21/28 NR 972,810
825,000 Merrill Lynch Mortgage
Investors, Inc. 7.12%,
06/18/25 NR 823,705
575,000 Merrill Lynch & Co., Inc.
6.00%, 01/15/01 Aa 572,476
100,000 Salomon, Inc.
7.13%, 08/01/99 A 101,521
See Notes to Financial Statements.
- --------------------------------------------------------
F-13
<PAGE>
- --------------------------------------------------------------------------------
SELECT INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, CONTINUED . DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Moody's Ratings Value
Par Value (Unaudited) (Note 2)
-----------------------------------------------------------------
Securities Broker and Dealers (continued)
$ 550,000 Salomon, Inc.
7.25%, 05/01/01 A $ 566,237
325,000 Salomon, Inc.
7.00%, 05/15/99 A 328,862
50,000 Salomon, Inc., Series D,
Senior MTN
6.08%, 04/05/99 Baa 49,745
175,000 Salomon, Inc., Series D, MTN
6.82%, 07/26/99 A 176,961
250,000 Salomon, Inc., MTN
6.63%, 11/30/00 A 252,984
350,000 Smith Barney Holdings, Inc.
7.88%, 10/01/99 A 359,169
425,000 Smith Barney Holdings, Inc.
7.00%, 03/15/04 A 435,243
------------
6,023,614
------------
Industrial - 2.70%
1,500,000 Brascan, Ltd.
7.38%, 10/01/02 Ba 1,566,807
1,250,000 Cominco, Ltd.
6.88%, 02/15/06 Baa 1,245,665
------------
2,812,472
------------
Insurance - 2.58%
775,000 Conseco, Inc.
8.13%, 02/15/03 Ba 821,684
575,000 Equitable Life Assurance
Society
7.70%, 12/01/15 (A) A 615,663
800,000 Markel Corp.
7.25%, 11/01/03 Baa 828,069
400,000 USF&G Corp.
Senior Note
8.38%, 06/15/01 Baa 424,524
------------
2,689,940
------------
Manufacturing - 1.65%
775,000 Georgia-Pacific Corp.
9.95%, 06/15/02 Baa 884,352
425,000 Noranda Forest, Inc.,
Debenture
8.88%, 10/15/99 Baa 443,182
400,000 Scherer (R.P.) Corp.
Senior Note
6.75%, 02/01/04 Ba 396,289
------------
1,723,823
------------
Banking - 1.63%
450,000 First USA Bank, MTN
5.75%, 01/15/99 Aa 449,076
400,000 First USA Bank, MTN
7.00%, 08/20/01 Aa 410,889
400,000 St. George Bank, Ltd.
6.88%, 04/01/99 (A) Baa 403,728
425,000 St. George Bank, Ltd.
7.15%, 10/15/05 (A) Baa 437,159
------------
1,700,852
------------
Consumer Goods - 1.25%
1,400,000 Quantum Health Resources, Inc.
4.75%, 10/01/00 B $ 1,303,750
------------
Equipment - 0.88%
850,000 Toro Co.
7.80%, 06/15/27 Baa 915,238
------------
Merchandising and
Retail - 0.80%
800,000 Great Atlantic & Pacific
Tea Co., Inc. Senior Note
7.70%, 01/15/04 Baa 839,000
------------
Communications - 0.49%
475,000 Tele-Communications, Inc.
7.88%, 08/01/13 Ba 510,896
------------
Entertainment-Leisure - 0.44%
450,000 Royal Caribbean Cruises, Ltd.
7.50%, 10/15/27 Baa 463,022
------------
Utilities - 0.39%
300,000 System Energy
Resources, Inc.
6.00%, 04/01/98 Baa 300,019
100,000 System Energy
Resources, Inc.
7.63%, 04/01/99 Baa 101,763
------------
401,782
------------
Total Corporate Notes and Bonds 49,614,006
------------
(Cost $48,170,030)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 34.34%
8,975,000 U.S. Treasury Bond - 10.77%
8.13%, 08/15/19 (E) Aaa 11,232,778
------------
U.S. Treasury Notes - 8.84%
375,000 5.13%, 02/28/98 (E) Aaa 374,758
300,000 5.38%, 05/31/98 (E) Aaa 299,813
75,000 6.25%, 07/31/98 Aaa 75,305
4,550,000 5.63%, 11/30/98 (E) Aaa 4,550,000
275,000 6.63%, 06/30/01 Aaa 282,734
2,275,000 6.25%, 10/31/01 Aaa 2,314,813
975,000 5.75%, 08/15/03 Aaa 975,915
325,000 6.50%, 08/15/05 Aaa 339,117
------------
9,212,455
------------
See Notes to Financial Statements.
----------------------------------------------------------
F-14
<PAGE>
- --------------------------------------------------------------------------------
SELECT INCOME FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, CONTINUED . DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Moody's Ratings Value
Par Value (Unaudited) (Note 2)
- --------------------------------------------------------------------------------
Federal National Mortgage Association (B) - 8.72%
$ 211,687 6.00%, 03/01/03, Pool # 303790 Aaa $ 209,617
531,048 6.00%, 01/01/11, Pool # 334836 Aaa 522,694
941,027 6.00%, 03/01/11, Pool # 303779 Aaa 925,735
1,250,000 8.00%, 07/25/23, REMIC Aaa 1,385,148
241,277 7.00%, 07/01/23, Pool # 50765 Aaa 244,107
266,130 7.00%, 12/01/23, Pool # 240476 Aaa 269,252
263,455 7.00%, 01/01/24, Pool # 261764. Aaa 266,390
39,835 7.00%, 05/01/24, Pool # 265289 Aaa 40,278
359,727 7.00%, 06/01/24, Pool # 283173 Aaa 363,734
804,522 7.00%, 06/01/24, Pool # 284717 Aaa 813,484
837,439 7.00%, 08/01/25, Pool # 250345 Aaa 845,194
308,670 7.00%, 07/01/25, Pool # 307012 Aaa 311,529
301,324 7.00%, 07/01/25, Pool # 315035 Aaa 304,114
179,682 7.00%, 07/01/25, Pool # 317579 Aaa 181,346
200,842 7.00%, 08/01/25, Pool # 318107 Aaa 202,702
146,508 7.00%, 08/01/25, Pool # 318348 Aaa 147,864
729,953 7.00%, 08/01/25, Pool # 318863 Aaa 736,712
393,550 7.00%, 08/01/25, Pool # 319485 Aaa 397,194
411,150 7.00%, 08/01/25, Pool # 320333 Aaa 414,957
313,721 7.00%, 09/01/25, Pool # 317782 Aaa 316,626
187,623 7.00%, 09/01/25, Pool # 303555 Aaa 189,360
-----------
9,088,037
-----------
Federal Home Loan Mortgage Corporation (B) - 4.23%
602,133 6.00%, 12/01/10, Pool # E00411 Aaa 593,240
950,093 6.00%, 03/01/11, Pool # E20228 Aaa 935,908
1,234,944 6.00%, 05/01/12, Pool # G10691 Aaa 1,216,506
955,531 7.50%, 05/01/26, Pool # D71610 Aaa 978,932
419,575 7.50%, 07/01/26, Pool # D72669 Aaa 429,850
249,480 7.50%, 08/01/26, Pool # C00473 Aaa 255,590
-----------
4,410,026
-----------
Government National Mortgage Association (B) - 1.78%
380,749 7.00%, 07/15/24, Pool # 352919 Aaa 384,751
326,504 7.00%, 11/15/23, Pool # 370890 Aaa 330,125
358,214 7.00%, 02/15/24, Pool # 366855 Aaa 361,979
767,853 7.00%, 07/15/23, Pool # 326534 Aaa 776,368
-----------
1,853,223
-----------
Total U.S. Government
and Agency Obligations 35,796,519
(Cost $34,829,758) -----------
ASSET-BACKED SECURITIES - 6.04%
335,367 Advanta Mortgage Loan
Trust,Series 93-4
5.50%, 03/25/10 Aaa 326,161
1,200,000 Contimortgage Home
Equity Loan Trust
Class A
6.88%, 01/15/28 NR 1,217,688
700,000 CS First Boston Mortgage
Securities Co.
7.59%, 07/25/26 NR 733,715
325,000 EQCC Home Equity Loan Trust,
Series 1996-1
6.19%, 12/15/10 Aaa 323,593
925,000 EQCC Home Equity Loan Trust,
Series 1996-4
6.89%, 10/15/11 NR 942,168
104,721 Fund America Investors Corp.
II, 1993-F
5.40%, 09/25/09 Aaa 102,412
703,057 Housing Securities, Inc.
6.50%, 07/25/09 NR 699,542
625,000 Resolution Trust Corp.
8.00%, 06/25/26 NR 644,531
115,914 Resolution Trust Corp.
8.00%, 04/25/25 Baa 118,485
275,000 Resolution Trust Corp.
6.90%, 06/01/25 Aaa 273,969
238,056 Resolution Trust Corp.
7.45%, 09/15/25 Baa 241,870
550,000 The Money Store Home Equity
Trust, 1996-D
7.00%, 04/15/28 Aaa 561,457
116,130 UCFC Home Equity Loan Trust,
1994-B2
7.10%, 03/10/23 Aaa 118,110
-----------
Total Asset-Backed Securities 6,303,701
(Cost $6,121,476) -----------
MUNICIPAL BOND - 1.07%
4,100,000 New Jersey Economic
Development Authority
Pension Fund Revenue
7.50%, 02/15/18 (F) NR 1,112,166
-----------
Total Municipal Bond 1,112,166
-----------
(Cost $879,450)
COMMERCIAL PAPER (C) - 9.37%
950,000 Abbey National North
America Corp.
5.58%, 02/03/98 NR 940,215
1,500,000 Campbell Soup Co.
5.60%, 01/09/98 NR 1,498,182
1,500,000 Daimler-Benz North
America Corp.
5.62%, 02/19/98 NR 1,481,700
2,000,000 Federal Home Loan
Mortgage Corp.
5.74%, 01/23/98 Aaa 1,993,021
600,000 Federal Home Loan
Mortgage Corp.
5.24%, 01/30/98 Aaa 597,067
375,000 Federal Home Loan
Mortgage Corp.
5.60%, 02/20/98 Aaa 372,025
1,000,000 Federal Home Loan
Mortgage Corp.
5.63%, 03/09/98 Aaa 988,800
500,000 General Electric
Capital Corp.
5.55%, 01/12/98 NR 499,152
1,400,000 Procter & Gamble Co.
5.55%, 01/08/98 NR 1,398,527
-----------
Total Commercial Paper 9,768,689
-----------
(Cost $9,781,745)
See Notes to Financial Statements.
- --------------------------------------------------------
F-15
<PAGE>
- -----------------------------------------------------------------------------
SELECT INCOME FUND
- -----------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, CONTINUED . DECEMBER 31, 1997
- -----------------------------------------------------------------------------
Moody's Ratings Value
Shares (Unaudited) (Note 2)
- -----------------------------------------------------------------------------
INVESTMENT COMPANIES - 1.33%
1,795 Federated Investors Prime Fund Class A NR $ 1,795
1,384,735 ILA Prime Obligation Portfolio Fund Class B NR 1,384,735
------------
Total Investment Companies 1,386,530
(Cost $1,386,530) ------------
Total Investments - 99.74% 103,981,611
(Cost $101,168,989) ------------
Net Assets and Other Liabilities - 0.26% 271,760
------------
Net Assets - 100.00% $104,253,371
============
- --------------------------------------
(A) 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, 1997,
these securities amounted to $3,559,820 or 3.42% of net assets.
(B) Pass Through Certificates
(C) Effective yield at time of purchase.
(D) Forward Commitment
(E) Collateral on Forward Commitment
(F) Zero Coupon Bond. Rate shown reflects effective yield to maturity at time
of purchase.
MTN Medium Term Note
REIT Real Estate Investment Trust
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At December 31, 1997, the aggregate cost of investment securities for tax
purposes was $101,168,989. Net unrealized appreciation (depreciation) aggregated
$2,812,622, of which $2,844,672 related to appreciated investment securities and
$(32,050) related to depreciated investment securities.
As of December 31, 1997, the Portfolio had capital loss carryforwards which
expire as follows: $570,218 in 2002; and $500,277 in 2004. During 1997, the
Portfolio utilized $363,947 of its capital loss carryforwards.
OTHER INFORMATION
For the year ended December, 1997, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $43,512,879
and $26,394,424 from non-governmental issuers, respectively, and $36,623,514 and
$37,454,709 from U.S. Government 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 (Unaudited)
Aaa 40.93%
Aa 1.38
A 6.26
Baa 21.62
Ba 5.90
B 1.25
NR (Not Rated) 22.66
------
100.00%
======
See Notes to Financial Statements.
----------------------------------------------------------
F-16
<PAGE>
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS . DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Value
Par Value (Note 2)
----------------------------------------------------------------------
CORPORATE NOTES AND BONDS - 28.44%
Securities Brokers and Dealers - 11.09%
$1,000,000 Bear Stearns Cos., Inc.,
Series B, MTN
6.13%, 02/17/98* $1,000,240
2,500,000 Bear Stearns Cos., Inc.,
Series B, MTN
6.44%, 02/23/98* 2,501,469
5,000,000 Bear Stearns Cos., Inc.,
Series B, MTN
5.74%, 08/25/98* 5,000,000
3,500,000 Goldman Sachs Group, LP,
Series E, MTN
6.26%, 05/29/98* 3,503,438
1,915,000 Lehman Brothers Holdings, Inc.,
Series E, MTN
6.73%, 02/27/98 1,917,269
1,504,000 Lehman Brothers Holdings, Inc.,
Senior Note
6.38%, 06/01/98 1,506,333
2,000,000 Merrill Lynch & Co., Inc.,
Series B, MTN
6.21%, 05/19/98* 2,001,975
5,000,000 Paine Webber Group, Inc., Series C,
Senior MTN
6.06%, 09/16/98* 5,000,000
5,500,000 Paine Webber Group, Inc.,
Series C, MTN
5.93%, 11/04/98* 5,500,000
975,000 Shearson Lehman Brothers Holdings,
Inc., Series D, MTN
6.25%, 06/29/98 975,716
-----------
28,906,440
-----------
Finance - 10.94%
3,165,000 Abbey National Treasury Services Plc
6.50%, 12/21/98 3,178,625
697,000 Asset Backed Capital Finance,
Inc., MTN
5.93%, 05/08/98 682,419
2,000,000 Asset-Backed Capital, Ltd., MTN
5.76%, 09/23/98* 2,000,000
2,500,000 Avco Financial Service
5.90%, 11/17/98* 2,500,000
5,750,000 General Electric Capital Corp.,
Series A, MTN
5.36%, 01/20/98 5,748,170
1,400,000 General Motors Acceptance Corp., MTN
7.30%, 02/02/98 1,401,603
4,000,000 General Motors Acceptance Corp., MTN
5.87%, 09/21/98* 3,998,027
3,000,000 Green Tree Lease Finance, LLC,
1997-1, Series A1
5.91%, 01/20/99 3,000,000
6,000,000 New England Education Loan Marketing
Corp., MTN
6.14%, 09/18/98* 6,008,001
-----------
28,516,845
-----------
Commercial Banks - 3.37%
3,800,000 Bank of Boston, Senior MTN
5.82%, 04/22/98* 3,800,746
2,500,000 First USA Bank, MTN
5.98%, 04/28/98* 2,501,049
1,500,000 Morgan (J.P.) & Co., Inc.,
Subordinated Note
5.48%, 04/01/98 1,479,444
1,000,000 Norwest Corp., Series G, Senior MTN
6.00%, 10/13/98 1,000,558
-----------
8,781,797
-----------
Communication - 1.21%
3,100,000 Nippon Telegraph and Telephone Corp.
9.50%, 07/27/98 3,160,563
-----------
Retail - 0.98%
1,000,000 Albertson's, Inc., Series A, MTN
5.71%, 03/23/98 999,815
1,525,000 Sears Roebuck & Co.
9.25%, 04/15/98 1,537,203
-----------
2,537,018
-----------
Utilities - 0.85%
1,000,000 Virginia Electric & Power Co.,
Series A
9.38%, 06/01/98 1,012,177
1,200,000 Virginia Electric & Power Co.,
Series E, MTN
6.35%, 06/08/98 1,202,402
-----------
2,214,579
-----------
Total Corporate Notes and Bonds 74,117,242
(Cost $74,117,242) -----------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (A) - 9.86%
Federal National Mortgage
Association - 4.18%
5,000,000 5.44%, 02/04/98 4,974,311
4,000,000 5.43%, 03/30/98 3,946,955
1,000,000 5.55%, 05/07/98 980,575
1,000,000 5.38%, 06/10/98 998,774
-----------
10,900,615
-----------
Federal Farm Credit Bank - 3.08%
3,210,000 5.44%, 06/01/98 3,136,755
3,026,000 5.34%, 06/25/98 2,947,450
2,000,000 5.50%, 08/12/98 1,931,860
-----------
8,016,065
-----------
Federal Home Loan Mortgage
Corp. - 1.61%
1,930,000 5.24%, 01/30/98 1,921,852
2,300,000 5.47%, 02/06/98 2,287,419
-----------
4,209,271
-----------
See Notes to Financial Statements.
- ---------------------------------------------------------
F-17
<PAGE>
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, CONTINUED - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Value
Par Value (Note 2)
-----------------------------------------------------------------
Federal Home Loan Bank - 0.99%
$2,000,000 5.40%, 02/11/98 $ 1,987,700
595,000 5.45%, 05/28/98 581,759
-----------
2,569,459
-----------
Total U.S. Government
and Agency Obligations 25,695,410
(Cost $25,695,410) -----------
COMMERCIAL PAPER (A) - 35.00%
Finance - 23.19%
4,368,000 Bil North America
5.60%, 01/09/98 4,362,564
3,650,000 Budget Funding Corp.
5.85%, 01/30/98 3,632,799
4,000,000 Centre Square Funding Corp.
5.67%, 01/20/98 3,988,030
255,000 Ford Capital BV
9.13%, 05/01/98 257,186
4,000,000 General Electric Capital Corp.
5.53%, 01/20/98 3,988,326
1,000,000 General Electric Capital Corp.
7.25%, 03/03/98 1,001,927
9,100,000 Grand Metropolitan Capital Corp.
5.54%, 01/07/98 9,091,598
4,000,000 Jefferson Smurfit Finance Corp.,
Series B
5.75%, 02/18/98 3,969,333
5,000,000 Lexington Parker Capital Corp.
5.93%, 01/21/98 4,983,528
293,000 Lexington-Parker Capital Corp, LLC
5.95%, 04/03/98 288,545
2,500,000 National Rural Utilities
Cooperative Finance Corp.
5.55%, 02/13/98 2,483,427
6,878,000 Pegasus Two, Ltd.
5.86%, 03/18/98 6,792,912
6,000,000 Sanyo Electric Finance Co.
6.60%, 02/12/98 5,953,800
1,500,000 Toshiba Capital Asia Corp.
5.61%, 03/05/98 1,485,274
1,096,000 Toshiba International Finance
6.00%, 01/28/98 1,091,068
1,084,000 Toshiba International Finance
6.00%, 02/02/98 1,078,219
6,000,000 Westpac Capital Corp.
5.70%, 01/27/98 5,975,658
-----------
60,424,194
-----------
Consumer Goods - 3.25%
2,500,000 PepsiCo, Inc.
6.13%, 01/15/98 2,500,340
6,000,000 Stanley Works
5.58%, 02/04/98 5,968,380
-----------
8,468,720
-----------
Industry - 3.18%
350,000 Archer-Daniels-Midland Co.
6.20%, 01/22/98 $ 348,775
8,000,000 China International Marine
Containers Group, Ltd.
5.59%, 02/13/98 7,946,298
-----------
8,295,073
-----------
Rubber Fabricating - 2.67%
7,000,000 Bridgestone/Firestone, Inc.
7.35%, 01/27/98 6,962,842
-----------
Energy - 1.94%
5,160,000 Songs Fuel Co.
5.62%, 05/19/98 5,048,836
-----------
Utilities - 0.39%
1,012,000 Idaho Power Co.
6.05%, 01/23/98 1,008,258
-----------
Commercial Bank - 0.38%
1,000,000 First Union Corp.
6.75%, 01/15/98 1,000,313
-----------
Total Commercial Paper 91,208,236
(Cost $91,208,236) -----------
CERTIFICATES OF DEPOSIT - 15.54%
2,500,000 Bankers Trust Co.
5.92%, 07/17/98 2,499,615
5,000,000 Barclays Bank Plc
5.75%, 12/16/98 4,998,588
5,000,000 Barclays Bank Plc
5.73%, 04/16/98 4,999,792
5,000,000 Corestates Bank of North America
5.81%, 09/08/98 5,000,000
3,000,000 Deutsche Bank AG
5.95%, 10/26/98 2,998,836
7,000,000 Sanwa Bank, Ltd., New York
6.55%, 06/24/98 7,000,324
10,000,000 Skandinaviska Enskilda Banken
5.88%, 06/03/98 10,000,000
3,000,000 Societe Generale
5.97%, 09/15/98 3,000,202
-----------
Total Certificates of Deposit 40,497,357
(Cost $40,497,357) -----------
See Notes to Financial Statements.
---------------------------------------------------------
F-18
<PAGE>
- --------------------------------------------------------------------------------
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS, CONTINUED - DECEMBER 31, 1997
- --------------------------------------------------------------------------------
Value
Par Value (Note 2)
-------------------------------------------------------------------------
REPURCHASE AGREEMENTS - 9.94%
$ 8,000,000 First Union Repurchase Agreement
5.88%, 1/2/98, Dated 12/03/97
Repurchase Price $8,039,200
(Collateralized by Heller Financial
6.39%, Due 5/25/05; Total Par
$8,390,000; Market Value $8,494,928) $ 8,000,000
17,900,000 First Union Repurchase Agreement
7.50%, 1/2/98, Dated 12/31/97
Repurchase Price $17,907,458
(Collateralized by Green Tree Lease
Finance 5.91%, due 1/20/99; Total Par
$14,500,000 and Green Tree Lease
Finance 6.20%, due 9/20/05; Total
Par $3,860,000; Total Market Value
of $19,253,880) 17,900,000
------------
Total Repurchase Agreements 25,900,000
(Cost $25,900,000) ------------
Value
Shares (Note 2)
-------------------------------------------------------------------------
INVESTMENT COMPANY - 0.47%
1,236,333 State Street Bank Temporary Fund $ 1,236,333
------------
Total Investment Company 1,236,333
(Cost $1,236,333) ------------
Total Investments - 99.25% 258,654,578
(Cost $258,654,578) ------------
Net Other Assets and Liabilities - 0.75% 1,964,929
------------
Net Assets - 100.00% $260,619,507
============
- --------------------------------------------
* Variable rate security. The rate shown reflects rate currently in effect.
(A) Effective yield at time of purchase.
(B) Zero Coupon Bond. Rate shown reflects effective yield to maturity.
MTN Medium Term Note
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At December 31, 1997, the aggregate cost of investment securities for tax
purposes was $258,654,578.
As of December 31, 1997, the Portfolio had capital loss carryforwards which
expire as follows: $347 in 2002; $144 in 2003; $35,977 in 2004; and $8,154 in
2005.
For the year ended December 31, 1997, the Portfolio has elected to defer $321 of
capital losses attributable to Post-October Losses.
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 89.50%
NR (Not Rated) 10.50
------
100.00%
======
See Notes to Financial Statements.
- ---------------------------------------------------------
F-19
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES - DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Select Select Select
Aggressive Capital International
Growth Fund Appreciation Fund Equity Fund
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost........................... $ 475,614,635 $ 199,853,488 $ 363,178,910
Repurchase agreements at cost................. -- -- --
Net unrealized appreciation
(depreciation).............................. 127,325,268 41,276,184 31,272,139
-------------- -------------- --------------
Total investments at value.................. 602,939,903 241,129,672 394,451,049
Cash............................................. 92,502 31,303 --
Foreign currency
(Cost $106,252 and $1,892,070
respectively) (Notes 2 and 7)............. -- 106,217 1,625,229
Short-term investments held as
collateral for securities
loaned (Note 2)................................ 43,514,100 -- --
Receivable for investments sold.................. 3,087,825 4,945,897 --
Receivable for shares sold....................... 630,419 194,768 108,725
Receivable for foreign currency sold............. -- 103,363 --
Interest and dividend receivables................ 209,728 58,024 531,794
Deferred organizational expense (Note 2)......... -- 2,971 --
Dividend tax reclaim receivables................. -- 6,849 347,663
Net unrealized appreciation on forward
currency contracts (Notes 2 and 8)............. -- 10,735 1,418,782
-------------- -------------- --------------
Total Assets................................ 650,474,477 246,589,799 398,483,242
-------------- -------------- --------------
LIABILITIES:
Payable for investments purchased................ 2,301,571 5,396,351 --
Payable for foreign currency purchased........... -- 433,692 --
Payable for shares repurchased................... -- -- 107,907
Payable to Custodian............................. -- -- 337
Collateral for Securities loaned................. 43,514,100 -- --
Advisory fee payable (Note 3).................... 443,554 183,676 301,534
Accrued expenses and other payables.............. 92,091 50,530 158,149
-------------- -------------- --------------
Total Liabilities........................... 46,351,316 6,064,249 567,927
-------------- -------------- --------------
NET ASSETS............................................. $ 604,123,161 $ 240,525,550 $ 397,915,315
============== ============== ==============
NET ASSETS consist of
Paid-in capital (Note 6)......................... $ 478,722,159 $201,094,417 $366,994,058
Undistributed (distribution in
excess of) net investment
income (loss).................................. -- (10,735) 2,055,754
Accumulated (distribution in
excess of) net realized gain
(loss) on investments sold,
foreign currency transactions.................. (1,924,266) (1,844,338) (3,563,727)
Net unrealized appreciation of
investments, assets and
liabilities in foreign
currency....................................... 127,325,268 41,286,206 32,429,230
-------------- -------------- --------------
TOTAL NET ASSETS....................................... $ 604,123,161 $ 240,525,550 $ 397,915,315
============== ============== ==============
Shares of beneficial interest
outstanding (unlimited authorization,
no par value)...................................... 271,561,208 141,678,833 296,715,707
NET ASSET VALUE,
Offering and redemption price per share
(Net Assets/Shares Outstanding).................... $ 2.225 $ 1.698 $ 1.341
============== ============== ==============
</TABLE>
See Notes to Financial Statements.
---------------------------------------------------------
F-20
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
Select Select Growth Select Money
Growth and Income Income Market
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
$ 384,683,313 $ 398,374,799 $ 101,168,989 $ 232,754,578
-- 15,000,000 -- 25,900,000
93,191,166 77,682,595 2,812,622 --
-------------- -------------- -------------- --------------
477,874,479 491,057,394 103,981,611 258,654,578
-- 541 147 8,350
-- -- -- --
-- -- -- --
2,217,070 825,482 499,258 --
581,046 476,174 721,524 459,451
-- -- -- --
778,327 975,607 1,189,133 1,581,840
-- -- -- --
-- -- -- --
-- -- -- --
-------------- -------------- -------------- --------------
481,450,922 493,335,198 106,391,673 260,704,219
-------------- -------------- -------------- --------------
10,693,088 19,455,976 2,067,820 --
-- -- -- --
-- -- -- --
8,660 -- -- --
-- -- -- --
329,358 268,326 49,861 59,896
63,843 58,402 20,621 24,816
-------------- -------------- -------------- --------------
11,094,949 19,782,704 2,138,302 84,712
-------------- -------------- -------------- --------------
$ 470,355,973 $ 473,552,494 $ 104,253,371 $ 260,619,507
============== ============== ============== ==============
$ 370,943,171 $ 394,435,915 $ 102,510,332 $ 260,664,450
100,512 66,666 912 --
6,121,124 1,367,318 (1,070,495) (44,943)
93,191,166 77,682,595 2,812,622 --
-------------- -------------- -------------- --------------
$ 470,355,973 $ 473,552,494 $ 104,253,371 $ 260,619,507
============== ============== ============== ==============
259,691,378 305,179,193 101,975,296 260,664,450
$ 1.811 $ 1.552 $ 1.022 $ 1.000
============== ============== ============== ==============
- -------------------------------------------------------------
F-21
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS - FOR YEAR ENDED DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
Select Select Select
Aggressive Capital International
Growth Fund Appreciation Fund Equity Fund
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Interest (Note 2)..................................... $ 562,840 $ 808,189 $ 99,405
Dividends (Note 2).................................... 2,163,467 612,518 8,955,151
Less net foreign taxes withheld....................... -- (34,960) (1,244,474)
------------ ------------ ------------
Total investment income....................... 2,726,307 1,385,747 7,810,082
------------ ------------ ------------
EXPENSES
Investment advisory fees (Notes 3 and 4).............. 4,850,649 1,813,444 3,258,876
Custodian fees (Note 3)............................... 48,716 55,871 301,681
Fund accounting fees (Note 3)......................... 79,072 55,799 67,644
Legal fees............................................ 6,966 817 896
Audit fees............................................ 12,128 13,385 21,560
Trustees' fees and expenses (Note 3).................. 11,792 1,803 10,293
Reports to shareholders............................... 241,993 136,844 253,542
Amortization of organization costs (Note 2)........... -- 1,284 --
Insurance............................................. 1,378 -- 711
Miscellaneous......................................... 6,596 10,619 24,733
------------ ------------ ------------
Total expenses before reductions.............. 5,259,290 2,089,866 3,939,936
Less reductions (Note 5)...................... (221,364) -- (70,636)
------------ ------------ ------------
Total expenses net of reductions.............. 5,037,926 2,089,866 3,869,300
------------ ------------ ------------
NET INVESTMENT INCOME (LOSS).................................. (2,311,619) (704,119) 3,940,782
------------ ------------ ------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS (NOTE 2):
Net realized gain (loss) on investments sold.......... 38,455,043 895,552 7,636,009
Net realized gain (loss) on foreign currency
transactions........................................ -- (652,020) 7,017,386
Net change in unrealized appreciation of assets
and liabilities in foreign currency................. -- 331,966 38,117
Net change in unrealized appreciation (depreciation)
of investments...................................... 49,158,982 30,006,760 (6,543,277)
------------ ------------ ------------
NET GAIN (LOSS) ON INVESTMENTS................................ 87,614,025 30,582,258 8,148,235
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS.......... $ 85,302,406 $ 29,878,139 $ 12,089,017
============ ============ ============
</TABLE>
See Notes to Financial Statements.
---------------------------------------------------------
F-22
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Select Select Growth Select Money
Growth and Income Income Market
Fund Fund Fund Fund
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 744,197 $ 1,783,707 $ 5,973,833 $ 13,319,005
3,876,793 6,379,645 102,821 293,092
-- -- -- --
------------ ------------ ------------ ------------
4,620,990 8,163,352 6,076,654 13,612,097
------------ ------------ ------------ ------------
2,959,723 2,807,177 524,021 647,964
41,704 30,713 12,758 42,720
57,513 66,594 55,502 57,184
4,722 6,562 -- --
10,039 9,938 10,740 2,688
8,800 10,408 2,474 5,869
163,201 144,649 36,358 80,315
-- -- -- --
478 -- 127 --
9,042 -- -- --
------------ ------------ ------------ ------------
3,255,222 3,076,041 641,980 836,740
(90,962) (102,293) -- --
------------ ------------ ------------ ------------
3,164,260 2,973,748 641,980 836,740
------------ ------------ ------------ ------------
1,456,730 5,189,604 5,434,674 12,775,357
------------ ------------ ------------ ------------
27,996,165 37,150,110 418,192 (8,306)
-- -- -- --
-- -- -- --
68,270,952 33,411,977 2,198,452 --
------------ ------------ ------------ ------------
96,267,117 70,562,087 2,616,644 (8,306)
------------ ------------ ------------ ------------
$ 97,723,847 $ 75,751,691 $ 8,051,318 $ 12,767,051
============ ============ ============ ============
</TABLE>
- --------------------------------------------------------
F-23
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Select Aggressive Select Capital
Growth Fund Appreciation Fund
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of year............................... $ 407,442,033 $ 254,871,723 $ 142,680,240 $ 41,376,035
------------- ------------- ------------- -------------
Increase in net assets
resulting from operations:
Net investment income (loss)............................... (2,311,619) (1,746,724) (704,119) (285,112)
Net realized gain (loss) on investments sold and foreign
currency transactions................................... 38,455,043 30,022,198 243,532 (2,941,327)
Net change in unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currency........................................ 49,158,982 24,617,401 30,338,726 6,300,578
------------- ------------- ------------- -------------
Net increase in net assets resulting
from operations......................................... 85,302,406 52,892,875 29,878,139 3,074,139
------------- ------------- ------------- -------------
Distributions to shareholders from:
Net investment income...................................... -- -- -- --
Distribution in excess of net investment income............ -- -- -- --
Net realized gain on investments........................... (45,241,565) (27,969,046) -- (283,116)
Distribution in excess of net realized gain on investments. (1,941,087) -- -- --
Return of capital.......................................... -- -- -- (1,211)
------------- ------------- ------------- -------------
Total distributions..................................... (47,182,652) (27,969,046) -- (284,327)
------------- ------------- ------------- -------------
Capital share transactions:
Net proceeds from sales of shares.......................... 125,269,733 118,694,806 72,527,425 99,864,671
Issued to shareholders in reinvestment of distributions.... 47,182,652 27,969,046 -- 284,327
Cost of shares repurchased................................. (13,891,011) (19,017,371) (4,560,254) (1,634,605)
------------- ------------- ------------- -------------
Net increase from
capital share transactions........................... 158,561,374 127,646,481 67,967,171 98,514,393
------------- ------------- ------------- -------------
Total increase in net assets............................ 196,681,128 152,570,310 97,845,310 101,304,205
------------- ------------- ------------- -------------
NET ASSETS at end of year (including line A).................. $ 604,123,161 $ 407,442,033 $ 240,525,550 $ 142,680,240
============= ============= ============= =============
(A) Undistributed (distribution in excess of)
net investment income (loss)........................... $ -- $ -- $ (10,735) $ 67,349
============= ============= ============= =============
OTHER INFORMATION:
Share transactions:
Sold....................................................... 56,852,703 58,055,566 48,567,251 66,830,275
Issued to shareholders in reinvestment of distributions.... 21,321,286 13,670,395 -- 183,318
Repurchased................................................ (6,666,252) (9,614,883) (2,995,066) (1,127,407)
------------- ------------- ------------- -------------
Net increase in shares outstanding...................... 71,507,737 62,111,078 45,572,185 65,886,186
============= ============= ============= =============
</TABLE>
See Notes to Financial Statements.
---------------------------------------------------------
F-24
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Select International Select Growth Select Growth and Select Money Market
Equity Fund Fund Income Fund Income Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, Year Ended December 31, Year Ended December 31, Year Ended December 31, Year Ended December 31,
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$228,551,251 $143,124,686 $556,750,605 $444,870,953 $295,637,987 $191,610,000 $ 77,498,343 $ 60,368,094 $217,255,732 $155,211,174
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
3,940,782 2,064,136 1,456,730 668,264 5,189,604 3,415,490 5,434,674 4,174,976 12,775,357 9,613,835
14,653,395 4,719,958 27,996,165 38,302,869 37,150,110 22,150,624 11,197,475 9,688,573 (8,306) (35,900)
(6,505,160) 29,610,329 68,270,952 (4,304,728) 33,411,977 20,168,372 2,198,452 (1,278,063) -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
12,089,017 36,394,423 97,723,847 34,666,405 75,751,691 45,734,486 8,051,318 2,493,105 12,767,051 9,577,935
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(5,221,780) (2,205,116) (1,356,218) (671,407) (5,132,576) (3,430,862) (5,484,355) (4,174,976) (12,775,357) (9,613,835)
(3,846,390) (2,413,338) -- -- -- -- (43,370) (12,684) -- --
(12,587,981) (540,596) (23,994,275) (32,240,794) (40,365,847) (21,071,408) -- -- -- --
-- -- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
(21,656,151) (5,159,050) (25,350,493) (32,912,201) (45,498,423) (24,502,270) (5,527,725) (4,187,660) (12,775,357) (9,613,835)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
156,120,845 111,783,820 148,447,611 59,903,208 106,417,562 64,430,859 23,119,346 18,835,110 198,110,523 189,973,951
21,656,151 5,159,050 25,350,493 32,912,201 45,498,423 24,502,270 5,527,725 4,187,660 12,775,357 9,613,835
(17,171,483) (5,613,441) (4,366,736) (9,143,048) (4,254,746) (6,137,358) (4,415,636) (4,197,966)(167,513,799)(137,507,328)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
160,605,513 111,329,429 169,431,368 83,672,361 147,661,239 82,795,771 24,231,435 18,824,804 43,372,081 62,080,458
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
151,038,379 142,564,802 241,804,722 85,426,565 177,914,507 104,027,987 26,755,028 17,130,249 43,363,775 62,044,558
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
$397,915,315 $246,876,936 $470,355,973 $228,551,251 $473,552,494 $295,637,987 $104,253,371 $ 77,498,343 $260,619,507 $217,255,732
============ ============ ============ ============ ============ ============ ============ ============ ============ ============
$ 2,055,754 $ 180,441 $ 100,512 $ -- $ 66,666 $ -- $ 912 $ 50,180 $ -- $ --
============ ============ ============ ============ ============ ============ ============ ============ ============ ============
110,807,769 91,002,428 88,503,345 38,406,099 68,176,573 46,390,568 22,956,886 18,891,416 198,110,523 189,973,951
15,986,697 3,819,374 14,088,744 23,015,341 29,288,180 17,558,493 5,530,969 4,249,588 12,775,357 9,613,835
(12,167,111) (4,536,939) (2,710,693) (6,129,428) (2,756,863) (4,557,725) (4,382,183) (4,232,440)(167,513,799)(137,507,328)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
114,627,355 90,284,863 99,881,396 55,292,012 94,707,890 59,391,336 24,105,672 18,908,564 43,372,081 62,080,458
============ ============ ============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
- --------------------------------------------------------
F-25
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Investment Operations
----------------------------------------------
Net Realized
Net and
Asset Unrealized
Value Net Gain (Loss) Total from
Year Ended Beginning Investment on Investment
December 31, of Year Income/(2)/ Investments Operations
--------------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $ 2.037 $ (0.009) $ 0.387 $ 0.378
1996 1.848 (0.009) 0.351 0.342
1995 1.397 (0.001) 0.452 0.451
1994 1.431 (0.002) (0.032) (0.034)
1993 1.197 0.001 0.234 0.235
1992 1.000 0.001 0.197 0.198
Select Capital
Appreciation Fund/(1)/
1997 1.485 (0.005) 0.218 0.213
1996 1.369 (0.003) 0.124 0.121
1995 1.000 (0.001) 0.397 0.396
Select International
Equity Fund/(1)/
1997 1.356 0.015 0.049 0.064
1996 1.136 0.011 0.238 0.249
1995 0.963 0.013 0.176 0.189
1994 1.000 0.003 (0.038) (0.035)
Select Growth Fund/(1)/
1997 1.430 0.006 0.480 0.486
1996 1.369 0.005 0.297 0.302
1995 1.099 -- 0.270 0.270
1994 1.119 0.003 (0.020) (0.017)
1993 1.111 0.001 0.008 0.009
1992 1.000 0.001 0.111 0.112
<CAPTION>
Less Distributions
-------------------------------------------------
Net
Distributions Increase
Dividends from Net (Decrease)
from Net Realized Distributions in
Investment Capital in Return of Total Net Asset
Income Gains Excess Capital Distributions Value
---------- --------- --------- --------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Select Aggressive
Growth Fund/(1)/
1997 $ -- $ (0.182) $ (0.008)(3) $ -- $ (0.190) $ 0.188
1996 -- (0.153) -- -- (0.153) 0.189
1995 -- -- -- -- -- 0.451
1994 -- -- -- -- -- (0.034)
1993 (0.001) -- -- -- (0.001) 0.234
1992 (0.001) -- -- -- (0.001) 0.197
Select Capital
Appreciation Fund/(1)/
1997 -- -- -- -- -- 0.213
1996 -- (0.005) -- -- (0.005) 0.116
1995 -- (0.027) -- -- (0.027) 0.369
Select International
Equity Fund/(1)/
1997 (0.019) (0.046) (0.014)(4) -- (0.079) (0.015)
1996 (0.012) (0.003) (0.014)(4) -- (0.029) 0.220
1995 (0.011) (0.005) -- -- (0.016) 0.173
1994 (0.001) (0.001) -- -- (0.002) (0.037)
Select Growth Fund/(1)/
1997 (0.006) (0.099) -- -- (0.105) 0.381
1996 (0.005) (0.236) -- -- (0.241) 0.061
1995 -- -- -- -- -- 0.270
1994 (0.003) -- -- -- (0.003) (0.020)
1993 (0.001) -- -- -- (0.001) 0.008
1992 (0.001) -- -- -- (0.001) 0.111
</TABLE>
-------------------------------------------------
* Annualized
** Not Annualized
(A) Including reimbursements, waivers, 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) For fiscal years beginning on or after September 1, 1995, a Portfolio is
required to disclose its average commission rate per share for trades
for which commissions are charged. This rate generally does not reflect
mark-ups, mark-downs, or spreads on shares traded on a principal basis.
(1) The Select Aggressive Growth Fund commenced operations on August 21,
1992. The Select Capital Appreciation Fund commenced operations on April
28, 1995. The Select International Equity Fund commenced operations on
May 2, 1994. The Select Growth Fund commenced operations on August
21,1992 and changed investment sub-adviser on July 1, 1996.
(2) Net investment income per share before reimbursement of fees by the
investment adviser or reductions were $(0.010) in 1997, $0.000 in 1993
and $(0.001) in 1992 for Select Aggressive Growth Fund; $(0.001) in 1995
for Select Capital Appreciation Fund; $0.015 in 1997, $0.011 in 1996 and
$0.002 in 1994 for Select International Equity Fund; and $0.006 in 1997,
$0.005 in 1996, $0.001 in 1993 and $0.000 in 1992 for Select Growth
Fund.
(3) Distributions in excess of net realized capital gains.
(4) Distributions in excess of net investment income.
See Notes to Financial Statements.
---------------------------------------------------------
F-26
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratios/Supplemental Data
----------------------------------------------------------------------------------
Ratios To Average Net Assets
------------------------------------------------------------------
Net Asset Net Assets
Value End of Net Portfolio Average
End of Total Year Investment Operating Expenses Management Fee Turnover Commissions
Year Return (000's) Income (A) (B) (C) Gross Net Rate Rate(D)
------------ -------- ---------- ---------- ----- ----- ----- ------- ------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 2.225 18.71% $ 604,123 (0.45)% 0.99% 1.04% 1.04% 0.95% 0.95% 95% $ 0.0617
2.037 18.55% 407,442 (0.53)% 1.08% 1.08% 1.08% 1.00% 1.00% 113% 0.0597
1.848 32.28% 254,872 (0.07)% 1.09% -- 1.09% 1.00% 1.00% 104% --
1.397 (2.31)% 136,573 (0.21)% 1.16% -- 1.16% 1.00% 1.00% 100% --
1.431 19.51% 66,251 0.10% 1.19% -- 1.23% 1.00% 0.96% 76% --
1.197 19.85%** 9,270 0.34%* 1.35%* -- 1.88%* N/A N/A 33% --
1.698 14.28% 240,526 (0.38)% 1.13% 1.13% 1.13% 0.98% 0.98% 133% 0.0444
1.485 8.80% 142,680 (0.32)% 1.13% 1.13% 1.13% 1.00% 1.00% 98% 0.0414
1.369 39.56%** 41,376 (0.25)%* 1.35%* -- 1.42%* 1.00%* 0.93%* 95% --
1.341 4.65% 397,915 1.17% 1.15% 1.17% 1.17% 0.97% 0.97% 20% 0.0229
1.356 21.94% 246,877 1.22% 1.20% 1.23% 1.23% 1.00% 1.00% 18% 0.0248
1.136 19.63% 104,312 1.68% 1.24% -- 1.24% 1.00% 1.00% 24% --
0.963 (3.49)%** 40,498 0.87%* 1.50%* -- 1.78%* 1.00%* 0.72%* 19% --
1.811 34.06% 470,356 0.42% 0.91% 0.93% 0.93% 0.85% 0.85% 75% 0.0470
1.430 22.02% 228,551 0.38% 0.92% 0.93% 0.93% 0.85% 0.85% 159% 0.0457
1.369 24.59% 143,125 0.02% 0.97% -- 0.97% 0.85% 0.85% 51% --
1.099 (1.49)% 88,263 0.37% 1.03% -- 1.03% 0.85% 0.85% 55% --
1.119 0.84% 53,854 0.15% 1.05% -- 1.08% 0.85% 0.82% 65% --
1.111 11.25%** 9,308 0.40%* 1.20%* -- 1.72%* N/A N/A 3% --
</TABLE>
See Notes to Financial Statements.
- ---------------------------------------------------------
F-27
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Year
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Investment Operations
-----------------------------------------------
Net Realized
Net and
Asset Unrealized
Value Net Gain (Loss) Total from
Year Ended Beginning Investment on Investment
December 31, of Year Income/(2)/ Investments Operations
-------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Select Growth and
Income Fund/(1)/
1997 $ 1.405 $ 0.020 $ 0.293 $ 0.313
1996 1.268 0.020 0.246 0.266
1995 1.027 0.019 0.290 0.309
1994 1.069 0.025 (0.018) 0.007
1993 0.990 0.023 0.079 0.102
1992 1.000 0.008 (0.009) (0.001)
Select Income Fund/(1)/
1997 0.995 0.060 0.028 0.088
1996 1.024 0.061 (0.029) 0.032
1995 0.930 0.060 0.095 0.155
1994 1.035 0.055 (0.105) (0.050)
1993 0.988 0.052 0.055 0.107
1992 1.000 0.018 (0.012) 0.006
Money Market
Fund
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
-----------------------------------------------------
Net
Distributions Increase
Dividends from Net (Decrease)
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>
Select Growth and
Income Fund/(1)/
1997 $ (0.020) $ (0.146) $ -- $ -- $ (0.166) $ 0.147
1996 (0.020) (0.109) -- -- (0.129) 0.137
1995 (0.019) (0.049) -- -- (0.068) 0.241
1994 (0.025) (0.017) (0.007)/(3)/ -- (0.049) (0.042)
1993 (0.023) -- -- -- (0.023) 0.079
1992 (0.008) (0.001) -- -- (0.009) (0.010)
Select Income Fund/(1)/
1997 (0.061) -- -- -- (0.061) 0.027
1996 (0.061) -- -- -- (0.061) (0.029)
1995 (0.060) -- (0.001)/(4)/ -- (0.061) 0.094
1994 (0.055) -- -- -- (0.055) (0.105)
1993 (0.052) (0.008) -- -- (0.060) 0.047
1992 (0.018) -- -- -- (0.018) (0.012)
Money Market
Fund
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) For fiscal years beginning on or after September 1, 1995, a
Portfolio is required to disclose its average commission rate
per share for trades for which commissions are charged. This
rate generally does not reflect mark-ups, mark-downs, or spreads
on shares traded on a principal basis.
(1) The Equity Index Fund commenced operations on September 28,
1990. The Select Growth and Income Fund and Select Income Fund
commenced operations on August 21, 1992. The Growth Fund changed
Investment Sub-Adviser on April 1, 1988.
(2) Net investment income per share before reimbursement of fees by
the investment adviser or reductions were $0.038 in 1997, $0.046
in 1996 and $0.038 in 1993 for Growth Fund; $0.031 in 1993,
$0.028 in 1992, and $0.031 in 1991 for Equity Index Fund; $0.019
in 1997, $0.019 in 1996, $0.023 in 1993 and $0.005 in 1992 for
Select Growth and Income Fund; and $0.060 in 1995, $0.055 in
1994, $0.050 in 1993, $0.015 in 1992 for Select Income Fund; and
$0.030 in 1993 and $0.084(3) in 1988 for Money Market Fund.
(3) Distributions in excess of net realized capital gains.
(4) Distributions in excess of net investment income.
(5) Unaudited.
See Notes to Financial Statements.
---------------------------------------------------------
F-28
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ratios/Supplemental Data
------------------------------------------------------------------------------
Ratios To Average Net Assets
-----------------------------------------------------------------
Net Asset Net Assets
Value End of Net Portfolio Average
End of Total Year Investment Operating Expenses Management Fee Turnover Commissions
Year Return (000's) Income (A) (B) (C) Gross Net Rate Rate(D)
--------- ------ ----------- ---------- ----- ----- ----- ------ ----- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 1.552 22.51% $ 473,552 1.34% 0.77% 0.80% 0.80% 0.73% 0.73% 71% $ 0.0569
1.405 21.26% 295,638 1.44% 0.80% 0.83% 0.83% 0.75% 0.75% 78% 0.0563
1.268 30.32% 191,610 1.69% 0.85% -- 0.85% 0.75% 0.75% 112% --
1.027 0.73% 110,213 2.51% 0.91% -- 0.91% 0.75% 0.75% 107% --
1.069 10.37% 60,518 2.73% 0.99% -- 1.03% 0.75% 0.71% 25% --
0.990 (0.11)%** 7,302 3.20%* 1.10%* -- 2.37%* N/A N/A 4% --
1.022 9.17% 104,253 6.12% 0.72% 0.72% 0.72% 0.59% 0.59% 79% --
0.995 3.32% 77,498 6.29% 0.74% 0.74% 0.74% 0.60% 0.60% 108% --
1.024 16.96% 60,368 6.24% 0.79% -- 0.80% 0.60% 0.59% 131% --
0.930 (4.82)% 40,784 6.07% 0.83% -- 0.85% 0.60% 0.58% 105% --
1.035 10.95% 25,302 5.91% 0.91% -- 1.08% 0.60% 0.43% 171% --
0.988 0.62%** 5,380 5.38%* 1.00%* -- 1.67%* N/A N/A 119% --
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%/(5)/ 7,156 7.13% 0.60% -- 0.71% N/A N/A N/A --
</TABLE>
See Notes to Financial Statements.
- ---------------------------------------------------------
F-29
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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, 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 twelve managed investment portfolios (see Note
9). The accompanying financial statements and financial highlights are those of
the Select Aggressive Growth, Select Capital Appreciation, Select International
Equity, Select Growth, Select Growth and Income, Select Income, and Money Market
Funds (individually, a "Portfolio," collectively, the "Portfolios").
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, 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. 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.
Forward Foreign Currency Contracts: The Select International Equity and Select
Capital Appreciation Funds may enter into forward foreign currency contracts
whereby the Portfolios agree to sell a specific currency at a specific price at
a future date in an attempt to hedge against fluctuations in the value of the
underlying currency of certain portfolio instruments. Forward foreign currency
contracts are valued at the daily exchange rate of the underlying currency with
any fluctuations recorded as unrealized gains or losses. Receivables and
payables of forward foreign currency contracts are presented on a net basis in
the Statements of Assets and Liabilities. Gains or losses on the purchase or
sale of forward foreign currency contracts having the same settlement date and
broker are recognized on the date of offset, otherwise gains and losses are
recognized on the settlement date.
Foreign Currency Translation: Investment valuations, other assets and
liabilities denominated in foreign currencies are converted each business day
into U.S. dollars based upon current exchange rates. Purchases and sales of
foreign investments and income and expenses are converted into U.S. dollars
based upon exchange rates prevailing on the respective dates of such
transactions. That portion of unrealized gains or losses on investments due to
fluctuations in foreign currency exchange rates is not separately disclosed.
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 coup-
---------------------------------------------------
F-30
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
ton 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 continue 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.
Paid-in capital, undistributed net investment income and accumulated net
realized gain (loss) have been adjusted in the Statements of Assets and
Liabilities for permanent book-tax differences for all Portfolios with the
exception of the Money Market Portfolio for the year ended December 31, 1997.
Distributions to Shareholders: Dividends from net investment income are declared
and reinvested daily for the Money Market Fund, declared and distributed
quarterly for the Select Growth and Income, and Select Income Funds, and
annually for the Select Aggressive Growth, Select Capital Appreciation, Select
International Equity and Select Growth Funds. All Portfolios declare and
distribute 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, foreign currency transactions, 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.
Organization Costs: Each Portfolio bears all costs in connection with its
organization, including the fees and expenses of registering and qualifying its
shares for distribution under Federal and state securities regulations. All such
costs are being amortized using the straight-line method over a period of five
years beginning with the commencement of the Portfolio's operation. The
Investment Adviser incurred all start up costs of the Portfolios except for
Select Capital Appreciation.
Security Lending: Each Portfolio may loan securities to certain brokers who pay
the Portfolio negotiated lenders' fees. Collateral must be maintained at a value
at least equal to the value at all times of the securities lent. At December 31,
1997, securities with aggregate value of approximately $42,624,931 were on loan
to brokers for the Select Aggressive Growth Fund. The loans were secured with
cash collateral of $43,514,100, which was subsequently invested in short-term
investments. The related income earned was $13,619, which is included in
interest income for the year ended December 31, 1997.
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.
Forward Commitments: The Select Capital Appreciation Fund and Select Income Fund
may enter into contracts to purchase securities for a fixed price at a specified
future date beyond customary settlement time ("forward commitments"). If the
Portfolios do so, they will maintain cash or other liquid obligations having a
value in an amount at all times sufficient to meet the purchase price. Forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. Although the Portfolios generally will
enter into forward commitments with the intention of acquiring securities for
their portfolio, they may dispose of a commitment prior to settlement if their
Sub-Adviser deems it appropriate to do so.
- --------------------------------------------------
F-31
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
Repurchase Agreements: Each Portfolio may engage in repurchase agreement
transactions with institutions that the Trust's Investment 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 Investment Management Company, Inc. (the "Manager"), a wholly-owned
subsidiary of First Allmerica, serves as Investment Adviser and Administrator to
the Trust. Under the terms of the management agreement, as amended on March 18,
1997 and August 15, 1997, the Portfolios pay 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 Next Next Over
Portfolio $100,000,000 $150,000,000 $250,000,000 $250,000,000 $750,000,000
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Select Aggressive Growth 1.00% 0.90% 0.85% 0.85% 0.85%
Select Capital Appreciation 1.00% 0.90% 0.85% 0.85% 0.85%
Select International Equity 1.00% 0.90% 0.85% 0.85% 0.85%
Select Growth 0.85% 0.85% 0.85% 0.85% 0.85%
Select Growth and Income 0.75% 0.70% 0.65% 0.65% 0.65%
</TABLE>
<TABLE>
<CAPTION>
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>
<TABLE>
<CAPTION>
First Next Over
Portfolio $50,000,000 $50,000,000 $100,000,000
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Select Income 0.60% 0.55% 0.45%
</TABLE>
Prior to September 1, 1997, the following Portfolios paid 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>
Select Aggressive Growth 1.00% 1.00% 1.00%
Select Capital Appreciation 1.00% 1.00% 1.00%
Select International Equity 1.00% 1.00% 1.00%
Select Growth and Income 0.75% 0.75% 0.75%
Select Income 0.60% 0.60% 0.60%
</TABLE>
-------------------------------------------------------
F-32
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
Amendments to the management agreement were approved by the shareholders of the
applicable funds of the Trust at meetings held on March 18, 1997 and August 15,
1997.
The Manager has entered into Sub-Adviser Agreements for the management of the
investments of each of the Portfolios. The Manager is solely responsible for the
payment of all fees to the Sub-Advisers. The Sub-Advisers for each of the
Portfolios are as follows:
Select Aggressive Growth Nicholas-Applegate Capital Management, L.P.
Select Capital Appreciation Janus Capital Corporation
Select International Equity Bank of Ireland Asset Management (U.S.) Limited
Select Growth Putnam Investment Management, Inc.
Select Growth and Income John A. Levin & Co., Inc.
Select Income Standish, Ayer & Wood, Inc.
Money Market Allmerica Asset Management, Inc.
At a meeting of shareholders held August 15, 1997, shareholders also approved
amendments to the sub-advisory agreements for Select Aggressive Growth Fund and
Select Capital Appreciation Fund.
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
administrative services for the Portfolios 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 Portfolios 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.
4. REIMBURSEMENT OF EXPENSES AND WAIVER OF FEES
In the event normal operating expenses of each Portfolio, excluding taxes,
interest, broker commissions and extraordinary expenses, but including the
advisory fee, exceed certain voluntary expense limitations (Select International
Equity Fund - 1.50%, Select Aggressive Growth Fund - 1.35%, Select Capital
Appreciation Fund - 1.35%, Select Growth Fund - 1.20%, Select Growth and Income
Fund - 1.10%, Select Income Fund - 1.00%, and Money Market Fund - 0.60%), the
Manager will voluntarily reimburse its fees and any expenses in excess of the
expense limitations. Expense limitations may be removed or revised at any time
after a Portfolio's first fiscal year of operations without prior notice to
existing shareholders.
5. REDUCTION OF EXPENSES
Certain Portfolios have entered into agreements with brokers whereby the brokers
will rebate a portion of brokerage commissions. Such amounts earned by the
Portfolios, under such agreements, are presented as a reduction of expenses in
the Statements of Operations.
6. 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-33
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
7. FOREIGN SECURITIES
All Portfolios may purchase securities of foreign issuers. 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.
8. FINANCIAL INSTRUMENTS
Investing in certain financial instruments including forward foreign currency
contracts involves risk other than that reflected in the Statements of Assets
and Liabilities. Risks associated with these instruments include the potential
for an imperfect correlation between the movements in the price of the
instruments and the price of the underlying securities and interest rates, an
illiquid secondary market for the instruments or inability of counterparties to
perform under the terms of the contracts, and changes in the value of foreign
currency relative to the U.S. dollar. The Select International Equity Fund and
the Select Capital Appreciation Fund enter into these contracts primarily to
protect the Portfolio from adverse currency movement.
9. SUBSEQUENT EVENT
The Trust recently established two new managed investment portfolios: Select
Emerging Markets Fund and Select Strategic Growth Fund. Schroder Capital
Management International Inc., a wholly-owned subsidiary of Schroders, Plc, will
serve as sub-adviser for the Select Emerging Markets Fund. Cambiar Investors,
Inc., a wholly-owned subsidiary of United Asset Management Corporation, will
serve as sub-adviser for the Select Strategic Growth Fund. The new Portfolios
are expected to commence operations on or about February 20, 1998.
--------------------------------------------
F-34
<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 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 Select Aggressive Growth Fund, Select Capital Appreciation Fund, Select
International Equity Fund, Select Growth Fund, Select Growth and Income Fund,
Select Income Fund, and Money Market Fund, (seven of the Portfolios constituting
the Allmerica Investment Trust, hereafter referred to as the "Trust") at
December 31, 1997, and 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, 1997 by
correspondence with the custodian and the application of alternative auditing
procedures where investments purchased were not yet received by the custodian,
provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
February 11, 1998
- -------------------------------------------- F-35
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
SHAREHOLDER VOTING RESULTS: (Unaudited)
A special meeting of the Trust's shareholders was held on August 15, 1997 in
which they approved twelve proposals. The results were as follows:
Proposal 1 To elect as Trustees the following eight nominees:
- ----------
Shares Shares Percent of
For Withheld Shares Voted
------------- ---------- ------------
Cynthia A. Hargadon 1,938,258,984 31,269,098 100.00%
Gordon Holmes 1,939,243,085 30,284,997 100.00%
John P. Kavanaugh 1,939,797,208 29,730,874 100.00%
Bruce E. Langton 1,937,762,009 31,766,074 100.00%
John F. O'Brien 1,939,501,868 30,026,214 100.00%
Attiat F. Ott 1,938,512,953 31,015,129 100.00%
Richard M. Reilly 1,940,655,029 28,873,054 100.00%
Ranne P. Warner 1,938,603,816 30,924,266 100.00%
Proposal 2 To ratify the selection of Price Waterhouse LLP
- ---------- as independent accountants for the Trust:
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
------------- ---------- ---------- ------------
Price Waterhouse LLP 1,905,804,327 16,680,566 47,043,189 100.00%
Proposal 3 To amend the management fee schedules in the Management
- ---------- Agreement between Allmerica Investment Management Company, Inc.
and Allmerica Investment Trust for the Funds below:
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- ---------- ---------- ------------
Select Aggressive Growth 210,913,895 5,360,717 7,081,745 100.00%
Select Capital Appreciation 114,202,372 3,265,814 3,442,617 100.00%
Select International Equity 220,386,752 4,564,117 7,695,067 100.00%
Growth 222,195,807 14,056,428 8,369,802 100.00%
Select Growth and Income 227,489,980 5,863,093 8,109,903 100.00%
Select Income 78,873,767 1,233,240 5,176,275 100.00%
Investment Grade Income 142,274,939 7,145,607 4,262,609 100.00%
Proposal 4 To amend the sub-adviser fee schedule in the Sub-Adviser
- ---------- Agreement between Allmerica Investment Management Company,
Inc. and Nicholas-Applegate Capital Management, L.P. relating
to the Select Aggressive Growth Fund:
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- --------- ---------- ------------
Select Aggressive Growth 211,648,040 3,985,212 7,723,105 100.00%
Proposal 5 To amend the sub-adviser fee schedule in the Sub-Adviser
- ---------- Agreement between Allmerica Investment Management Company,
Inc. and Janus Capital Corporation relating to the Select
Capital Appreciation Fund:
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- --------- ---------- ------------
Select Capital Appreciation 114,086,423 3,046,035 3,778,346 100.00%
F-36 --------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
Proposal 6 To approve an arrangement that would permit the Investment
- ---------- Manager of the Trust to enter into and materially amend sub-
advisory agreements with non-affiliated sub-advisers without
obtaining shareholder approval relating to the Funds below:
<TABLE>
<CAPTION>
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Select Aggressive Growth 202,036,453 13,599,240 7,720,664 100.00%
Select Capital Appreciation 109,284,768 7,510,075 4,115,960 100.00%
Select Value Opportunity 79,769,789 7,689,239 2,213,323 100.00%
Select International Equity 209,996,997 14,324,566 8,324,373 100.00%
Select Growth 179,696,429 11,284,076 8,477,958 100.00%
Growth 212,156,478 22,705,825 9,759,733 100.00%
Select Growth and Income 215,564,920 15,676,684 10,221,371 100.00%
Select Income 75,878,564 3,137,643 6,267,075 100.00%
</TABLE>
Proposal 7 To change the status of the investment objective of each
- ---------- Fund of the Trust from fundamental to non-fundamental:
<TABLE>
<CAPTION>
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Select Aggressive Growth 199,892,080 15,656,151 7,808,127 100.00%
Select Capital Appreciation 108,482,011 8,778,200 3,650,593 100.00%
Select Value Opportunity 78,734,323 8,501,412 2,436,617 100.00%
Select International Equity 207,396,063 16,754,817 8,495,056 100.00%
Select Growth 176,524,469 14,761,165 8,172,830 100.00%
Growth 207,638,770 27,600,709 9,382,558 100.00%
Equity Index 76,633,944 7,821,946 2,211,602 100.00%
Select Growth and Income 212,516,025 19,542,689 9,404,262 100.00%
Select Income 75,285,571 3,586,410 6,411,300 100.00%
Investment Grade Income 136,062,950 12,797,731 4,822,474 100.00%
Government Bond 38,759,285 4,497,417 1,465,727 100.00%
Money Market 215,353,047 18,194,661 13,495,093 100.00%
</TABLE>
Proposal 8 To revise the investment restrictions of each Fund of the
- ---------- Trust to permit the Fund to borrow money for temporary purposes
when the aggregate amount borrowed does not exceed 33 1/3% of
the value of the Fund's total assets at the time such
borrow is made:
<TABLE>
<CAPTION>
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Select Aggressive Growth 191,754,480 23,649,250 7,952,627 100.00%
Select Capital Appreciation 102,008,709 14,085,611 4,816,484 100.00%
Select Value Opportunity 74,750,173 12,319,606 2,602,573 100.00%
Select International Equity 198,505,712 24,736,579 9,403,645 100.00%
Select Growth 168,311,152 22,211,984 8,935,328 100.00%
Growth 199,904,328 34,837,588 9,880,121 100.00%
Equity Index 72,418,535 11,777,318 2,471,639 100.00%
Select Growth and Income 203,469,878 26,878,157 11,114,941 100.00%
Select Income 73,158,611 5,875,439 6,249,232 100.00%
Investment Grade Income 131,877,958 17,190,516 4,614,681 100.00%
Government Bond 37,150,526 6,044,470 1,527,433 100.00%
Money Market 202,129,620 30,802,423 14,110,757 100.00%
</TABLE>
- -----------------------------------------------
F-37
<PAGE>
- --------------------------------------------------------------------------------
ALLMERICA INVESTMENT TRUST
- --------------------------------------------------------------------------------
OTHER INFORMATION
- --------------------------------------------------------------------------------
Proposal 9 To change the status of the investment restrictions of each
- ---------- fund of the Trust relating to financial futures and
related options from fundamental to non-fundamental:
<TABLE>
<CAPTION>
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Select Aggressive Growth 197,382,652 17,966,640 8,007,066 100.00%
Select Capital Appreciation 107,113,209 9,612,369 4,185,225 100.00%
Select Value Opportunity 78,077,748 8,978,651 2,615,953 100.00%
Select International Equity 205,428,153 18,335,742 8,882,040 100.00%
Select Growth 174,587,490 16,485,541 8,385,432 100.00%
Growth 205,011,067 29,451,137 10,159,833 100.00%
Equity Index 75,341,614 9,159,968 2,165,910 100.00%
Select Growth and Income 210,679,129 20,453,649 10,330,197 100.00%
Select Income 74,957,488 4,092,658 6,233,135 100.00%
Investment Grade Income 135,817,086 13,212,694 4,653,375 100.00%
Government Bond 38,525,164 4,814,161 1,383,104 100.00%
Money Market 212,675,590 20,750,585 13,616,626 100.00%
</TABLE>
Proposal 10 To revise the investment policies of the Select Value
- ----------- Opportunity Fund to permit the Fund to engage in
financial futures and related options transactions:
<TABLE>
<CAPTION>
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Select Value Opportunity 78,603,876 8,271,306 2,797,170 100.00%
</TABLE>
Proposal 11 To change the status of certain investment policies of the
- ----------- Growth Fund relating to the types of securities in
which the Fund may invest and related limitations, if any,
from fundamental to non-fundamental:
<TABLE>
<CAPTION>
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Growth 208,052,803 26,700,986 9,868,247 100.00%
</TABLE>
Proposal 12 To revise the investment restrictions of the funds
- ----------- listed below to permit such Funds to invest in securities
which are restricted as to disposition under Federal
securities laws:
<TABLE>
<CAPTION>
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Growth 211,745,319 22,642,962 10,233,756 100.00%
Equity Index 76,319,871 7,976,776 2,370,845 100.00%
Investment Grade Income 137,897,454 11,258,361 4,527,340 100.00%
Government Bond 39,298,062 3,968,040 1,456,327 100.00%
Money Market 215,152,360 18,978,223 12,912,217 100.00%
</TABLE>
At a special meeting of shareholders of the Select Value Opportunity Fund held
on December 30, 1997, shareholders approved the new Sub-Adviser Agreement
between Allmerica Investment Management Company, Inc. and Cramer Rosenthal
McGlynn, LLC. The results were as follows:
<TABLE>
<CAPTION>
Shares Shares Shares Percent of
For Against Abstaining Shares Voted
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
96,229,373 3,268,212 4,051,344 100.00%
</TABLE>
----------------------------------------------
F-38
<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 Portfolios and are not authorized
for distribution to prospective investors in the flexible premium variable life
insurance or annuity products of Allmerica Financial Life Insurance and Annuity
Company or First Allmerica Financial Life Insurance Company unless accompanied
or preceded by effective prospectuses for the flexible premium variable life
insurance or annuity products of Allmerica Financial Life Insurance and Annuity
Company or First Allmerica Financial Life Insurance Company, Allmerica
Investment Trust, Variable Insurance Products Fund, Variable Insurance Products
Fund II, Delaware Group Premium Fund International Equity Series, and T. Rowe
Price International Stock Portfolio, which include important information related
to charges and expenses.
CLIENT NOTICES
- -------------------------------------------------------------------------------
This annual report includes financial statements for Allmerica Investment Trust.
It does not include financial statements for the separate accounts that
correspond to the Allmerica Select Resource, Allmerica Select Resource II,
Allmerica Select Life and Allmerica Select Inheiritage contracts. Separate
account financial statements will no longer be provided.
- ----------------------------------------------- F-39
<PAGE>
This page left blank intentionally.
<PAGE>
Allmerica Financial
Allmerica Select products are offered through Allmerica Financial Life Insurance
and Annuity Company. Our parent company, First Allmerica Financial, is the
nation's fifth oldest life insurance company. Founded in 1844, First Allmerica
Financial has been serving the financial needs of its policyholders for more
than 150 years.
Allmerica Select brings together the experience and financial strength of
Allmerica Financial Life with the talent of some of the world's leading money
managers. It's a powerful combination that can help achieve your financial
goals.
Allmerica Select Variable Products are issued by First Allmerica Financial Life
Insurance Company and Allmerica Financial Life Insurance and Annuity Company and
are distributed by Allmerica Investments, Inc. To be preceded or accompanied by
the current Allmerica Select Product prospectus.
Read it carefully before investing.
[LOGO OF ALLMERICA INVESTMENTS, INC. APPEARS HERE]
ALLMERICA INVESTMENTS, INC.
440 LINCOLN STREET, WORCHESTER, MASSACHUSETTS 01653
