<PAGE>
-----------------------
Allmerica Financial Services Semi-Annual Report
- --------------------------------------------------------------------------------
JUNE 30, 1999
The Fulcrum Fund(SM)
Variable Annuity
. The Fulcrum Trust
The Fulcrum Fund(SM)
----------------
[GRAPHIC APPEARS HERE]
[LOGO OF ALLMERICA FINANCIAL(R) APPEARS HERE]
<PAGE>
General Information ....................................................... 2
A Letter from the Chairman ................................................ 3
Portfolio Performance Summary ............................................. 4
Product Performance Summaries ............................................. 6
The Fulcrum Fund Variable Annuity (FAFLIC) ................................ 6
The Fulcrum Fund Variable Annuity (AFLIAC) ................................ 7
Domestic & International Equity Market Overview ........................... 8
The Global Interactive/Telecomm Portfolio ................................. 10
The International Growth Portfolio ........................................ 11
The Growth Portfolio ...................................................... 12
The Value Portfolio ....................................................... 13
Bond & Money Market Overview .............................................. 14
The Strategic Income Portfolio ............................................ 16
Financials ................................................................ F-1
For further information, see the accompanying semi-annual report.
See Client Notices on page F-21.
Table of Contents 1
<PAGE>
Officers of First Allmerica Financial Life Insurance
Company (FAFLIC) and Allmerica Financial Life Insurance and Annuity Company
(AFLIAC)
John F. O'Brien, President, CEO (FAFLIC) and Chairman of the Board (AFLIAC)
Richard M. Reilly, President and CEO (AFLIAC)
Edward J. Parry, III, Vice President, CFO and Treasurer
Abigail M. Armstrong, Secretary and Counsel
Investment Manager
Allmerica Financial Investment Management Services, Inc.
440 Lincoln Street, Worcester, MA 01653
General Distributor
Allmerica Investments, Inc.
440 Lincoln Street, Worcester, MA 01653
Independent Accountants
PricewaterhouseCoopers LLP
160 Federal Street, Boston, MA 02110
Administrator, Custodian, Transfer Agent
Investors Bank & Trust Company
200 Clarendon Street, Boston, MA 02116
Legal Counsel
Shea & Gardner
1800 Massachusetts Avenue, N.W., Washington D.C. 20036
Officers of The Fulcrum Trust
George J. Sullivan, Jr., President
Paul T. Kane, Treasurer
George M. Boyd, Secretary
Board of Trustees of The Fulcrum Trust
George J. Sullivan, Jr. Chairman/1/
Tom N. Dallape/1/
Gordon Holmes/1/
/1/Independent Trustees
Portfolio Managers
Allmerica Asset Management, Inc.
440 Lincoln Street, Worcester, MA 01653
The Strategic Income Portfolio
Bee & Associates, Inc.
370 17th Street, Suite 3560, Denver, CO 80202
The International Growth Portfolio
GAMCO Investors, Inc.
One Corporate Center, Rye, NY 10570-1434
The Value Portfolio
The Global Interactive/Telecomm Portfolio
Analytic Investors, Inc.
700 Flower Street, Suite 2400
Los Angeles, CA 90017
The Growth Portfolio
2 General Information
<PAGE>
[PICTURE OF GEORGE J. SULLIVAN, JR APPEARS HERE]
Dear Client:
The U.S. equity market continued its strong performance into the first half of
1999, rising over 12% as measured by the S&P 500 Index. The first quarter showed
a continuation of the trends that have been in place for some time, with
strength coming from large-cap U.S. growth stocks. Beginning in April, however,
sentiment changed and investors sought out more attractively valued stocks which
they found in smaller companies and emerging markets. The outlook for emerging
markets appears to have been the catalyst for this significant shift in
sentiment. In January, Brazil successfully devalued its currency without
creating turmoil throughout the region. Meanwhile, other emerging markets showed
signs of stability and even growth. Investors found value in basic industries
and cyclical stocks, causing large-cap value stocks to post a strong quarter.
Investors also moved into small-cap stocks and emerging markets causing the
Russell 2000 and MSCI Emerging Markets Free Indices to increase over 15% and 24%
respectively during the second quarter.
We are very pleased to report strong investment returns for the period for our
equity funds as our managers were able to participate in the rising markets and,
in some cases, capture additional returns. The highly disciplined and
quantitative investment process employed by the manager of the Growth Portfolio
enabled the fund to outperform the S&P 500 Index during each of the last two
quarters. These results help confirm our decision last year to replace the
previous manager and refocus the objective of the fund. Good security selection
helped produce strong absolute returns in the Global Interactive/Telecom fund as
the world continues to adapt to new communication technology. Overseas,
investors finally started paying attention to attractively valued small
companies. Investors in the International Growth Portfolio were rewarded as the
strong fundamentals of the companies in which the Portfolio invests were finally
recognized and bid up by other investors. For more information on these and all
of our funds, please read the market overviews and managers' commentaries found
later in this report.
Your Board continues to work hard to build on the changes and improvements we
implemented in the Trust last year. Our current focus is to seek out ways to
grow the Trust and attract new clients. In this way we can drive down fund
expenses and assist the managers in delivering competitive returns to you, our
clients.
We continue to work hard to earn your confidence and trust. Thank you for your
business.
On behalf of the Board of Trustees,
/s/ George J. Sullivan, Jr
George J. Sullivan, Jr.
Chairman of the Board
The Fulcrum Trust
A Letter from the Chairman 3
<PAGE>
The Fulcrum Trust
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/99
For easy reference, the total returns for the Portfolios are summarized below.
Keep in mind that these returns reflect all Portfolio charges but do not include
any insurance product fees or expenses. For returns that reflect the deduction
of product charges, please refer to the Product Performance Summaries beginning
on page 6.
<TABLE>
<CAPTION>
Portfolio
Inception 1 Life of
Portfolios Date Year Portfolio
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Fulcrum Trust
The Global Interactive/Telecomm Portfolio 2/1/96 31.52% 26.87%
The International Growth Portfolio 3/26/96 0.58% 2.01%
The Growth Portfolio 2/1/96 15.87% 10.06%
The Value Portfolio 2/1/96 4.47% 18.21%
The Strategic Income Portfolio 2/1/96 1.16% 1.31%
</TABLE>
Portfolio performance returns given above reflect an investment in the
underlying Portfolios listed on the date of inception of each Portfolio.
Portfolio performance returns in this report are historical and are not
indicative of future results. The investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost.
4 Portfolio Performance Summary
<PAGE>
Performance
<PAGE>
The Fulcrum Fund(SM)Variable Annuity (FAFLIC)
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/99
For easy reference, the total returns for The Fulcrum Fund(SM)Variable Annuity
sub-accounts of FAFLIC are summarized below. Keep in mind that these returns are
net of all 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 Charge With Surrender Charge
And Contract Fee And Contract Fee
Sub-
Account Life Life
Inception 1 Life of of Sub- 1 Life of of Sub-
Sub-Accounts Date Year Portfolio Account Year Portfolio Account
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Fulcrum Trust
- ---------------------------------------------------------------------------------------------------------------------------
The Global Interactive/Telecomm Portfolio 9/30/97 29.64% 25.07% 36.80% 21.77% 23.53% 33.10%
The International Growth Portfolio 10/3/97 -0.87% 0.56% -4.40% -6.99% -0.85% -7.59%
The Growth Portfolio 9/30/97 14.20% 8.49% -0.90% 6.73% 6.75% -4.78%
The Value Portfolio 9/30/97 2.96% 16.53% 10.58% -4.03% 14.85% 6.29%
The Strategic Income Portfolio 10/3/97 -0.30% -0.13% 0.64% -6.38% -1.34% -2.51%
</TABLE>
Performance returns given above are for the The Fulcrum Fund Variable Annuity
sub-accounts of FAFLIC, and except in the columns designated as "Life of
Sub-Account", assume an investment in the underlying portfolios listed above on
the date of inception of each Fund. Performance returns designated as "Life of
Sub-Account" assume an investment in the portfolios listed on the date of
inception of each Sub-Account. All full surrenders or withdrawals in excess of
the free amount may be subject to a declining sales charge. The maximum
contingent deferred sales charge is 7.0%. Please refer to the product prospectus
for the assumptions used to calculate performance.
Performance returns in this report are historical and are not indicative of
future results. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
6 Product Performance Summary
<PAGE>
The Fulcrum Fund(SM)Variable Annuity (AFLIAC)
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 6/30/99
For easy reference, the total returns for The Fulcrum Fund(SM)Variable Annuity
sub-accounts of AFLIAC are summarized below. Keep in mind that these returns are
net of all 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 Charge With Surrender Charge
And Contract Fee And Contract Fee
Sub-
Account Life Life
Inception 1 Life of of Sub- 1 Life of of Sub-
Sub-Accounts Date Year Portfolio Account Year Portfolio Account
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Fulcrum Trust
- ---------------------------------------------------------------------------------------------------------------------------
The Global Interactive/Telecomm Portfolio 3/13/97 29.64% 25.07% 35.99% 22.09% 23.90% 33.96%
The International Growth Portfolio 3/13/97 -0.86% 0.56% -2.12% -7.27% -1.20% -4.71%
The Growth Portfolio 3/13/97 14.20% 8.49% 8.18% 6.74% 6.71% 5.28%
The Value Portfolio 3/13/97 2.97% 16.54% 16.25% -3.93% 14.94% 13.49%
The Strategic Income Portfolio 3/13/97 -0.30% -0.13% 1.79% -6.47% -1.46% -0.44%
</TABLE>
Performance returns given above are for the The Fulcrum Fund Variable Annuity
sub-accounts of AFLIAC, and except in the columns designated as "Life of
Sub-Account", assume an investment in the underlying portfolios listed above on
the date of inception of each Fund. Performance returns designated as "Life of
Sub-Account" assume an investment in the portfolios listed on the date of
inception of each Sub-Account. All full surrenders or withdrawals in excess of
the free amount may be subject to a declining sales charge. The maximum
contingent deferred sales charge is 7.0%. Please refer to the product prospectus
for the assumptions used to calculate performance.
Performance returns in this report are historical and are not indicative of
future results. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than their original cost.
Product Performance Summary 7
<PAGE>
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.
1998: Worldwide economic problems cause considerable volatility for stocks. Yet,
the market posts its fourth consecutive year of double-digit gains.
1999: Signs of a global economic recovery boost the performance of commodities
issues. Investors shift their interest away from growth stocks in favor of more
attractively valued small- and mid-cap stocks.
The first six months of 1999 witnessed signs of a global economic recovery,
inducing a market rotation in favor of small- and mid-cap stocks, as well as
value stocks. In response to recovering developed and emerging markets, as well
as continued U.S. economic growth, investors shifted their attention away from
the more popular growth stocks toward opportunities in the broader market.
As the year began, investors gained confidence from the smooth introduction of
the euro, but worried about emerging markets and the impact of a potential
devaluation of the Brazilian currency. The financial contagion accompanying last
year's devaluation of the Russian ruble was clearly on investors' minds.
However, fears that Brazil would take emerging markets lower proved to be
unfounded, as Brazil's January currency devaluation was accepted quite well by
the world's markets. Ultimately, greater price and currency stability enabled
interest rates to fall throughout Latin America and Asia, helping the equity
markets. Investor confidence in the recovery of worldwide economies boosted the
performance of commodities issues, including oil, utility, and paper companies.
Helped by falling interest rates, government fiscal stimulus policies, and the
interest of American investors, Japan made a striking comeback as the best
performer among the world's major markets so far this year. Significant
contributors included Toshiba, Murata Manufacturing, and Takeda Chemical. The
European Central Bank surprised the markets in April by cutting rates by 0.50%,
sparking an all-time high in consumer confidence. The European stock markets
rallied further once the U.S. Federal Reserve decided to adopt a neutral bias
after imposing an interest rate increase of 0.25% on June 30. Positive economic
news emerged out of Germany and France. One notable performer was the German
telecommunications company, Mannesmann, having successfully made a host of
acquisitions including Telecom Italia. The outstanding performance of
commodity-based stocks
[TIME LINE APPEARS HERE]
1999 JAN
Brazil devalues their currency and fears that a Brazilian "contagion" would
emerge, failed to materialize. Ultimately, greater price and currency stability
enable interest rates to fall in Latin America and Asia.
[GRAPHIC APPEARS HERE] FEB
Investor confidence in global economic recovery promotes commodity-based stocks.
The petroleum market stabilizes, helping to drive stocks higher in the energy
sector.
[GRAPHIC APPEARS HERE] MAR
Japan makes a striking comeback as the best performer among the world's major
markets due to falling interest rates, fiscal stimulus policies, and the
interest of American investors.
<PAGE>
brightened the horizon on both domestic and international fronts. As a result,
investor interest turned toward exporting companies from Australia and New
Zealand. The subsequent stabilization of the petroleum market contributed to an
increase in oil prices, helping to drive stocks higher in the energy sector.
Corporate profits in the U.S. continued to be troubled by problems in the Asian
market early in the year. Large gains continued within a select group of
large-cap and Internet stocks with very poor performance across the rest of the
market. Weaker demand for most commodities and exports from the U.S. muted
pricing power for many industries. Investors gravitated to stocks where revenue
growth was strong such as the Internet, health care, and large "brand name"
stocks. Old growth stocks were eclipsed by the new with America Online
surpassing Coca-Cola in market value. Mergers also gave the market a lift as BP
Amoco acquired Atlantic Richfield, BankBoston and Fleet agreed to merge, and the
AT&T-TCI deal was completed.
However, by the second quarter, the U.S. corporate profits recession appeared to
be ending. As a result, small- and mid-cap stocks experienced a revival as
investors turned their interest toward more value-oriented stocks.
Unfortunately, the growth sectors of the market weakened as the profit outlook
for growth stocks became overshadowed by fears that a renewed confidence in a
global economic recovery would lead to higher rates. With the broadening in the
market, investors adopted a renewed interest in the heavy industry sector, as
well as the basic materials, energy, consumer durables, retail trade and
financial sectors. The longest bull market in U.S. history continued its
stampede, enabling the financial sector to rebound from the lows of last
October. Health care became the weakest performing sector, suffering from
underperformance of large pharmaceutical holdings caused by reductions in
Medicare reimbursements.
Looking ahead, the Federal Reserve's proactive interest rate increase could keep
the economy in a modest growth phase as they work to keep inflation in check.
Improving global economic conditions should continue to encourage investors, who
have enjoyed, thus far, a welcome broadening in the market. It is expected that
the euro will rise toward the end of the year if the European markets continue
to gain strength. Investors are cautious with regard to Japan and Asia. For
Japan, the road toward economic recovery will be long and difficult, and the
commitment to reform may dissolve in Asia if their economies and asset prices
keep rising. Similarly, the economic outlook is still tenuous in Latin America
where there is alarming sensitivity to interest rate fluctuations, and the real
potential for political opposition in Brazil could impede economic progress.
[TIMELINE APPEARS HERE]
[GRAPHIC APPEARS HERE] APR
The European Central Bank surprises the markets by cutting rates by 0.50%,
sparking an all-time high in consumer confidence.
MAY
Growth sectors of the market weaken, over fears that the recovery of worldwide
economies would lead to higher interest rates. Small- and mid-cap stocks
experience a revival as investors renew their interest in attractively valued
securities within the broader market.
[GRAPHIC APPEARS HERE] JUN
In an effort to prevent inflation, the U.S. Federal Reserve raises interest
rates 0.25%. European markets rally once the Fed decides to loosen its
tightening bias in favor of a neutral interest rate position.
Domestic & International Equity Market Overview 9
<PAGE>
The Global Interactive/Telecomm Portfolio returned 22.64% for the first half of
the year, while the S&P 500 returned 12.38% for the same period.
Global service providers, selected broadcasters, and U.S. telecommunications
companies all benefited the Portfolio's performance. In recent years, much
investment attention has focused on the build-out of the Internet transmission
highway and the advent of new interactive services. Cable television stocks
soared as investors recognized the enormous potential of their Internet pipeline
business. Telecommunications companies and information/entertainment software
producers have also done well with the realization that the age of interactivity
is upon us.
U.S. broadcasters suffered through a dismal 1998. They lost viewers and
advertising dollars to cable television operators. The Internet captured a
bigger piece of many companies' advertising budgets. However, although the
national and local spot markets remain soft, up-front advertising sales are up
13%. They will get an additional boost in the upcoming election year.
In the second quarter, the Portfolio's broadcast holdings were mixed. Small
independents posted modest gains. The Portfolio's managers believe when
investors start to focus on next year's numbers, they will begin investing in
these broadcast laggards. Leading performers came from a wide range of
interactive service sub-sectors including cable television, domestic telcos, and
publishers. Detracting from performance were several holdings in gaming
companies.
One of the principal drivers of the Portfolio now and going forward is wireless
telephony. There are a number of factors that are driving these service
providers including single rate plans, data transmission and caller-pays. The
Portfolio holds a number of companies that have the potential to continue to
perform well in the months and years ahead.
Investment Manager
GAMCO Investors, Inc.
About The Fund
Seeks to make money by investing globally in equity securities of companies that
develop, manufacture or sell interactive and/or telecommunications services and
products.
Portfolio Composition
As of June 30, 1999, the sector allocation of net assets was:
[BAR GRAPH APPEARS HERE]
Telephone Systems 28%
Communications 11%
Entertainment & Leisure 10%
Media Broadcasting 8%
Publishing 7%
Other 36%
Average Annual Total Returns
Period ended June 30, 1999 1 Year Life of Fund
The Global Interactive/Telecomm Portfolio 31.52% 26.87%
S&P 500(R)Index 22.76% 27.52%
Growth of a $10,000 Investment Since 1996
[LINE GRAPH APPEARS HERE]
The Global
Interactive S&P
Inception Telecomm 500(R)
Date Portfolio Index
--------- ------------ -------
2/96 $10,000 $10,000
6/96 9,720 10,647
12/96 10,049 11,891
6/97 11,526 14,342
12/97 14,097 15,859
6/98 17,124 18,668
12/98 18,364 20,392
6/99 22,522 22,917
The Global Interactive/Telecomm Portfolio is a portfolio of The Fulcrum 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) is
a registered trademark of the Standard & Poor's Corporation. 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.
10 The Global Interactive/Telecomm Portfolio
<PAGE>
The International Growth Portfolio was up 13.40% in the second quarter while the
MSCI EAFE Index was up 2.50%. In the first half, the portfolio increased 16.44%
while the benchmark increased 4.00%.
The Portfolio's performance was significantly helped by its European positions,
especially in Switzerland, as well as a position in one Japanese small-cap
stock.
The Fund continued to be negatively affected by the strength of the dollar,
especially compared to the Euro, since the Portfolio manager does not hedge the
Fund's currency exposure.
With only minor purchases and sales in existing positions, there were no major
changes in the portfolio during the first half of 1999.
The Portfolio manager is optimistic about the improving environment for equities
in Europe and, on a selected basis, in Asia. The manager expects the second half
to see further fundamental progress by companies in the portfolio and hopes that
the strength of the dollar will subside, which would benefit all existing
positions.
Average Annual Total Returns
Period ended June 30, 1999 1 Year Life of Fund
The International Growth Portfolio 0.58% 2.01%
Morgan Stanley EAFE Index 7.62% 7.71%
Growth of a $10,000 Investment Since 1996
[LINE GRAPH APPEARS HERE]
The Morgan
International Stanley
Growth EAFE
Date Portfolio Index
- ----- -------------- --------
3/96 $10,000 $10,000
6/96 7,270 10,195
12/96 10,330 10,262
6/97 10,951 11,324
12/97 9,967 10,286
6/98 10,613 11,839
12/98 9,168 12,161
6/99 10,675 12,741
The International Growth Portfolio is a portfolio of The Fulcrum 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. 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.
Investment Manager
Bee & Associates, Inc.
About The Fund
Seeks to make money by investing internationally for long-term capital
appreciation, primarily in equity securities.
Portfolio Composition
As of June 30, 1999 the country allocation of net assets was:
[BAR GRAPH APPEARS HERE]
Switzerland 15%
Sweden 13%
Israel 12%
United Kingdom 9%
Norway 9%
Other 42%
The International Growth Portfolio 11
<PAGE>
The Growth Portfolio returned 15.49%, outperforming its benchmark S&P 500 Index,
which returned 12.38% for the first half of 1999.
Strong second quarter performer helped to compensate for the first quarter's
0.8% reduction in Portfolio performance caused by writing down a private
placement holding inherited from the previous manager. The resurgence of
valuation measures as a determining factor in pricing securities is one of the
primary reasons for strong second quarter returns.
Measures such as cash flow-to-price and sales-to-price had great predictability
in differentiating high performing stocks from low performing stocks. Since the
Portfolio's managers' investment process relies heavily on these valuation
measures, and less on stock price momentum, the Portfolio benefited tremendously
from this shift.
Despite another strong quarter for the U.S. equity market, modest increases are
anticipated for the remainder of the year. The manager believes that second and
third quarter earnings will continue to support the lofty valuations across most
companies. Still, it should be noted that the manager makes no attempt to add
value by forecasting the short-run direction of the market. Using a proprietary
system to rank both value and growth factors, management will continue to select
stocks that are expected to outperform the S&P 500 Index in any market
environment.
Investment Manager
Analytic Investors, Inc.
About The Fund
Seeks to make money by investing primarily in securities selected for their
long-term growth prospects.
Portfolio Composition
As of June 30, 1999 the sector allocation of net assets was:
[BAR GRAPH APPEARS HERE]
Pharmaceuticals 7%
Computer Software & Processing 7%
Telephone Systems 7%
Banking 6%
Beverages, Food & Tobacco 5%
Other 68%
Average Annual Total Returns
Period ended June 30, 1999 1 Year Life of Fund
The Growth Portfolio 15.87% 10.06%
S&P 500(R)Index 22.76% 27.52%
Growth of a $10,000 Investment Since 1996
[LINE GRAPH APPEARS HERE]
The Growth S&P 500(R)
Date Portfolio Index
-------- ---------- ----------
2/96 10,000 10,000
6/96 9,410 10,647
12/96 10,840 11,891
6/97 12,160 14,342
12/97 11,950 15,859
6/98 11,970 18,668
12/98 12,010 20,392
6/99 13,870 22,917
The Growth Portfolio is a portfolio of The Fulcrum 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&P500(R) is a
registered trademark of the Standard & Poor's Corporation. 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.
12 The Growth Portfolio
<PAGE>
The Value Portfolio returned 8.06% underperforming its benchmark S&P 500 Index,
which returned 12.38% for the first half of 1999.
During the second quarter, value stocks reasserted themselves and the portfolio
jumped 11.9% versus 7.1% for the S&P 500 Index. Cyclical stocks ignited a rally
as a strong domestic economy bolstered the earnings outlook for these companies.
The Portfolio's performance was boosted by industrial and energy service company
holdings. Telecommunications stocks turned out to be modest performers while
broadcast holdings were mixed. Despite a strong second quarter rally, the
manager believes value stocks remain inexpensive while growth stocks are still
overvalued.
The American consumer has been the key to economic growth so far this year. Full
employment, rising wages and a generous stock market have emboldened consumers
who continue to spend. Within this environment, the Portfolio's managers believe
that there are windows of opportunity in the small- and mid-cap value sectors,
as small-cap value stocks offer the dual advantages of better earnings growth
potential with lower P/E multiples. It is also anticipated that dominant
franchises in the telecommunications industry may be positive contributors to
the Portfolio in the future. Management will continue to seek out opportunities
and maintain a diversified portfolio of what they believe are long-term
fundamental investment bargains.
Average Annual Total Returns
Period ended June 30, 1999 1 Year Life of Fund
The Value Portfolio 4.47% 18.21%
S&P 500(R)Index 22.76% 27.52%
Growth of a $10,000 Investment Since 1996
[LINE GRAPH APPEARS HERE]
The Value S&P 500(R)
Date Portfolio Index
- ----- ---------- ----------
2/96 $10,000 $10,000
6/96 10,840 10,647
12/96 11,513 11,891
6/97 13,259 14,342
12/97 15,236 15,859
6/98 16,941 18,668
12/98 16,377 20,392
6/99 17,697 22,917
The Value Portfolio is a portfolio of The Fulcrum 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&P500(R) is a
registered trademark of the Standard & Poor's Corporation. 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.
Investment Manager
GAMCO Investors, Inc.
About The Fund
Seeks to make money by investing in companies that are believed to be
undervalued and may achieve significant capital appreciation.
Portfolio Composition:
As of June 30, 1999 the sector allocation of net assets was:
[BAR GRAPH APPEARS HERE]
Beverages, Food & Tobacco 18%
Insurance 6%
Heavy Machinery 6%
Oil & Gas 5%
Forest Products & Paper 5%
Other 60%
The Value Portfolio 13
<PAGE>
1995: U.S. bond market enjoys its third best performance in 30 years, thanks to
strong total returns from 30-year U.S. Treasuries and corporate issues.
1996: Outlook for Federal Reserve policy affects U.S. bond market.
Long-predicted interest rate cuts, which would have fueled this market, never
occur.
1997: Low inflation and declining interest rates fuel the bond market, which
enjoys its best returns since 1995.
1998: During 1998, bond investments produced widely divergent results as a
series of dramatic swings either left them highly in favor or badly battered.
1999: The first half of 1999 was a turbulent period for the bond market.
Performance varied from the first quarter to the second, leaving the majority of
bond investors disappointed.
The first half of 1999 was a turbulent period for the bond market. Performance
varied from the first quarter to the second, leaving the majority of bond
investors disappointed.
The year began with a certain confidence in the stability of the domestic
economy. Agency, corporate, and mortgage-backed bonds rallied, encouraging
investors to take advantage of bond yield premiums that had been de-emphasized
during the Treasury rally of 1998. However, the economy grew more rapidly than
predicted and patterns of inflation, such as increasing commodity prices, became
evident. By the end of the second quarter the Federal Reserve raised interest
rates 0.25% against the threat of inflation. As the quarter progressed most
sectors tended to decline in value, treasuries suffering the greatest losses. On
the other hand, emerging markets showed signs of life in the second quarter and
a few emerging markets bonds made their debut as stand out performers.
The second quarter marked the first time in two years in which some foreign
markets outperformed the U.S. bond market. Throughout Asia, economic recovery
was evident and interest rates fell. Japan's economy, in particular, showed
great signs of recovery throughout the first half of this year, inspiring
enthusiasm among international investors. Latin America also fared well, the
most significant performers being Mexico and Brazil, both in the process of
economic recovery.
As a group, however, foreign markets underperformed the U.S. bond market in the
second quarter, the major culprit being Europe, where a backup in interest rates
has been significant. Introduced on January 1, the new European currency, the
"euro", lost 13% of its value against the dollar within six months. Many
European bonds sold at a great dis-
[TIMELINE APPEARS HERE]
[GRAPHIC APPEARS HERE] 1999 JAN
The new European Currency is introduced. Over the course of six months, the euro
loses 13% of its value against the dollar.
A rally of agency, corporate, and mortgage-backed bonds encourages investors to
take advantage of bond yield premiums.
[GRAPHIC APPEARSH HERE] FEB
Investors take a cautious stance toward the rapidly growing economy and the
threat of an increase in interest rates by favoring the money market and U.S.
Treasuries.
MAR
Corporate and securitized spreads widen, due principally to the high rate of net
new issuance from companies such as Sprint, Conoco, and Ford.
14 Bond & Money Market Overview
<PAGE>
count to American bonds, yet it appears unlikely that the European Central Bank
will tighten its monetary policy in the near future. A highly probable source of
the foreign market's underperformance is the Japanese selling of
euro-denominated issues in the face of the significant weakness of the euro
against both the dollar and the yen.
Although the Federal Reserve announced their decision to adopt a neutral bias in
conjunction with an increase in interest rates in late June, they are on the
lookout for signs that the domestic economy is strengthening, in which case a
more forceful bias will be in order. The record pace of corporate bond issuance
displayed late in the second quarter is one indicator that the economy is, in
fact, continuing to strengthen. The high rate of net new issuance, higher than
the total for any previous year with the exception of last year's, has been the
largest force in widening corporate and securitized spreads. The predominance of
"mega" issues, such as the Ford and earlier AT&T issues, has also tended to
reduce liquidity in the broader corporate market as more money is drawn to
relatively few large and liquid issues.
The money market also struggled as a result of the volatile economy but managed
to outperform the bond market. Ultimately, it was the very strength of the
economy that worried investors and the Federal Reserve about the potential for
higher inflation. The domestic economy turned out to be more resilient than
predicted. Housing and auto sales remained strong and corporate fundamentals
remained positive. Investors remained defensive against rising interest rates
over the last quarter and were rewarded by turning their attention to the
general security of the money market.
Looking ahead in the U.S. economy, interest rates appear to be near the top of
their projected trading range. Although corporate fundamentals remain positive,
corporate spreads are likely to experience volatility in expectation of large
new issues from companies such as Ford. Many foreign economies are in the
process of recovery, their bond markets benefiting from increasing investor
enthusiasm. Overall, the bond market seems to be in the process of gaining
stability. However, investors are remaining cautious and could favor U.S.
Treasuries.
[TIMELINE APPEARS HERE]
[GRAPH APPEARS HERE] APR
Japan shows signs of economic recovery along with other foreign countries such
as Brazil and Mexico, marking the first time in two years in which some foreign
markets outperform the U.S. bond market.
MAY
As a group, foreign markets underperform the U.S. bond market, the major culprit
being Europe, where a backup in interest rates is significant.
[GRAPH APPEARS HERE] JUN
In response to rapid economic growth, the Federal Reserve combines a neutral
bias with a 0.25% raise in interest rates to guard against inflation.
Bond & Money Market Overview 15
<PAGE>
The Strategic Income Portfolio posted a return of -2.84% for the first half of
the year, compared to the -1.38% return for the Lehman Aggregate Bond Index for
the same period.
The first half of 1999 was a turbulent time for the U.S. bond market. As
confidence slowly returned to the market, investors moved away from the safety
of Treasuries and back into a variety of "spread" assets such as Government
Agency paper, corporate bonds, and mortgage-backed securities. This increase in
demand caused spreads to narrow and bond prices to rise. The economy once again
proved to be more resilient than many forecasters predicted. Responding to a
succession of strong economic indicators, Treasuries fluctuated 1.40% and ended
the period more than 1.10% higher than at the start of the year.
The overall rise in interest rates caused the bond market to post a negative
return for the period, as bond prices moved in the opposite direction to
interest rates. The yield advantage of spread assets failed to materialize as
volatility continued to plague the market.
Looking ahead, the Portfolio's manager remains cautious. Interest rates appear
to be near the top of their projected trading range. The outlook for spread
assets remains murky over the near term. Both mortgage-backed securities and
corporate bonds may underperform Treasuries as long as swap spreads continue to
widen. In light of these concerns, the Portfolio's manager has a higher than
normal allocation to U.S. Treasuries which can be sold to purchase spread assets
as good buying opportunities materialize.
Investment Manager
Allmerica Asset Management, Inc.
About The Fund
Seeks to make money for investors by investing for high current income and
capital appreciation in a variety of fixed-income securities.
Portfolio Composition
As of June 30, 1999 the sector allocation of net assets was:
[BAR GRAPH APPEARS HERE]
U.S. Government and Agency Obligations 81%
Corporate Debt 7%
Other 12%
Average Annual Total Returns
Period ended June 30, 1999 1 Year Life of Fund
The Strategic Income Portfolio 1.16% 1.31%
Lehman Brothers Aggregate Bond Index 3.13% 5.74%
Growth of a $10,000 Investment Since 1996
[LINE GRAPH APPEARS HERE]
The Lehman
Strategic Brothers
Income Aggregate
Date Portfolio Bond Index
- ----- --------- ----------
2/96 $10,000 $10,000
6/96 9,420 9,813
12/96 10,044 10,294
6/97 9,883 10,612
12/97 10,102 11,287
6/98 10,337 11,730
12/98 10,762 12,268
6/99 10,456 12,097
The Strategic Income Portfolio is a portfolio of The Fulcrum 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 investment grade rating at least one year to maturity and an
outstanding par value of at least $25 million. 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 The Strategic Income Portfolio
<PAGE>
The Global Interactive/Telecomm Portfolio
PORTFOLIO OF INVESTMENTS . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -----------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 81.2%
Telephone Systems - 27.8%
12,000 AT&T Corp. - Liberty Media Group, Class A $ 441,000
1,000 BCE Mobile Communication, Inc.* 30,438
1,500 BCE, Inc. 73,969
5,500 Cable & Wireless Plc ADR 217,938
3,500 Century Communications Corp., Class A* 161,000
2,000 Cia. de Telecomunicaciones de Chile SA ADR 49,500
6,000 CommNet Cellular, Inc.* 157,500
5,210 Commonwealth Telephone Enterprises, Inc.* 210,679
2,000 GST Telecommunications, Inc.* 26,375
500 Hong Kong Telecommunications, Ltd. ADR 13,469
1,500 Iridium World Communications, Ltd.* 16,031
8,000 Loral Space & Communications, Ltd.* 144,000
8,000 Rogers Cantel Mobile Communications, Inc., Class B ADR* 131,500
4,000 Rural Cellular Corp., Class A* 80,000
500 SK Telecom Co., Ltd. ADR 8,500
4,000 Telephone and Data Systems, Inc. 292,250
1,000 Viatel, Inc.* 56,125
500 Vimpel-Communications ADR* 11,594
----------
2,121,868
----------
Communications - 10.6%
4,000 Aerial Communications, Inc.* 54,000
2,500 American Tower Corporation, Class A* 60,000
7,000 COMSAT Corp. 227,500
2,400 Globalstar Telecommunications, Ltd.* 55,650
1,000 Nextel Communications, Inc., Class A* 50,188
2,000 Omnipoint Corp.* 57,875
9,375 Price Communications Corp.* 140,625
10,000 Rogers Communications, Inc., Class B* 161,875
----------
807,713
----------
Entertainment & Leisure - 10.3%
5,000 Ascent Entertainment Group, Inc.* 70,625
3,000 Gaylord Entertainment Co. 90,000
3,000 GC Companies, Inc.* 107,250
4,000 King World Productions, Inc.* 139,250
2,400 Pathe SA 288,096
1,200 Time Warner, Inc. 88,200
----------
783,421
----------
Media - Broadcasting - 7.5%
3,005 Chris-Craft Industries, Inc.* 141,611
1,000 Granite Broadcasting Corp. 37,750
2,250 Gray Communications Systems, Inc., Class B 31,781
3,500 USA Networks, Inc.* 140,438
5,000 Viacom, Inc., Class A* 220,625
----------
572,205
----------
Publishing - 6.5%
2,000 Lee Enterprises, Inc. 61,000
2,000 Media General, Inc., Class A 102,000
2,000 Pulitzer, Inc. 97,125
1,500 The McClatchy Company, Class A 49,688
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- --------------------------------------------------------------
<C> <S> <C>
Publishing (continued)
1,000 The McGraw-Hill Companies, Inc. $ 53,938
1,500 Tribune Co. 130,688
----------
494,439
----------
Media - Broadcasting & Publishing - 5.5%
500 Audiofina 24,235
200 BHC Communications, Inc., Class A 25,725
2,000 Fisher Companies, Inc. 126,000
2,500 MediaOne Group, Inc.* 185,938
1,000 The Times Mirror Company, Class A 59,250
----------
421,148
----------
Lodging - 2.2%
10,000 Aztar Corp.* 91,869
1,000 Hilton Hotels Corp. 14,188
3,000 Mirage Resorts, Inc.* 50,250
1,000 Park Place Entertainment Corp.* 9,688
----------
165,995
----------
Insurance - 2.1%
3,000 The Liberty Corp. 163,500
----------
Computer Software & Processing - 1.9%
5,000 Platinum Technology, Inc.* 146,250
----------
Commercial Services - 1.6%
6,000 Cendant Corp.* 123,000
----------
Retailers - 1.4%
8,000 Lillian Vernon Corp. 104,000
----------
Cable - 0.9%
1,000 Cablevision Systems Corp.* 70,000
----------
Advertising - 0.8%
3,500 Ackerley Group, Inc. 63,656
----------
Electric Utilities - 0.7%
5,000 Citizens Utilities Co., Class B* 55,625
----------
Electronics - 0.6%
1,000 PubliCARD, Inc.* 10,188
300 Sony Corp. ADR 33,113
----------
43,301
Transportation - 0.5%
3,000 Travel Services International, Inc.* 36,000
----------
Beverages, Food & Tobacco - 0.3%
500 The Seagram Company, Ltd. 25,188
----------
Total Common Stocks 6,197,309
----------
(Cost $4,421,099)
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------
F-1
<PAGE>
The Global Interactive/Telecomm Portfolio
PORTFOLIO OF INVESTMENTS, Continued . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- --------------------------------------------------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS - 1.8%
Telephone Systems - 1.2%
1,000 Sprint, 8.25% $ 87,000
----------
Electric Utilities - 0.6%
1,000 Citizens Utilities Co., 5.00% 48,625
----------
Total Convertible Preferred Stocks 135,625
----------
(Cost $84,049)
Total Investments - 83.0% 6,332,934
----------
(Cost $4,505,148)
Net Other Assets And Liabilities - 17.0% 1,300,129
----------
Total Net Assets - 100.0% $7,633,063
==========
</TABLE>
- ------------------
ADR American Depositary Receipt
* Non-income producing security.
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At June 30, 1999, the aggregate cost of investment securities for tax purposes
was $4,517,428. Net unrealized appreciation (depreciation) aggregated
$1,815,506, of which $1,928,461 related to appreciated investment securities
and $(112,955) related to depreciated investment securities.
OTHER INFORMATION
For the six months ended June 30, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $2,763,336
and $2,597,933 of non-governmental issuers, respectively.
See Notes to Financial Statements.
------------------------------------------------------
F-2
<PAGE>
The International Growth Portfolio
PORTFOLIO OF INVESTMENTS . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ----------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 97.1%
Switzerland - 14.6%
250 PubliGroupe SA $ 136,647
480 Synthes-Stratec, Inc.* 152,479
400 The Selecta Group - Registered 159,475
----------
448,601
----------
Sweden - 13.1%
17,600 Investment AB Bure 93,305
13,500 IRO AB 150,296
10,825 Nobel Biocare AB 159,412
----------
403,013
----------
Israel - 11.9%
3,000 Orbotech, Ltd.* 156,375
12,000 Tecnomatix Technologies, Ltd.* 210,000
----------
366,375
----------
United Kingdom - 8.8%
80,000 McBride Plc 141,254
45,200 Victrex Plc 129,689
----------
270,943
----------
Norway - 8.7%
40,000 Norsk Lotteridrift ASA 126,891
35,000 P4 Radio Hele Norge ASA 139,897
----------
266,788
----------
Ireland - 7.1%
15,000 Saville Systems Plc ADR* 217,500
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ---------------------------------------------------------------
<C> <S> <C>
Japan - 5.9%
1,000 Fancl Corp. $ 181,864
----------
Hong Kong - 5.6%
1,030,750 Lung Kee (Bermuda) Holdings 171,380
----------
Italy - 4.7%
21,500 Industria Macchine Automatiche 145,116
----------
Portugal - 4.5%
4,500 Investec-Consultoria Internacional, SA 136,385
----------
Netherlands - 4.2%
2,000 Van Melle NV 128,235
----------
Canada - 4.1%
25,000 Danier Leather, Inc.* 127,291
----------
France - 3.9%
18,000 Lectra Systemes* 120,510
----------
Total Common Stocks 2,984,001
----------
(Cost $2,772,392)
Total Investments - 97.1% 2,984,001
----------
(Cost $2,772,392)
Net Other Assets And Liabilities - 2.9% 88,841
----------
Total Net Assets - 100.0% $3,072,842
==========
</TABLE>
- ------------------
ADR American Depositary Receipt
* Non-income producing security.
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At June 30, 1999, the aggregate cost of investment securities for tax purposes
was $2,774,612. Net unrealized appreciation (depreciation) aggregated $209,389,
of which $497,599 related to appreciated investment securities and $(288,210)
related to depreciated investment securities.
OTHER INFORMATION
For the six months ended June 30, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $615,278
and $494,067 of non-governmental issuers, respectively.
Industry Concentration
of Common Stocks
as a Percentage of Net
Assets:
<TABLE>
<S> <C>
Computer Software &
Processing 17.9%
Medical Supplies 10.2
Heavy Machinery 9.6
Media - Broadcasting &
Publishing 9.0
Cosmetics & Personal Care 5.9
Industrial - Diversified 5.6
Food Retailers 5.2
Electronics 5.1
Household Products 4.6
Advertising 4.4
Chemicals 4.2
Beverages, Food & Tobacco 4.2
Retailers 4.1
Entertainment & Leisure 4.1
Financial Services 3.0
----
97.1%
====
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------
F-3
<PAGE>
The Growth Portfolio
PORTFOLIO OF INVESTMENTS . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 87.1%
Pharmaceuticals - 7.5%
2,384 Abbott Laboratories $ 108,472
384 American Home Products Corp. 22,080
1,400 Merck & Co., Inc. 103,600
1,520 Schering-Plough Corp. 80,560
1,400 Warner-Lambert Co. 97,125
----------
411,837
----------
Computer Software & Processing - 7.3%
152 America Online, Inc.* 16,796
1,160 Computer Associates International, Inc. 63,800
1,384 Compuware Corp.* 44,029
1,728 Microsoft Corp.* 155,844
2,176 Oracle Corp.* 80,784
608 Sun Microsystems, Inc.* 41,876
----------
403,129
----------
Telephone Systems - 7.1%
1,576 Bell Atlantic Corp. 103,031
1,584 BellSouth Corp. 74,250
1,184 GTE Corp. 89,688
56 MCI WorldCom, Inc.* 4,830
928 SBC Communications, Inc. 53,824
1,120 U.S. West, Inc. 65,800
----------
391,423
----------
Banking - 6.3%
2,904 Citigroup, Inc. 137,940
1,728 Household International, Inc. 81,864
96 J. P. Morgan & Company, Inc. 13,488
2,656 Wells Fargo Co. 113,544
----------
346,836
----------
Beverages, Food & Tobacco - 4.7%
200 Anheuser-Busch Companies, Inc. 14,188
760 General Mills, Inc. 61,085
240 H.J. Heinz Co. 12,030
1,704 Philip Morris Companies, Inc. 68,480
872 The Coca-Cola Co. 54,500
656 Unilever NV ADR 45,756
----------
256,039
----------
Oil & Gas - 4.5%
1,144 Exxon Corp. 88,231
888 Mobil Corp. 87,912
1,472 Phillips Petroleum Co. 74,060
----------
250,203
----------
Industrial-Diversified - 4.5%
2,168 General Electric Co. 244,984
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -----------------------------------------------------------
<C> <S> <C>
Computers & Information - 4.1%
880 Cisco Systems, Inc.* $ 56,760
2,232 Dell Computer Corp.* 82,584
232 EMC Corp.* 12,760
704 Gateway, Inc.* 41,536
248 International Business Machines Corp. 32,054
----------
225,694
----------
Restaurants - 3.9%
2,104 McDonald's Corp. 86,922
15,375 New York Restaurant Group (A)* 111,315
296 Tricon Global Restaurants, Inc.* 16,021
----------
214,258
----------
Automotive - 3.5%
1,864 Ford Motor Co. 105,200
1,224 General Motors Corp. 80,784
128 TRW, Inc. 7,024
----------
193,008
----------
Financial Services - 3.3%
1,600 Fannie Mae 109,400
1,000 Transamerica Corp. 75,000
----------
184,400
----------
Electric Utilities - 3.0%
2,632 Edison International 70,406
2,224 PG&E Corp. 72,280
1,080 Sempra Energy 24,435
----------
167,121
----------
Communications - 2.9%
1,032 Corning, Inc. 72,369
1,328 Lucent Technologies, Inc. 89,557
----------
161,926
----------
Chemicals - 2.9%
1,808 Monsanto Co. 71,303
688 The Dow Chemical Co. 87,290
----------
158,593
----------
Medical Supplies - 2.7%
176 C. R. Bard, Inc. 8,415
1,408 Johnson & Johnson 137,984
----------
146,399
----------
Retailers - 2.5%
2,776 Kmart Corp.* 45,631
1,936 Wal-Mart Stores, Inc. 93,412
----------
139,043
----------
</TABLE>
See Notes to Financial Statements.
------------------------------------------------------
F-4
<PAGE>
The Growth Portfolio
PORTFOLIO OF INVESTMENTS, Continued . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------------------------------------------------------------
<C> <S> <C>
Insurance - 2.5%
1,128 American General Corp. $ 85,023
904 The Hartford Financial Services Group, Inc. 52,715
----------
137,738
----------
Electronics - 2.5%
880 Applied Materials, Inc.* 65,010
488 Intel Corp. 29,036
672 KLA-Tencor Corp.* 43,596
----------
137,642
----------
Transportation - 2.2%
960 Kansas City Southern Industries, Inc. 61,260
2,192 Ryder System, Inc. 56,988
96 Union Pacific Corp. 5,598
----------
123,846
----------
Heavy Machinery - 2.1%
320 NACCO Industries, Inc., Class A 23,520
1,296 United Technologies Corp. 92,907
----------
116,427
----------
Media-Broadcasting & Publishing - 2.1%
1,184 CBS Corp.* 51,430
856 MediaOne Group, Inc.* 63,665
----------
115,095
----------
Home Construction, Furnishings & Appliances - 1.2%
1,400 Newell Rubbermaid, Inc. 65,100
----------
Apparel Retailers - 0.9%
1,120 The Limited, Inc. 50,820
----------
Building Materials - 0.7%
576 The Home Depot, Inc. 37,116
----------
Airlines - 0.6%
560 Delta Air Lines, Inc. 32,270
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ---------------------------------------------------------------------
<C> <S> <C>
Aerospace & Defense - 0.6%
464 General Dynamics Corp. $ 31,784
----------
Forest Products & Paper - 0.5%
624 Georgia-Pacific Group 29,562
----------
Entertainment & Leisure - 0.3%
248 Eastman Kodak Co. 16,802
----------
Metals - 0.2%
536 Freeport-McMoRan Copper & Gold, Inc., Class B 9,615
----------
Total Common Stocks 4,798,710
----------
(Cost $4,417,013)
<CAPTION>
Par Value
---------
<C> <S> <C>
U.S. GOVERNMENT OBLIGATIONS (B) - 1.1%
U.S. Treasury Bills (C) - 1.1%
$ 35,000 4.34%, 10/14/99 34,232
25,000 4.59%, 10/14/99 24,557
----------
Total U.S. Government Obligations 58,789
----------
(Cost $58,789)
Total Investments - 88.2% 4,857,499
----------
(Cost $4,475,802)
Net Other Assets and Liabilities - 11.8% 648,019
----------
Total Net Assets - 100.0% $5,505,518
==========
</TABLE>
- ------------------
* Non-income producing security.
ADR American Depositary Receipt
(A) Security is fair valued by management (Note 2).
(B) Effective yield at time of purchase.
(C) Security has been deposited as initial margin on open futures contracts. At
June 30, 1999, the Portfolio's open futures contracts were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Contract Expiration Current Opening Market Value at
Purchased Type Date Position June 30, 1999
- --------- --------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
3 S & P 500 Sep-99 $ 999,320 $ 1,036,275
=============== ===============
</TABLE>
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At June 30, 1999, the aggregate cost of investment securities for tax purposes
was $4,481,621. Net unrealized appreciation (depreciation) aggregated $375,878,
of which $505,408 related to appreciated investment securities and $(129,530)
related to depreciated investment securities.
OTHER INFORMATION
For the six months ended June 30, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $7,267,939
and $7,559,411 of non-governmental issuers, respectively.
See Notes to Financial Statements.
- --------------------------------------------
F-5
<PAGE>
The Value Portfolio
PORTFOLIO OF INVESTMENTS . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ---------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 90.7%
Beverages, Food & Tobacco - 17.8%
10,000 Archer-Daniels-Midland Co. $ 154,375
3,500 Bush Boake Allen, Inc.* 102,375
10,000 Celestial Seasonings, Inc.* 215,000
8,000 Corn Products International, Inc. 243,500
30,000 General Cigar Holdings, Inc.* 234,375
1,501 General Cigar Holdings, Inc., Class B* 11,727
2,000 H.J. Heinz Co. 100,250
4,000 Kellogg Co. 132,000
7,000 Pepsi-Cola Puerto Rico Bottling Co.* 38,500
3,000 The Seagram Company, Ltd. 151,125
10,000 The Topps Co., Inc.* 72,813
10,000 Weider Nutrition International, Inc. 41,250
7,500 Whitman Corp. 135,000
----------
1,632,290
----------
Insurance - 6.1%
2,500 American Bankers Insurance Group, Inc. 136,086
2,000 Argonaut Group, Inc. 48,000
6,000 The Liberty Corp. 327,000
2,000 The Midland Co. 50,750
----------
561,836
----------
Heavy Machinery - 5.6%
3,000 Ampco-Pittsburgh Corp. 38,438
10,000 Baldwin Technology Co., Class A* 29,375
10,000 Fedders Corp. 66,875
2,000 Fedders Corp., Class A 12,250
2,000 Flowserve Corp. 37,875
5,000 Hussmann International, Inc. 82,813
2,000 IDEX Corp. 65,750
1,000 Modine Manufacturing Co. 32,563
4,000 SPS Technologies, Inc.* 150,000
----------
515,939
----------
Oil & Gas - 5.5%
13,000 PennzEnergy Co. 216,938
6,000 Southwest Gas Corp. 171,750
4,000 WICOR, Inc. 111,750
----------
500,438
----------
Forest Products & Paper - 4.7%
5,000 Greif Bros. Corp. 127,500
11,000 Nashua Corp.* 108,625
3,000 Tenneco, Inc. 71,625
10,000 Unisource Worldwide, Inc. 120,625
----------
428,375
----------
Telephone Systems - 4.3%
3,000 AT&T Corp. - Liberty Media Group, Class A 110,250
2,000 Telephone and Data Systems, Inc. 146,125
2,500 United States Cellular Corp.* 133,750
----------
390,125
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ----------------------------------------------------------------
<C> <S> <C>
Automotive - 4.2%
1,500 Arvin Industries, Inc. $ 56,813
3,000 AutoNation, Inc.* 53,438
20,000 Earl Scheib, Inc.* 95,000
1,000 Meritor Automotive, Inc. 25,500
1,000 Standard Motor Products, Inc. 24,500
7,000 Wynn's International, Inc. 129,063
----------
384,314
----------
Pharmaceuticals - 3.9%
12,000 Carter-Wallace, Inc. 218,250
10,000 IVAX Corp.* 141,250
----------
359,500
----------
Entertainment & Leisure - 3.6%
5,000 Gaylord Entertainment Co. 150,000
4,000 GC Companies, Inc.* 143,000
500 Time Warner, Inc. 36,750
----------
329,750
----------
Commercial Services - 3.3%
3,000 Borg-Warner Security Corp.* 60,938
12,000 EnviroSource, Inc.* 25,500
2,000 Rental Service Corp.* 57,250
10,000 Rollins, Inc. 159,375
----------
303,063
----------
Aerospace & Defense - 3.0%
2,500 Sequa Corp., Class B* 178,750
7,365 The Fairchild Corp., Class A* 93,904
----------
272,654
----------
Retailers - 2.8%
12,000 Lillian Vernon Corp. 156,000
4,000 The Neiman Marcus Group, Inc.* 102,750
----------
258,750
----------
Lodging - 2.8%
6,000 Aztar Corp.* 55,125
12,000 Hilton Hotels Corp. 170,250
7,000 Trump Hotels & Casino Resorts, Inc.* 31,938
----------
257,313
----------
Media - Broadcasting - 2.7%
5,000 Gray Communications Systems, Inc., Class B 70,625
4,000 Viacom, Inc., Class A* 176,500
----------
247,125
----------
Media - Broadcasting & Publishing - 2.4%
2,500 MediaOne Group, Inc.* 185,938
500 The Times Mirror Company, Class A 29,625
----------
215,563
----------
</TABLE>
See Notes to Financial Statements.
------------------------------------------------------
F-6
<PAGE>
The Value Portfolio
PORTFOLIO OF INVESTMENTS, Continued . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------------------------------------------
<C> <S> <C>
Electric Utilities - 1.8%
10,100 Citizens Utilities Co., Class B* $ 112,363
6,000 El Paso Electric Co.* 53,625
----------
165,988
----------
Communications - 1.8%
3,000 Allen Telecom, Inc.* 32,250
4,000 COMSAT Corp. 130,000
----------
162,250
----------
Real Estate - 1.7%
10,000 Catellus Development Corp.* 155,000
----------
Publishing - 1.6%
2,000 Lee Enterprises, Inc. 61,000
1,000 Media General, Inc., Class A 51,000
1,000 The McClatchy Company, Class A 33,125
----------
145,125
----------
Electronics - 1.6%
40,000 Oak Technology, Inc.* 145,000
----------
Advertising - 1.5%
5,000 Ackerley Group, Inc. 90,938
2,000 Penton Media, Inc. 48,500
----------
139,438
----------
Financial Services - 1.5%
8,000 The Pioneer Group, Inc.* 138,000
----------
Metals - 1.3%
1,500 Curtiss-Wright Corp. 58,313
3,000 General Housewares Corp. 58,313
----------
116,626
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- --------------------------------------------------------
<C> <S> <C>
Chemicals - 1.3%
1,500 Ferro Corp. $ 41,250
3,000 Sybron Chemicals Inc* 53,250
500 The Dexter Corp. 20,406
----------
114,906
----------
Water Companies - 1.2%
5,000 United Water Resources, Inc. 113,438
----------
Transportation - 1.0%
2,500 GATX Corp. 95,156
----------
Food Retailers - 1.0%
6,000 Ingles Markets, Inc., Class A 91,500
----------
Electrical Equipment - 0.7%
1,000 AMETEK, Inc. 23,000
3,000 Kollmorgen Corp. 45,000
----------
68,000
----------
Total Common Stocks 8,307,462
----------
(Cost $7,951,268)
CONVERTIBLE PREFERRED STOCKS - 0.9%
Telephone Systems - 0.9%
1,000 Sprint, 8.25% 87,000
----------
Total Convertible Preferred Stocks 87,000
----------
(Cost $42,800)
Total Investments - 91.6% 8,394,462
----------
(Cost $7,994,068)
Net Other Assets and Liabilities - 8.4% 767,205
----------
Total Net Assets - 100.0% $9,161,667
==========
</TABLE>
- ------------------
* Non-income producing security.
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At June 30, 1999, the aggregate cost of investment securities for tax purposes
was $8,064,387. Net unrealized appreciation (depreciation) aggregated $330,075,
of which $1,085,034 related to appreciated investment securities and $(754,959)
related to depreciated investment securities.
OTHER INFORMATION
For the six months ended June 30, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $2,694,435
and $3,644,860 of non-governmental issuers, respectively.
See Notes to Financial Statements.
- --------------------------------------------
F-7
<PAGE>
The Strategic Income Portfolio
PORTFOLIO OF INVESTMENTS . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Value
Par Value Ratings (Note 2)
<C> <S> <C> <C>
- ------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 81.5%
Fannie Mae - 27.9%
$149,421 6.00%, 05/15/2008 to 01/01/2029 Aaa $ 142,725
235,882 6.50%, 06/01/2013 to 10/01/2028 Aaa 229,958
134,236 7.00%, 11/01/2028 Aaa 133,049
40,000 7.00%, 08/01/2029, TBA Aaa 39,625
43,851 7.50%, 03/01/2028 Aaa 44,403
----------
589,760
----------
U.S. Treasury Notes - 14.3%
50,000 5.88%, 02/15/2004 Aaa 50,281
105,000 6.25%, 02/15/2007 Aaa 107,002
90,000 6.63%, 05/15/2007 Aaa 93,769
50,000 6.88%, 05/15/2006 Aaa 52,656
----------
303,708
----------
U.S. Treasury Bonds - 10.4%
45,000 7.13%, 02/15/2023 Aaa 49,725
145,000 7.63%, 02/15/2025 Aaa 170,375
----------
220,100
----------
Ginnie Mae - 7.4%
74,502 6.50%, 11/15/2028 Aaa 71,911
82,676 8.00%, 08/15/2025 Aaa 85,086
----------
156,997
----------
Farmer Mac - 7.2%
150,000 6.92%, 02/10/2001 Aaa 152,597
----------
Tennessee Valley Authority - 7.2%
150,000 6.50%, 08/20/2001 AAA(#) 151,903
----------
</TABLE>
<TABLE>
<CAPTION>
Moody's Value
Par Value Ratings (Note 2)
<C> <S> <C> <C>
- ----------------------------------------------------------------------------
Sallie Mae - 7.1%
$150,000 6.05%, 09/14/2000 Aaa $ 150,636
----------
Total U.S. Government and Agency Obligations 1,725,701
----------
(Cost $1,778,041)
CORPORATE DEBT - 7.3%
Lucent Technologies, Inc. - 2.1%
50,000 6.45%, 03/15/2029 A 45,830
----------
American General, Corp. - 1.2%
25,000 5.80%, 03/12/2002 A 24,619
----------
Safeway, Inc. - 1.1%
25,000 6.05%, 11/15/2003 Baa 24,422
----------
International Paper Co. - 1.1%
25,000 6.88%, 04/15/2029 A 23,034
----------
Ford Motor Credit Co. - 1.1%
25,000 5.80%, 01/12/2009 A 22,920
----------
IBM Corp. - 0.7%
15,000 6.50%, 01/15/2028 A 13,899
----------
Total Corporate Debt 154,724
----------
(Cost $164,910)
Total Investments - 88.8% 1,880,425
----------
(Cost $1,942,951)
Net Other Assets and Liabilities - 11.2% 236,783
----------
Total Net Assets - 100.0% $2,117,208
==========
</TABLE>
- ------------------
TBA Forward commitment (Note 2)
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At June 30, 1999, the aggregate cost of investment securities for tax purposes
was $1,942,951. Net unrealized appreciation (depreciation) aggregated
$(62,526), of which $70 related to appreciated investment securities and
$(62,596) related to depreciated investment securities.
OTHER INFORMATION
For the six months ended June 30, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $149,752
and $0 of non-U.S. governmental issuers, respectively, and $715,619 and
$775,533 of U.S. Government and Agency issuers, respectively.
The composition of ratings of debt holdings as a percentage of total value of
investments in securities is as follows:
Ratings
<TABLE>
<CAPTION>
Standard & Poor's Ratings:
Moody's Ratings:
<S> <C> <C> <C>
Aaa 84.6% AAA 7.2%
A 6.9
Baa 1.3
-----
92.8%
</TABLE>
- ------------------
(#) Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
See Notes to Financial Statements.
------------------------------------------------------
F-8
<PAGE>
The Fulcrum Trust
[THIS PAGE INTENTIONALLY LEFT BLANK]
- --------------------------------------------
F-9
<PAGE>
The Fulcrum Trust
STATEMENTS OF ASSETS AND LIABILITIES . June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Interactive/ International Strategic
Telecomm Growth Growth Value Income
Portfolio Portfolio Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments:
Investments at cost.... $4,505,148 $2,772,392 $4,475,802 $7,994,068 $1,942,951
Net unrealized
appreciation
(depreciation)........ 1,827,786 211,609 381,697 400,394 (62,526)
---------- ---------- ---------- ---------- ----------
Total investments at
value................. 6,332,934 2,984,001 4,857,499 8,394,462 1,880,425
Cash and foreign
currency (interest
bearing)*.............. 1,342,867 119,037 665,055 635,617 274,746
Receivable for
investments sold....... 27,000 12,611 -- 247,500 --
Receivable for expense
reimbursement.......... 2,978 5,335 6,466 6,522 4,192
Receivable for variation
margin................. -- -- 18,750 -- --
Interest and dividend
receivables............ 7,585 3,594 8,381 8,819 28,893
Dividend tax reclaim
receivables............ 591 3,331 1,131 -- --
Deferred organizational
expense................ 7,564 8,227 7,564 7,564 --
Prepaid insurance
expense................ 278 278 278 278 278
---------- ---------- ---------- ---------- ----------
Total Assets........... 7,721,797 3,136,414 5,565,124 9,300,762 2,188,534
---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable for investments
purchased.............. -- 23,965 -- 57,235 40,508
Payable for shares
repurchased............ 8,210 3,602 6,263 10,870 2,527
Advisory fee payable.... 37,316 1,510 663 2,522 4,146
Accrued expenses and
other payables......... 43,208 34,495 52,680 68,468 24,145
---------- ---------- ---------- ---------- ----------
Total Liabilities...... 88,734 63,572 59,606 139,095 71,326
---------- ---------- ---------- ---------- ----------
NET ASSETS.............. $7,633,063 $3,072,842 $5,505,518 $9,161,667 $2,117,208
========== ========== ========== ========== ==========
NET ASSETS consist of
Paid-in capital......... $5,321,100 $3,187,447 $4,918,580 $8,031,981 $2,157,012
Undistributed net
investment income
(loss)................. (68,482) 26,335 15,663 1,835 39,106
Accumulated net realized
gain (loss) on
investments sold,
forward foreign
currency contracts, and
foreign currency
transactions........... 552,671 (352,378) 152,623 727,457 (16,384)
Net unrealized
appreciation
(depreciation) of
investments, and assets
and liabilities in
foreign currency and
futures contracts...... 1,827,774 211,438 418,652 400,394 (62,526)
---------- ---------- ---------- ---------- ----------
TOTAL NET ASSETS........ $7,633,063 $3,072,842 $5,505,518 $9,161,667 $2,117,208
========== ========== ========== ========== ==========
Shares of beneficial
interest outstanding
(unlimited
authorization, par value
of $0.001 per share) ... 392,361 295,238 397,013 627,087 213,184
NET ASSET VALUE,
Offering and redemption
price per share (Net
Assets/Shares
Outstanding)........... $ 19.45 $ 10.41 $ 13.87 $ 14.61 $ 9.93
========== ========== ========== ========== ==========
</TABLE>
- ------------------------------------
* Cost $119,058 for International Growth Portfolio.
See Notes to Financial Statements.
------------------------------------------------------
F-10
<PAGE>
The Fulcrum Trust
STATEMENTS OF OPERATIONS . For the period ended June 30, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Interactive/ International Strategic
Telecomm Growth Growth Value Income
Portfolio Portfolio Portfolio Portfolio Portfolio
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Interest............... $ 15,842 $ 2,758 $ 8,212 $ 4,348 $ 58,905
Dividends.............. 18,152 35,692 38,293 47,831 --
Less net foreign taxes
withheld.............. (475) (4,700) (1,900) (148) --
---------- -------- -------- -------- --------
Total investment
income................ 33,519 33,750 44,605 52,031 58,905
---------- -------- -------- -------- --------
EXPENSES
Investment advisory
fees.................. 54,912 -- -- -- 6,860
Custodian fees......... 3,952 5,990 13,494 10,407 3,509
Fund accounting fees... 24,046 24,046 24,046 24,046 24,046
Legal fees............. 10,691 6,199 9,738 17,142 4,030
Audit fees............. 12,467 6,467 11,147 20,124 4,779
Trustees' fees and
expenses.............. 2,738 1,381 2,459 4,413 1,007
Reports to
shareholders.......... 5,980 3,804 5,849 7,457 2,041
Registration and filing
expense............... 142 88 149 257 55
Amortization of
organization costs.... 2,358 2,358 2,358 2,358 --
Insurance.............. 1,898 1,898 1,898 1,898 1,898
Miscellaneous.......... 132 130 129 126 127
---------- -------- -------- -------- --------
Total expense before
reimbursements........ 119,316 52,361 71,267 88,231 48,352
Less expense
reimbursements........ (17,315) (31,939) (42,325) (37,636) (25,765)
Less expenses waived... -- -- -- -- (2,788)
---------- -------- -------- -------- --------
Total expenses net of
expense reimbursements
and waivers........... 102,001 20,422 28,942 50,595 19,799
---------- -------- -------- -------- --------
NET INVESTMENT INCOME
(LOSS)................. (68,482) 13,328 15,663 1,436 39,106
---------- -------- -------- -------- --------
REALIZED AND UNREALIZED
GAIN (LOSS) ON
INVESTMENTS (Note 2):
Net realized gain
(loss) on investments
sold.................. 546,857 (53,740) 751,364 791,807 (12,617)
Net realized gain
(loss) on forward
foreign currency
contracts............. (2) (638) -- -- --
Net realized gain
(loss) on foreign
currency
transactions.......... -- (1,963) -- -- --
Net change in
unrealized
appreciation
(depreciation) of
investments and
futures contracts..... 838,109 461,689 (45,184) (137,749) (87,177)
Net change in
unrealized
appreciation
(depreciation) of
assets and liabilities
in foreign currency... (12) (143) -- -- --
---------- -------- -------- -------- --------
NET GAIN (LOSS) ON
INVESTMENTS............ 1,384,952 405,205 706,180 654,058 (99,794)
---------- -------- -------- -------- --------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS........ $1,316,470 $418,533 $721,843 $655,494 $(60,688)
========== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------
F-11
<PAGE>
The Fulcrum Trust
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Interactive/ International
Telecomm Growth
Portfolio Portfolio
- -------------------------------------------------------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, 1999 December 31, June 30, 1999 December 31,
(Unaudited) 1998 (Unaudited) 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning
of period.............. $5,433,249 $3,016,441 $2,664,454 $3,207,002
---------- ---------- ---------- ----------
Increase (decrease) in
net assets resulting
from operations:
Net investment income
(loss)................ (68,482) (79,801) 13,328 15,588
Net realized gain
(loss) on investments
sold and foreign
currency
transactions.......... 546,855 560,131 (56,341) (291,313)
Net change in
unrealized
appreciation
(depreciation) of
investments and
assets and
liabilities in
foreign currency...... 838,097 591,625 461,546 25,567
---------- ---------- ---------- ----------
Net increase
(decrease) in net
assets resulting from
operations............ 1,316,470 1,071,955 418,533 (250,158)
---------- ---------- ---------- ----------
Distributions to
shareholders from:
Net investment
income................ -- -- -- --
Net realized gain on
investments........... -- (464,938) -- --
---------- ---------- ---------- ----------
Total distributions.. -- (464,938) -- --
---------- ---------- ---------- ----------
Capital share
transactions:
Net proceeds from
sales of shares....... 1,954,799 2,941,300 390,282 900,378
Issued to shareholders
in reinvestment of
distributions......... -- 464,938 -- --
Cost of shares
repurchased........... (1,071,455) (1,603,065) (400,427) (1,200,491)
---------- ---------- ---------- ----------
Net increase
(decrease) from
capital share
transactions........ 883,344 1,803,173 (10,145) (300,113)
---------- ---------- ---------- ----------
Total increase
(decrease) in net
assets.............. 2,199,814 2,410,190 408,388 (550,271)
---------- ---------- ---------- ----------
Capital contributions
from manager: -- 6,618 -- 7,723
---------- ---------- ---------- ----------
NET ASSETS at the end of
period................. $7,633,063 $5,433,249 $3,072,842 $2,664,454
========== ========== ========== ==========
Undistributed net
investment income
(loss)................. $ (68,482) $ -- $ 26,335 $ 13,007
========== ========== ========== ==========
OTHER INFORMATION:
Share transactions:
Sold................... 109,633 195,105 40,713 95,378
Issued to shareholders
in reinvestment of
distributions......... -- 29,315 -- --
Repurchased............ (59,859) (108,258) (43,422) (127,374)
---------- ---------- ---------- ----------
Net increase in
shares outstanding.. 49,774 116,162 (2,709) (31,996)
========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
------------------------------------------------------
F-12
<PAGE>
The Fulcrum Trust
<TABLE>
<CAPTION>
Strategic
Growth Value Income
Portfolio Portfolio Portfolio
--------------------------------------------------------------------------------------------
SixMonths Ended Year Ended Six Months Ended Year Ended Six Months Ended Year Ended
Jne 30, 1999u December 31, June 30, 1999 December 31, June 30, 1999 December 31,
Unaudited)( 1998 (Unaudited) 1998 (Unaudited) 1998
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$4,671,295 $ 4,463,531 $ 8,988,926 $ 6,584,652 $2,119,360 $ 2,699,938
---------- ----------- ----------- ----------- ---------- -----------
15,663 (18,609) 1,436 399 39,106 50,293
751,364 (217,499) 791,807 532,066 (12,617) (12,556)
(45,184) 187,404 (137,749) (8,738) (87,177) 52,055
---------- ----------- ----------- ----------- ---------- -----------
721,843 (48,704) 655,494 523,727 (60,688) 89,792
---------- ----------- ----------- ----------- ---------- -----------
-- -- -- -- -- (2,856)
-- -- -- (611,642) -- (49,760)
---------- ----------- ----------- ----------- ---------- -----------
-- -- -- (611,642) -- (52,616)
---------- ----------- ----------- ----------- ---------- -----------
1,069,103 2,072,492 1,087,580 4,655,108 776,351 1,149,135
-- -- -- 611,642 -- 52,616
(956,723) (1,826,374) (1,570,333) (2,783,030) (717,815) (1,827,441)
---------- ----------- ----------- ----------- ---------- -----------
112,380 246,118 (482,753) 2,483,720 58,536 (625,690)
---------- ----------- ----------- ----------- ---------- -----------
834,223 197,414 172,741 2,395,805 (2,152) (588,514)
---------- ----------- ----------- ----------- ---------- -----------
-- 10,350 -- 8,469 -- 7,936
---------- ----------- ----------- ----------- ---------- -----------
$5,505,518 $ 4,671,295 $ 9,161,667 $ 8,988,926 $2,117,208 $ 2,119,360
========== =========== =========== =========== ========== ===========
$15,663 $ -- $ 1,835 $ 399 $ 39,106 $ --
========== =========== =========== =========== ========== ===========
83,739 171,896 78,339 330,785 77,181 112,047
-- -- -- 45,339 -- 5,152
(75,578) (156,624) (116,238) (198,954) (71,345) (183,153)
---------- ----------- ----------- ----------- ---------- -----------
8,161 15,272 (37,899) 177,170 5,836 (65,954)
========== =========== =========== =========== ========== ===========
</TABLE>
- --------------------------------------------
F-13
<PAGE>
The Fulcrum Trust
FINANCIAL HIGHLIGHTS . For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
-------------------------------------------------------- -------------------------------------
Net Realized
Net and Distributions
Asset Net Unrealized Dividends from Net
Value Investment Gain (Loss) Total from from Net Realized
Year Ended Beginning Income on Investment Investment Capital Return of Total
December 31, of Period (Loss)(/2/) Investments Operations Income Gains Capital Distributions
------------ --------- ----------- ------------ ---------- ---------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Interactive/
Telecomm Portfolio(/1/)
1999(/5/) $15.86 $(0.17) $ 3.76 $ 3.59 $ -- $ -- $ -- $ --
1998(/3/) 13.32 (0.23) 4.26 4.03 -- (1.49) -- (1.49)
1997 10.00 0.08 3.95 4.03 (0.04) (0.67) -- (0.71)
1996(/4/) 10.00 (0.75) 0.80 0.05 -- -- (0.05) (0.05)
International Growth
Portfolio(/1/)
1999(/5/) 8.94 0.05 1.42 1.47 -- -- -- --
1998(/3/) 9.72 0.05 (0.83) (0.78) -- -- -- --
1997 10.33 0.10 (0.63) (0.53) (0.05) (0.03) -- (0.08)
1996(/4/) 10.00 (4.16) 4.67 0.51 -- -- (0.18) (0.18)
Growth Portfolio(/1/)
1999(/5/) 12.01 0.04 1.82 1.86 -- -- -- --
1998(/3/) 11.95 (0.05) 0.11 0.06 -- -- -- --
1997 10.84 (0.02) 1.13 1.11 -- -- -- --
1996(/4/) 10.00 (2.96) 3.80 0.84 -- -- -- --
Value Portfolio(/1/)
1999(/5/) 13.52 -- 1.09 1.09 -- -- -- --
1998(/3/) 13.50 -- 1.01 1.01 -- (0.99) -- (0.99)
1997 10.88 0.17 3.35 3.52 (0.09) (0.81) -- (0.90)
1996(/4/) 10.00 (0.64) 2.15 1.51 -- -- (0.63) (0.63)
Strategic Income
Portfolio(/1/)
1999(/5/) 10.22 0.18 (0.47) (0.29) -- -- -- --
1998(/3/) 9.88 0.25 0.39 0.64 (0.02) (0.28) -- (0.30)
1997 9.98 0.36 (0.30) 0.06 (0.11) (0.05) -- (0.16)
1996(/4/) 10.00 (0.19) 0.23 0.04 -- -- (0.06) (0.06)
</TABLE>
- ------------------------------------
* Annualized
** Not Annualized
+ Figure is net of the voluntary expense waiver by the Adviser. Excluding
this waiver, the ratio of Mangement fees to average net asseets would have
been 0.65% for the period ended June 30, 1999 and 0.67% for the year ended
December 31, 1998.
(A) Including reimbursements and waivers of certain operating expenses.
(B) Excluding reimbursements and waivers of certain operating expenses.
(1) The Value Portfolio, Growth Portfolio, Strategic Income Portfolio, and
Global Interactive/Telecomm Portfolio all commenced operation on February
1, 1996. The International Growth Portfolio commenced operation on March
26, 1996.
(2) Net investment income (loss) per share before reimbursement of certain
operating expenses by the investment advisers were $(0.22) for the six
months ended June 30, 1999, $(0.50) at December 31, 1998, $(0.62) in 1997
and $(1.34) in 1996 for Global Interactive/Telecomm Portfolio; $(0.06) for
the six months ended June 30, 1999, $(0.29) at December 31, 1998, $(0.45)
in 1997, and $(7.56) in 1996 for the International Growth Portfolio;
$(0.07) for the six months ended June 30, 1999, $(0.52) at December 31,
1998, $(0.68) in 1997, and $(5.61) in 1996 for the Growth Portfolio;
$(0.06) for the six months ended June 30, 1999, $(0.22) at December 31,
1998, $(0.34) in 1997, and $(1.22) in 1996 for the Value Portfolio; and
$0.06 for the six months ended June 30, 1999, $(0.11) at December 31, 1998,
$(0.14) in 1997, and $(0.63) in 1996 for the Strategic Income Portfolio.
(3) Total return measures the change in the value of an investment for the
period indicated. For the period ended December 31, 1998, the total return
includes capital infusions totaling $41,096. Absent the infusions, total
return for the Global Interactive/Telecomm Portfolio, the International
Growth Portfolio, the Growth Portfolio, the Value Portfolio and the Strate-
gic Income Portfolio would have been 30.11%, (8.23)%, 0.33%, 7.33% and
6.12%, respectively.
(4) For the period ended, December 31, 1996, the total return includes capital
infusions totaling $228,823. Absent the infusions, total return for the
Global Interactive/Telecomm Portfolio, the International Growth Portfolio,
the Growth Portfolio, the Value Portfolio and the Strategic Income Portfo-
lio would have been (6.68)%, (46.50)%, (41.75%), 7.64%, and (4.49)%,
respectively.
(5) For the six months ended June 30, 1999 (Unaudited).
See Notes to Financial Statements.
------------------------------------------------------
F-14
<PAGE>
The Fulcrum Trust
Ratios/Supplemental Data
--------------------------------------------
Ratios To Average Net Assets
<TABLE>
----------------------------------------------------------------
<CAPTION>
Net
Increase
(Decrease) Net Asset Net Assets Net
in Value End of Investment Operating Portfolio
Net Asset End of Total Period Income (Loss) Expenses Management Turnover
Value Period Returns(/3/)(/4/) (000's) (A) (B) (A) (B) Fee Rate
- ---------- --------- ----------------- ---------- ------ ------ ----- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3.59 $19.45 22.64%** $7,633 (2.18)%* (2.73)%* 3.24%* 3.79%* 1.74%* 46%
2.54 15.86 30.27% 5,433 (2.06)% (4.38)% 3.33% 5.65% 1.96% 65%
3.32 13.32 40.24% 3,016 0.64% (5.14)% 1.47% 7.26% 0.27% 114%
-- 10.00 0.49%** 594 (8.32)%* (14.32)%* 9.83%* 16.45%* 0.80%* 71%
1.47 10.41 16.44%** 3,073 0.98%* (1.36)%* 1.50%* 3.84%* 0.00%* 19%
(0.78) 8.94 (8.02)% 2,664 0.55% (3.06)% 1.53% 5.14% 0.05% 60%
(0.61) 9.72 (5.25)% 3,207 0.97% (4.36)% 1.78% 7.11% 0.58% 13%
0.33 10.33 5.13%** 97 (56.37)%* (92.05)%* 67.76%* 126.26%* 0.80%* 116%
1.86 13.87 15.49%** 5,506 0.65%* (1.10)%* 1.20%* 2.95%* 0.00%* 161%
0.06 12.01 0.50% 4,671 (0.39)% (4.21)% 1.22% 5.04% 0.00% 573%
1.11 11.95 10.24% 4,464 (0.16)% (5.38)% 0.90% 6.12% 0.20% 209%
0.84 10.84 8.40%** 148 (31.31)%* (58.37)%* 34.15%* 63.54%* 0.80%* 580%
1.09 14.61 8.06%** 9,162 0.03%* (0.86)%* 1.20%* 2.09%* 0.00%* 32%
0.02 13.52 7.49% 8,989 0.01% (1.88)% 1.41% 3.30% 0.30% 70%
2.62 13.50 32.36% 6,585 1.30% (2.60)% 0.84% 4.75% 0.14% 177%
0.88 10.88 15.13%** 900 (6.55)%* (12.40)%* 8.19%* 14.13%* 0.80%* 74%
(0.29) 9.93 (2.84)%** 2,117 3.73%* 1.27%* 1.89%* 4.35%* 0.39%+* 40%
0.34 10.22 6.53% 2,119 3.24% (1.74)% 2.18% 7.16% 0.47%+ 407%
(0.10) 9.88 0.60% 2,700 3.67% (1.39)% 1.61% 6.68% 0.41% 713%
(0.02) 9.98 0.44%** 1,107 (2.15)%* (7.02)%* 7.37%* 12.30%* 0.80%* 212%
</TABLE>
- --------------------------------------------
F-15
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
1.ORGANIZATION
The Fulcrum Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended, (the "Act") as an open-end management investment company
organized as a Massachusetts business trust. The Trust's Declaration of Trust
authorizes the Trustees to issue an unlimited number of shares of beneficial
interest for the Portfolios, with a par value of $0.001 per share. The Trust is
comprised of five portfolios: Global Interactive/Telecomm Portfolio, Interna-
tional Growth Portfolio, Growth Portfolio, Value Portfolio and Strategic Income
Portfolio (collectively the "Portfolios"). The Trust is intended to serve as an
investment medium for (i) variable life insurance policies and variable annuity
contracts offered by insurance companies, (ii) certain qualified pension and
retirement plans, as permitted by Treasury Regulations; and (iii) life insur-
ance companies and advisers to the Portfolios and their affiliates.
2.SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally accepted
accounting principles requires estimates and assumptions at the date of the
financial statements. Actual results could differ from those estimates. The
following is a summary of significant accounting policies followed by the Trust
in the preparation of its financial statements.
Security Valuation: Securities, except as noted below, for which market quota-
tions are readily available are stated at market value. Market value is deter-
mined on the basis of the last reported sale price in the principal market
where such securities are traded or, if no sales are reported, the mean between
representative bid and asked quotations obtained from a quotation reporting
system or from established market makers.
Debt securities, including those to be purchased under firm commitment agree-
ments, are normally valued on the basis of quotes obtained from brokers and
dealers or pricing services, which take into account appropriate factors such
as institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics, and other market
data. Under certain circumstances, long-term debt securities having a maturity
of sixty days or less may be valued at amortized cost. Debt securities with a
maturity date at time of purchase of 60 days or less are valued at amortized
cost which approximates fair value.
Securities for which market quotations are not readily available are valued at
fair market value as determined in good faith by and under the direction of the
Board of Trustees. In determining fair value, management considers all relevant
qualitative and quantitative information available. These factors are subject
to change over time and are reviewed periodically. The values assigned to fair
value investments are based on available information and do not necessarily
represent an amount that might ultimately be realized, since such amounts
depend on future market and economic developments. However, because of the
inherent uncertainty of valuation, those estimated values may differ signifi-
cantly from the values that would have been used had a ready market for the
investments existed, and the differences could be material to the investment.
At June 30, 1999, one equity security with a value of $111,315 or 2.02% of net
assets of the Growth Portfolio was valued by management under the direction of
the Board of Trustees.
Forward Foreign Currency Contracts: All Portfolios may enter into forward for-
eign currency contracts whereby the Portfolios agree to sell a specific cur-
rency at a specific price at a future date in an attempt to hedge against fluc-
tuations in the value of the underlying currency of certain portfolio instru-
ments. 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 liabili-
ties denominated in foreign currencies are converted each business day into
U.S. dollars based upon current exchange rates. Purchases and sales of foreign
------------------------------------------------------
F-16
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
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 an
accrual basis and consists of interest accrued and, if applicable, discounts
earned on original issue discount bonds, zero coupon bonds, stepped-coupon
bonds and payment in kind bonds, which are accreted. Dividend income is
recorded on the ex-dividend date, except that certain dividends from foreign
securities are recorded as soon as the Portfolios are informed of the ex-divi-
dend 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, if any, for its fiscal year. In addition, by distributing
during each calendar year substantially all of its net investment income, capi-
tal 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 pro-
vided for in accordance with the applicable country's tax rules and rates.
Dividends and Distributions to Shareholders: Dividends from net investment
income and distributions of any net realized capital gains of each Portfolio
are currently declared and paid annually and at other times as may be required
to satisfy tax or regulatory requirements. Distributions to shareholders are
recorded on ex-dividend date. Dividend and capital gain distributions are
determined in accordance with income tax regulations which may differ from gen-
erally 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 losses deferred due to
wash sales; and permanent differences due to differing treatments for paydown
gains/losses on certain securities, foreign currency transactions, market dis-
count, and non-taxable dividends. Any taxable income or gain remaining at fis-
cal year end is distributed in the following year. Permanent book and tax basis
differences relating to shareholder distributions will result in reclassifica-
tions to paid in capital. Undistributed net investment income may include tem-
porary book and tax basis differences which will reverse in a subsequent peri-
od.
Permanent book-tax differences, if any, are not included in ending undistrib-
uted net investment income for the purposes of calculating net investment
income per share in the Financial Highlights.
Organization Costs: The organization expenses for each Portfolio, excluding
Strategic Income Portfolio, are deferred and are being amortized on a straight-
line basis over a five-year period from commencement of operations.
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 Strategic Income Portfolio may enter into contracts to
purchase securities for a fixed price at a specified future date beyond custom-
ary settlement time ("Forward commitments"). If the Portfolio does so, it 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 set-
tlement date. Although the Portfolio generally will enter into forward commit-
ments with the intention of acquiring securities for its portfolio, it may dis-
pose of a commitment prior to settlement if its Sub-Adviser deems it appropri-
ate to do so. At June 30, 1999, the Strategic Income Portfolio designated
$40,000 as collateral for forward commitments.
3.INVESTMENT MANAGEMENT, ADMINISTRATION AND OTHER TRANSACTIONS
Allmerica Financial Investment Management Services, Inc. ("AFIMS" or the "Man-
ager") serves as overall Manager of the Trust. As Manager, AFIMS is responsible
for general administration of the Trust as well as monitoring and evaluating
the
- --------------------------------------------
F-17
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
performance of the Portfolio Managers. AFIMS, a Massachusetts corporation, is
registered with the Securities and Exchange Commission as an investment advis-
er. AFIMS is an indirect wholly-owned subsidiary of Allmerica Financial Corpo-
ration ("AFC").
Effective February 12, 1998 through April 16, 1998, Allmerica Investment Man-
agement Company, Inc. ("AIMCO"), assumed the function of Manager for the Trust.
As part of a corporate reorganization completed on April 16, 1998, AIMCO trans-
ferred to AFIMS that portion of its business relating to registered investment
companies such as the Trust.
The Portfolio Managers for the Portfolios are as follows: GAMCO Investors, Inc.
("GAMCO") serves as the Portfolio Manager for The Global Interactive/Telecomm
Portfolio and The Value Portfolio; Bee & Associates Incorporated ("Bee") serves
as the Portfolio Manager of The International Growth Portfolio; Analytic
Investors, Inc. ("Analytic") serves as the Portfolio Manager of The Growth
Portfolio, and Allmerica Asset Management, Inc. ("AAM") serves as the Portfolio
Manager of The Strategic Income Portfolio.
At June 30, 1999, GAMCO has invested approximately $536,000 in The Global
Interactive/Telecomm Portfolio and $149,000 in The Value Portfolio. During the
six months ended June 30, 1999, GAMCO redeemed 5,587 shares with an aggregate
value of $100,000 and 7,553 shares with an aggregate value of $100,000 from The
Global Interactive /Telecomm Portfolio and The Value Portfolio, respectively.
Investors Bank & Trust Company ("IBT") provides transfer agency, portfolio
accounting and custody services to the Trust and receives fees and reimburse-
ment of certain out-of-pocket expenses for its services. AFIMS has entered into
an Administrative Services Agreement with IBT, whereby IBT performs certain
administrative services for the Portfolios and is entitled to receive an admin-
istrative fee and certain out-of-pocket expenses. AFIMS is solely responsible
for the payment of the administrative fee to IBT.
The Global Interactive/Telecomm Portfolio and The Value Portfolio placed a sig-
nificant portion of their portfolio transactions through Gabelli & Company,
Inc., an affiliated entity of the Portfolio Manager, GAMCO Investors, Inc.
Total brokerage commissions paid to Gabelli & Company, Inc., during the six
months ended June 30, 1999 amounted to $3,981 for The Global
Interactive/Telecomm Portfolio and $7,985 for The Value Portfolio.
Each Trustee who is not an "interested person" (as defined in the Act) of the
Trust, receives meeting fees and reimbursement for out-of-pocket expenses, from
the Trust.
4.MANAGEMENT FEES
Each Portfolio pays a monthly advisory fee equal to a Basic Fee plus or minus
an Incentive Fee. The Basic Fee is at an annual rate of 2.0% of average daily
net assets. The annual Incentive Fee rate ranges from -2.0% to +2.0%, depending
on a comparison of the Portfolio's performance and the performance of a
selected benchmark index over the past 12 months. The monthly Basic and Incen-
tive Fee is calculated by multiplying one-twelfth of the fee rates on an annual
basis by the average daily net assets of the previous 12 months. The aggregate
annual fee rates range from 0.0% to 4.0%. Each Portfolio Manager receives 80%
of the fee, and AFIMS receives the remaining 20%.
If the absolute performance of a Portfolio is negative, the monthly advisory
fee will be the lesser of the fee calculated as described above or an alterna-
tive monthly advisory fee, which under certain circumstances results in the
Portfolios paying either no advisory fee or a lower monthly advisory fee at the
annual rate of 1.0% or at the annual rate of 2.0% of average daily net assets
depending on a comparison of the Portfolio's negative performance and the per-
formance of a selected benchmark over the past 12 months.
Effective August 1, 1998, the new Portfolio Manager Agreement specifies that
The Growth Portfolio will pay Analytic a monthly advisor fee calculated at an
annual rate of 0.80% of the Portfolio's average daily net assets. However, Ana-
lytic and AFIMS have voluntarily agreed that if The Growth Portfolio would have
paid less than 0.80% on an annual basis using the incentive fee schedule
described above, Analytic and AFIMS will limit their fee to the smaller amount.
As a
------------------------------------------------------
F-18
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
result, during the first year of the new Portfolio Manager Agreement, the
Growth Portfolio will pay the lesser of (i) the amount the Portfolio would have
paid under the old agreement and (ii) 0.80% of the average daily net assets.
Effective July 1, 1998, The Strategic Income Portfolio would have paid to AAM
during the first year as Portfolio Manager a fixed annual fee of .80% of aver-
age daily net assets. AFIMS and AAM voluntarily agreed to limit their fees
until April 30, 1999 to an annual rate of .40%. Effective May 1, 1999, AFIMS
and AAM began receiving compensation in accordance with the performance based
fee.
5.EXPENSE LIMITATIONS AND CONTINGENT REIMBURSEMENT OBLIGATIONS
Under terms approved by the Board of Trustees of the Trust, the former invest-
ment manager to the Trust, Palladian Advisors, Inc. ("PAI"), agreed to limit
certain operating expenses, for the years ended December 31, 1996 and 1997, to
the extent that each Portfolio's "other expenses" (i.e. excluding management
fees) exceeded the following expense limitations (expressed as an annualized
percentage of average daily net assets): Global Interactive/Telecomm Portfolio,
1.20%; International Growth Portfolio, 1.20%; Growth Portfolio, 0.70%; Value
Portfolio, 0.70%; Strategic Income Portfolio, 1.20%. In January 1998, PAI
advised the Board of Trustees that it did not have sufficient assets to make
the payments due to the Portfolios as of December 31, 1997 relating to the
reimbursement of expenses under the existing arrangement. The Board of Trustees
determined that it was in the best interest of the shareholders to accept an
offer from a group (the "Payment Group") willing to pay the Trust the amount
due under the expense limitation. The Payment Group includes Allmerica Finan-
cial Life Insurance and Annuity Company, the issuer of a variable annuity con-
tract utilizing the portfolios as investment options, and an entity selling the
variable contracts. The aggregate amount of expense reimbursements receivables
as of December 31, 1997 were as follows: Global Interactive/Telecomm Portfolio,
$99,327; International Growth Portfolio, $96,868; Growth Portfolio, $123,531;
Value Portfolio, $146,510; Strategic Income Portfolio, $121,760.
On January 28, 1998 the Payment Group paid the Portfolios the following amounts
due under the expense limitation arrangement: Global Interactive/Telecomm Port-
folio, $88,983; International Growth Portfolio, $89,895; Growth Portfolio,
$114,448; Value Portfolio, $128,362; Strategic Income Portfolio, $103,436. In
April, 1998 AFIMS paid the remaining amounts due under the arrangement as fol-
lows: Global Interactive/Telecomm Portfolio, $10,344; International Growth
Portfolio, $6,973; Growth Portfolio, $9,083; Value Portfolio, $18,148; Strate-
gic Income Portfolio, $18,324. Through the year ending December 31, 1999, the
Portfolios are required to repay all or a portion of any reimbursement of
expenses received under this arrangement, provided that average net assets have
grown or expenses have declined sufficiently to allow repayment without causing
the Portfolios' ratio of other expenses to average daily net assets to exceed
the specified other expense limitation rates specified above.
Retroactive to January 1, 1998, the current investment manager to the Trust,
AFIMS, has agreed to limit certain operating expenses for the year ending
December 31, 1998 to the extent that each Portfolio's "other expenses" (i.e.
excluding management fees) exceed the following expense limitations (expressed
as an annualized percentage of average daily net assets): Global
Interactive/Telecomm Portfolio, 1.20%; International Growth Portfolio, 1.20%;
Growth Portfolio, 1.00%; Value Portfolio, 1.00%; Strategic Income Portfolio,
1.20%. This expense limitation was implemented effective February 13, 1998. On
February 24, 1998, AIMCO voluntarily contributed to the Portfolios the follow-
ing amounts as capital: Global Interactive/Telecomm Portfolio, $6,618; Interna-
tional Growth Portfolio, $7,723; Growth Portfolio, $10,350; Value Portfolio,
$8,469; Strategic Income Portfolio, $7,936. These amounts were contributed to
offset expenses accrued to the Portfolios in excess of the expense limitations
during the period January 1, 1998 through February 12, 1998. These capital con-
tributions have been treated as an increase in paid in capital for each Portfo-
lio. For the year ending December 31, 1999, the Portfolios are required to
repay all or a portion of any reimbursement of expenses received under this
arrangement provided that average net assets have grown or expenses have
declined sufficiently to allow repayment without causing the Portfolio's ratio
of other expenses to average daily net assets to exceed the applicable other
expense limitation rates specified above. At December 31, 1998, the aggregate
amount of 1998 expenses reimbursed subject to repayment were as follows: Global
Interactive/Telecomm Portfolio, $90,165; International Growth Portfolio,
$101,848; Growth Portfolio, $181,834; Value Portfolio, $147,492; Strategic
Income Portfolio, $74,187. Repayment of all
- --------------------------------------------
F-19
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS (Unaudited), Continued
- --------------------------------------------------------------------------------
or a portion of any reimbursement of expenses which relate to the year ending
December 31, 1998 will not begin until the repayment obligations to the Payment
Group and AFIMS, as discussed above, have been met.
AFIMS has agreed to limit certain operating expenses for the year ending Decem-
ber 31, 1999 to the extent that each Portfolio's "other expenses" (i.e. exclud-
ing management fees) exceed the following expense limitations (expressed as an
annualized percentage of average daily net assets): Global Interactive/Telecomm
Portfolio, 1.50%; International Growth Portfolio, 1.50%; Growth Portfolio,
1.20%; Value Portfolio, 1.20%; Strategic Income Portfolio, 1.50%. At June 30,
1999, the aggregate amount of 1999 expenses reimbursed subject to repayment
were as follows: Global Interactive/Telecomm Portfolio, $17,315; International
Growth Portfolio, $31,939; Growth Portfolio, $42,325; Value Portfolio, $37,636;
Strategic Income Portfolio, $25,765. The Portfolios' reimbursement liability
for 1998 and 1999 expense limitations will cease two years after each respec-
tive calendar year.
6.FOREIGN SECURITIES
All Portfolios may purchase securities of foreign issuers. 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.
------------------------------------------------------
F-20
<PAGE>
The Fulcrum 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 invest-
or's shares, when redeemed, may be worth more or less than their original cost.
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Portfolios and are not autho-
rized for distribution to prospective investors in The Fulcrum FundSM Variable
Annuity of Allmerica Financial Life Insurance and Annuity Company or First
Allmerica Financial Life Insurance Company unless accompanied or preceded by
effective prospectuses for The Fulcrum FundSM Variable Annuity of Allmerica
Financial Life Insurance and Annuity Company or First Allmerica Financial Life
Insurance Company, and The Fulcrum Trust, which include important information
related to charges and expenses.
CLIENT NOTICES
- --------------------------------------------------------------------------------
This semi-annual report includes financial statements for The Fulcrum Trust. It
does not include financial statements for the separate accounts that correspond
to the Fulcrum FundSM Variable Annuity contracts. Separate account financial
statements are not provided.
YEAR 2000
- --------------------------------------------------------------------------------
Some computer software cannot distinguish between dates in the year 2000 and
dates in the year 1900 because of the way that dates are encoded and calculat-
ed. The services provided to the Trust by the Manager, Portfolio Managers, Cus-
todian and other external service providers depend on the proper functioning of
their computer software. Failure to correct or replace any non-compliant soft-
ware could adversely affect, among other things, the handling of securities
trades, the payment of interest and dividends, the pricing of the Trust's secu-
rities and of the Trust's shares, and account services. The Trust has requested
information from its service providers with respect to their plans to be Year
2000 compliant. The Trust has been advised by its service providers that they
either are Year 2000 compliant now or expect to be compliant prior to December
31, 1999. However, there can be no guarantee that the Trust's operations will
not be adversely affected by non-compliant computer systems of its service
providers or other third parties which interact with such service providers.
The Year 2000 problem may also have an adverse effect on issuers, including
foreign issuers, whose securities are owned by the Portfolios, potentially
decreasing the value of such securities.
- --------------------------------------------
F-21
<PAGE>
The Fulcrum Fund(SM) Variable Annuity
The Fulcrum Fund(SM) Variable Annuity is issued by Allmerica Financial
Life Insurance and Annuity Company (First Allmerica Financial Life
Insurance Company in NY and HI) and is distributed by Allmerica
Investments, Inc.
To be preceded or accompanied by the current prospectus.
Read it carefully before investing.
[LOGO OF IMSA APPEARS HERE]
[LOGO OF ALLMERICA FINANCIAL(R) APPEARS HERE]
First Allmerica Financial Life Insurance Company . Allmerica Financial Life
Insurance and Annuity Company (licensed in all states except NY)
Allmerica Trust Company, N.A. . Allmerica Investments, Inc. . Allmerica
Investment Management Company, Inc. . The Hanover Insurance Company . AMGRO,
Inc. . Allmerica Financial Alliance Insurance Company . Allmerica Asset
Management, Inc. . Allmerica Financial Benefit Insurance Company . Sterling
Risk Management Services, Inc. . Citizens Corporation . Citizens Insurance
Company of America . Citizens Management Inc.
440 Lincoln Street, Worcester, Massachusetts 01653
10636 (6/99)
