<PAGE>
Allmerica Financial Services Annual Report
- --------------------------------------------------------------------------------
DECEMBER 31, 1999
The Fulcrum Fund(SM)
Variable Annuity
. The Fulcrum Trust
[LOGO OF THE FULCRUM FUND] 1999
[LOGO OF ALLMERICA]
<PAGE>
Table of Contents
General Information ...................................................... 2
A Letter from the Chairman ............................................... 3
Portfolio Performance Summary ............................................ 4
Product Performance Summaries ............................................ 5
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 annual report.
See Client Notices on page F-24.
1
<PAGE>
General Information
Officers of First Allmerica Financial Life Insurance Company (FAFLIC) and
Allmerica Financial Life Insurance and Annuity Company (AFLIAC)
John F. O'Brien, President, CEO (FAFLIC) and
Chairman of the Board (AFLIAC)
Richard M. Reilly, President and CEO (AFLIAC)
Edward J. Parry, III, Vice President, CFO and Treasurer
Abigail M. Armstrong, Secretary and Counsel
Investment Manager
Allmerica Financial 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
<PAGE>
A Letter from the Chairman
[PHOTO]
Dear Client:
1999 was yet another strong year in the U.S equity market. The S & P 500 Index
and the Dow Jones Industrial Average both enjoyed their fifth consecutive year
of double-digit gains--an unprecedented event. While these returns in themselves
were impressive, the real story of the year was the NASDAQ Index with its 85.6%
return. Led by high-flying internet and other technology stocks, the NASDAQ
increased as no other U.S. stock index has before as investors preferred to buy
its high growth, high priced stocks, regardless of the earnings of the
underlying companies. In the international markets, emerging markets rebounded
sharply after a disappointing 1998 and the MSCI EAFE Index which measures the
performance of developed markets overseas, beat the returns of the S&P 500 for
the first time since 1993. The U.S. bond market had its worst annual performance
since 1994 and second worst since 1973 as the Federal Reserve increased interest
rates in order to counteract inflationary growth.
Returns on the stock funds within the Fulcrum Trust, like the stock market
itself, varied greatly. The Global Interactive /Telecom Portfolio significantly
outperformed the S&P 500 due to superior stock selection and a market which
favored telecom stocks. The Growth Portfolio performed virtually in line with
its benchmark for the year after handily outperforming through the third
quarter. In the fourth quarter, the market's drive toward a few high-momentum
stocks penalized this fund as it did most other funds which purchase growth
stocks at reasonable valuations. The Value Portfolio underperformed due to the
same factors that propelled growth stocks--investors' preference in 1999 for
growth. Finally, the International Growth Fund outperformed its benchmark for
the year due to stock selection, especially within the technology sector.
Effective October 1, 1999, we changed the benchmark for this fund to the MSCI
EAFE Small Cap Index to better reflect the small cap focus that this fund has
always had.
This past year, the Board voted to continue fund expense limitations and we are
seeking ways to further reduce expenses by growing the business and achieving
some economies of scale. During 1999, the funds within the Fulcrum trust
performed quite well based on their various disciplines. We are pleased with
the diversity of investment alternatives available in the Trust and urge you to
continue to work with your financial advisor to build a portfolio that meets
your needs. We continue to work hard to earn your confidence and trust and we
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
3
<PAGE>
Portfolio Performance Summary
The Fulcrum Trust
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
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.
Portfolio
Inception 1 Life of
Portfolios Date Year Portfolio
- --------------------------------------------------------------------------------
The Fulcrum Trust
The Global Interactive/Telecomm Portfolio 2/1/96 56.89% 31.03%
The International Growth Portfolio 3/26/96 37.26% 6.28%
The Growth Portfolio 2/1/96 20.07% 9.80%
The Value Portfolio 2/1/96 8.17% 15.73%
The Strategic Income Portfolio 2/1/96 -3.12% 1.07%
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
<PAGE>
Performance
<PAGE>
Product Performance Summary
The Fulcrum Fund(SM) Variable Annuity (FAFLIC)
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
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 54.66% 29.17% 41.82% 46.79% 27.95% 39.36%
The International Growth Portfolio 10/3/97 35.30% 4.77% 3.58% 28.06% 3.51% 1.19%
The Growth Portfolio 9/30/97 18.33% 8.22% 0.70% 10.61% 6.74% -2.32%
The Value Portfolio 9/30/97 6.52% 14.05% 7.78% -0.68% 12.61% 4.54%
The Strategic Income Portfolio 10/3/97 -4.52% -0.38% 0.04% -10.35% -1.42% -2.08%
</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
<PAGE>
Product Performance Summary
The Fulcrum Fund(SM) Variable Annuity (AFLIAC)
- --------------------------------------------------------------------------------
Average Annual Total Returns as of 12/31/99
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 54.66% 29.18% 40.13% 47.11% 28.27% 38.72%
The International Growth Portfolio 3/13/97 35.30% 4.77% 3.93% 27.76% 3.20% 1.69%
The Growth Portfolio 3/13/97 18.33% 8.23% 7.87% 10.62% 6.71% 5.55%
The Value Portfolio 3/13/97 6.52% 14.05% 12.85% -0.59% 12.69% 10.64%
The Strategic Income Portfolio 3/13/97 -4.52% -0.37% 1.10% -10.44% -1.54% -0.72%
</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.
7
<PAGE>
Domestic & International Equity Market Overview
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: Booming technology and internet stocks help drive the DOW and NASDAQ to
record highs. Investors flock to large-cap stocks. The Fed hikes interest rates
in an effort to help slow the economy and prevent inflation.
For equity investors, 1999 was a year of global economic recovery, NASDAQ and
Dow records, concentrated stock performance, and the largest disparity between
growth and value investing ever.
The past year capped the best decade ever for U.S. stock investors. The U.S.
equity market, as measured by the Standard & Poor's 500 Index, delivered
double-digit returns, despite moderately higher inflation, three Federal
Reserve interest rate hikes, and Y2K concerns.
The U.S. stock market ended the year posting all-time highs as the Dow Jones
Industrial Average climbed to a record 11,497.12, finishing the year up 25%
and the S&P 500 climbed to a record 1,469.25 for the year, ending 21% higher.
The NASDAQ Composite Index had the largest one-year gain ever for a U.S. stock
index, closing at 4,069.31 and ending nearly 86% higher. While the
capitalization-weighted NASDAQ Index was a stellar performer, 48% of its
constituents lost money, further illustrating how performance was driven by a
small number of well-performing stocks.
1999 proved to be a challenge for value investors everywhere and featured the
greatest disparity in performance between value and growth investing styles
ever. The Russell 2500 Growth Index, for example, outperformed the Russell 2500
Value Index by an astounding 54%. One study actually showed that stocks with no
earnings were up an average of 52% for the year while those with earnings were
down an average of 2%.
Large-capitalization growth stocks led the markets during the first three months
of the year. Preferences reversed temporarily in April towards value stocks
when fears of inflation emerged as the economy showed considerable strength.
Correspondingly, cyclicals registered strong relative earnings growth as
stocks weakened. Third-quarter markets later narrowed, with large-cap growth
stocks once again taking the lead.
During the final quarter of 1999, investors focused on a narrow group of
outperforming stocks in the telecommunications, technology, and Internet
sectors. By far, the biggest story of the year was the fourth-quarter rush
towards these
[TIMELINE]
JAN 1999
Brazil devalues its currency; fears that a Brazilian "contagion" would emerge
failed to materialize. Greater price and currency stability enable interest
rates to fall in Latin America and Asia.
MAR 1999
[GRAPHIC]
Japan begins its slow economic recovery, thanks largely to falling interest
rates, fiscal stimulus policies, and foreign investments.
MAY 1999
Growth sectors of the market weaken, overfears 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.
JUN 1999
[GRAPHIC]
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.
8
<PAGE>
Domestic & International Equity Market Overview
so-called "New Economy" issues. In addition, hundreds of companies in these
sectors went public with little or no revenues, scant earnings, and tenuous cash
flow prospects.
Historically, the technology sector is cyclical and has a high failure rate. As
many market experts warn, today's darlings, with their unrealistic valuations,
could well be tomorrow's disasters. It will be interesting to see if the Old
Economy stocks, which drifted over the past year, can successfully adapt their
business models to compete in this ecommerce, Internet-driven market.
Throughout the year, most non- U.S. world equity markets continued to grow and
improve, registering exceptional gains during the final quarter of 1999. The
year began with the January devaluation of the Brazilian real, which was
initially expected to have negative ripple effects in Latin America and emerging
markets in general. These concerns turned out to be unfounded as IMF fundings,
interest rate reductions, and better fiscal discipline attracted investors back
to Brazil and the rest of Latin America.
In Asia, Japan steadily emerged from a nine-year bear market, spurred primarily
by foreign investments, which caused its stock market and the yen to rise
sharply. At the end of the year, the Japanese market index return was up by more
than 55% from 1998, despite underperformance against other Asian regions during
the fourth quarter.
Elsewhere in Asia, economies recorded strong growth and performance during
1999, with exports and falling interest rates providing the major stimuli. In
Hong Kong for example, the equity market increased by nearly 60% for the year.
After weak performance in the early part of the year, European and UK equities
had modest gains during the fourth quarter. Increased consumer confidence, as
well as lower unemployment and inflation, were responsible for most of this
improvement. The euro's inaugural year, unfortunately, was disappointing. The
currency fell almost 18%.
Looking ahead, the picture appears to be bright for 2000. For the first time
since 1996, there are no major regions of the world in recession. Consumer
confidence is high and inflation is close to a 30-year low.
The U.S. is approaching the longest expansion in its history. Europe appears to
be stable, weakness in the euro notwithstanding. Asian-Pacific and Latin
American economies are expected to continue growing. The only concern is in
Japan, where a continued rising yen could pose a potential problem and threaten
the sustainability of economic recovery.
As worldwide economic improvement continues, it is expected that interest
rates will keep rising moderately. Inflation remains the key issue affecting
the domestic economy and financial markets. Although the inflation outlook in
the U.S. at this time appears relatively benign, the Fed's major concerns remain
excessive growth in the U.S. economy and the 30-year low unemployment level,
both of which it sees as potentially inflationary.
With continued economic improvement around the world, investors will likely
begin to broaden their horizons, looking beyond overpriced global growth
stocks in the technology and Internet sectors and exploring high-quality
companies that trade at more attractive valuations.
[TIMELINE]
JULY
Investors turn away from small- and mid-cap stocks. Large-cap growth issues once
again take center stage, where they will remain for the rest of the year.
AUG
[GRAPHIC]
Inflation fears resurface as the U.S. economy continues to grow and the nation's
unemployment figure approaches an almost 30-year low. The Fed responds by
raising interest rates another 0.25%.
SEPT
The gap in performance between growth and value investing continues to widen. By
year-end, the Russell 2500 Growth index has outperformed the Russell 2500 Value
Index by an unheard-of 54%.
OCT
Stocks in the high-performing technology sector begin their unprecedented
fourth-quarter dominance of the world's equity markets.
[GRAPHIC]
NOV
With the booming U.S. economy showing no signs of a slowdown, the Fed announces
its third and final interest rate hike of 0.25%.
DEC
The Dow Jones Industrial Average, S&P 500, and NASDAQ Composite Index finish an
already-impressive year by posting record gains.
9
<PAGE>
The Global Interactive/Telecomm Portfolio
The Global Telecom Portfolio returned 56.89% for the period ended December 31,
1999, outperforming its benchmark, the S&P 500 which returned 21.03%.
In 1999, the market delivered double-digit returns, despite increased
volatility, moderately higher inflation, higher interest rates, and Y2K
concerns.
Even in this market environment, the value-oriented Global Telecom Portfolio
performed well, despite limited exposure to technology stocks. Returns were
bolstered by an outstanding year for telecommunications, cable television, and
entertainment stocks; there was a strong rally by small group broadcasters
following further deregulation in the broadcast industry. In 1999, more than a
dozen of the Portfolio holdings were taken over, most at a substantial premium
to market price. Buying good companies at a discount to their "real world"
economic value had its rewards.
The Portfolio manager expects continued volatility in 2000.
The Portfolio manager also believes that any fatigue in the consumer area,
through a stock market slump or stagnation in housing prices, will be met with
tax relief. Furthermore, the Portfolio manager expects that the Russell 2000
earnings will outpace those of the S&P 500. Good earnings, low valuations and
more takeovers should provide ample opportunities for the Portfolio to meet its
goal of achieving a favorable real rate of return.
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 December 31, 1999, the sector allocation of net assets was:
[GRAPH]
Telephone Systems 37%
Media Broadcasting 29%
Communications 11%
Industrial-Diversified 5%
Entertainment & Leisure 5%
Other 13%
Average Annual Total Returns
Years ended December 31, 1999 1 Year Life of Fund
The Global Interactive/Telecomm Portfolio 56.89% 31.03%
S&P 500(R) Index 21.03% 25.94%
Growth of a $10,000 Investment Since 1996
[GRAPH]
The Global Interactive
Telecomm Portfolio S&P 500 Index
02/01/96 10,000 10,000
12/31/96 10,049 11,891
12/31/97 14,097 15,859
12/31/98 18,364 20,392
12/31/99 28,811 24,682
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&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.
10
<PAGE>
The International Growth Portfolio
The International Growth Portfolio returned 37.26% for the period ended December
31, 1999, outperforming its benchmark, the Morgan Stanley EAFE Index, which
returned 27.31%.
1999 was a refreshing year for international small cap stocks. Although most of
the strong small cap markets were in Asia, some important signs emerged in
Europe, bolstering the Portfolio manager's confidence in the sector. During
1999, the Portfolio was largely invested in Europe. This weighting will continue
into 2000.
The past year saw increasing focus on the international small cap sector from
industrial and institutional buyers. Industrial buyers, recognizing the
differences between business value and stock market value, bought out several of
the Portfolio's holdings in 1999. The Portfolio's investment process seeks to
highlight and exploit this difference, and a buyout is one of several ways of
closing the gap. The manager expects to see more of these transactions in the
portfolio in 2000.
One of the Portfolio's disappointments during 1999 was the weakness in the euro,
which in its inaugural year fell almost 18%. Including the decline in value in
non-euro European currencies, foreign exchange losses reduced the Portfolio's
performance by several percentage points.
Overall, the manager is pleased with the Portfolio's performance and its
positioning entering 2000. The focus on international small cap stocks will
continue to increase, and the manager believes that undervalued companies have
the potential to do well.
Average Annual Total Returns
Years ended December 31, 1999 1 Year Life of Fund
The International Growth Portfolio 37.26% 6.28%
Morgan Stanley EAFE Index 27.31% 13.63%
Morgan Stanley EAFE Small Cap Index 17.65% -3.34%
Growth of a $10,000 Investment Since 1996
[GRAPH]
The International Morgan Stanley
Date Growth Portfolio EAFE Index
3/26/96 10,000 10,000
12/31/96 10,330 10,262
12/31/97 9,967 10,286
12/31/98 9,168 12,161
12/31/99 12,584 15,234
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 December 31, 1999 the country allocation of net assets was:
[CHART]
Switzerland 19%
United Kingdom 13%
Sweden 13%
Israel 11%
Norway 10%
Netherlands 8%
Hong Kong 7%
Other 19%
11
<PAGE>
The Growth Portfolio
For the period ended December 31, 1999, the Growth Portfolio returned 20.07%,
underperformed its benchmark, the Standard & Poor's 500 Index, which returned
21.03%.
Through the third quarter of 1999, the Portfolio solidly outperformed its
benchmark. Selection of stocks with excellent valuation characteristics helped
add value to the portfolio.
During the fourth quarter of year, however, there was a dramatic shift in
investor preferences to more speculative high technology/high momentum stocks.
Such rapid shifts negatively impact the Portfolio, since the Portfolio manager
attempts to capture long-run trends in valuation rather than short-run shocks.
During this quarter, the Portfolio under-performed its benchmark.
Because of the robust momentum-driven fourth-quarter performance, the Portfolio
stock selection model now places a slightly higher emphasis on price momentum as
a forecast of future return. The Portfolio manager continues to seek securities
with outstanding valuations and positive earnings revisions, in addition to
stocks with strong price momentum. The Portfolio manager believes this strategy
positions the Portfolio well for the year 2000 as investors scrutinize
increasingly complex financial data and make decisions based upon multiple
valuation factors.
The Portfolio manager expects market volatility to increase in 2000. Despite
this, strong economic growth and low inflation will likely cause continued
investment in equities. Although Federal Reserve policy decisions can have
dramatic impacts on financial markets, the Portfolio manager sees these effects
as short term, having negligible impact on the long-term returns of the equity
market.
Investment Manager
Analytic Investors, Inc.
About The Fund
Seeks to make money by investing primarily in securities selected for their
long-term growth prospects.
Average Annual Total Returns
Years ended December 31, 1999 1 Year Life of Fund
The Growth Portfolio 20.07% 9.80%
S&P 500(R) Index 21.03% 25.94%
Portfolio Composition
As of December 31, 1999 the
sector allocation of net assets was:
Computer Software & Processing 13%
Computers & Information 9%
Telephone Systems 8%
Pharmaceuticals 8%
Automotive 5%
Insurance 5%
Banking 5%
Other 47%
Growth of a $10,000 Investment Since 1996
[GRAPH]
The Growth Portfolio S&P 500(R) Index
2/1/96 $10,000 $10,000
12/31/96 10,840 11,891
12/31/97 11,950 15,859
12/31/98 12,010 20,392
12/31/99 14,420 24,682
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&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.
12
<PAGE>
The Value Portfolio
For the period ended December 31, 1999, the Fulcrum Value Portfolio returned
8.17%, underperforming its benchmark, the Standard & Poor's 500 Index, which
returned 21.03%.
As long-term value investors, the Portfolio management team has seen an
evaporation of the margin of safety in the overall market, but also uncovered
numerous opportunities to buy attractive stocks at relatively cheap prices.
Valuations in many companies have overshot their mark, while - others have been
woefully ignored. Expectation levels have resulted in a capitalization rate on
earnings that allows little room for error, making fund management that much
more challenging. The Portfolio manager's application of analytical principles
means the Portfolio focuses on areas of the market that are ignored. If the
market moves sideways to allow increased earnings to catch up with stock prices,
the Portfolio manager expects the potential to continue generating attractive
rates of return.
Heading into 2000, the Portfolio manager believes the U.S. economy will remain
vibrant, Europe will gain momentum, and Japan continue to move well. The dollar
will likely be challenged, but earnings should rise nearly 10% for the average
S&P 500 company.
The manager also believes that any fatigue in the consumer area, through a stock
market slump or stagnation in housing prices, will be met with tax relief.
Furthermore, the Portfolio manager expects that the Russell 2000 earnings
will outpace those of the S&P 500. Good earnings, low valuations and more
takeovers should provide ample opportunities for the manager to achieve an
attractive real rate of return.
Average Annual Total Returns
Years ended December 31, 1999 1 Year Life of Fund
The Value Portfolio 8.17% 15.73%
S&P 500(R) Index 21.03% 25.94%
Growth of a $10,000 Investment Since 1996
[GRAPH]
The Value Portfolio S&P 500(R) Index
2/1/96 $10,000 $10,000
12/31/96 11,513 11,891
12/31/97 15,236 15,859
12/31/98 16,377 20,392
12/31/99 17,716 24,682
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&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.
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 December 31, 1999 the sector allocation of net assets was:
[CHART]
Beverages, Food & Tobacco 19%
Media - Broadcasting
& Publishing 8%
Heavy Machinery 6%
Electronics 6%
Electric Utilities 5%
Pharmaceuticals 5%
Automotive 5%
Other 46%
13
<PAGE>
Bond & Money Market Overview
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: Inflation concerns and a booming U.S. Economy prompt the Federal Reserve
to hike interest rates. Fixed Income markets close the second half with their
worst-performing year ever with the Lehman Aggregate Bond Index returning
- -0.83%.
On the whole, 1999 was disappointing for fixed-income investors. In fact, it was
the second worse performance year ever for the fixed-income markets, as measured
by the total -0.83% return of the Lehman Aggregate Bond Index.
A handful of universal themes dominated the markets during the year, namely
successive Federal Reserve interest rate hikes, a steepening yield curve,
volatile corporate bond performance, and rising mortgage rates.
1999 began with investors feeling fairly optimistic about the coming year. The
Federal Reserve had acted in the fall of 1998 to avert a global liquidity
meltdown with three easings that lowered short-term rates to 4.75%. The U.S.
economy seemed to be healthy, with expectations for 1999 GDP in the 3.0% range
and subdued inflation running at about a 2% annual rate.
On the international front, Asia and Latin America continued their recovery from
the problems of 1998. Early in the year, Brazil announced a somewhat unexpected
devaluation of its currency, the real. Global markets braced for a round of
panic selling and other negative ripple effects which never materialized.
Against this backdrop, the first quarter of 1999 progressed with no major
disturbances. Inflation stayed at bay and corporate spread tightening
reflected the positive fundamentals of strong earnings growth.
Beginning in the second quarter, however, the picture began to change. The U.S.
economy grew faster than initially projected and the unemployment rate fell
below 4.2%. Investors began to fear that inflation was imminent. In June, the
Federal Reserve responded by raising the Fed Funds interest rate from 4.75% to
5.00%.
July and August saw spread sectors widen dramatically. Corporate treasurers
pushed corporate and asset-backed bonds into the market hoping
[TIMELINE]
1999
JAN
The new European currency is introduced. Over the course of the year, the euro
loses almost 18% of its value against the U.S. dollar.
[GRAPHIC]
FEB
A rally of agency, corporate, and mortgage-backed bonds encourages investors to
take advantage of bond yield premiums.
MAR
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.
[GRAPHIC]
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.
JUN
14
<PAGE>
Bond & Money Market Overview
to avert a fourth-quarter liquidity trap, which they believed likely as Y2K
fears would drive buyers from the market. Ironically, these efforts became a
self-fulfilling prophesy as treasurers ended up creating their own
mini-liquidity crisis by all trying to issue bonds simultaneously. By August,
there was a second Fed rate hike from 5.00% to 5.25%.
Despite these first two rate increases, the U.S. economy continued to gather
speed in the third and fourth quarters. The nation's third-quarter GDP, for
instance, came in at 5.7%, well above experts' original predictions. Market
participants once again began to worry about a resurgence of inflation. In
response, the Fed raised short-term interest rates for a third and final time in
November to 5.50%.
Investment grade corporate bonds had a good showing at the end of 1999, but
their overall performance was volatile. All excess returns were attributable to
the first and fourth quarters only.
The high yield market finished 1999 on a positive note after poor performance
in the second and third quarters. The market's return for the year was a modest
2.39%, as measured by the Lehman High Yield Corporate Index. The demand side of
the market shifted significantly in 1999, as mutual fund inflows dropped
dramatically to $1.1 billion, down from $15 billion in 1998. Collateralized bond
obligations, structured transactions involving the purchase of high yield debt,
did offset these lower inflows. The market's estimated 4% default rate was the
highest since 1991.
The past year also saw a steepening yield curve as the 30-year Treasury bond,
which began the year at 5.10% on January 1, and ended at 6.49% on December 31.
The mortgage-backed securities market showed strong excess returns for the year,
owing primarily to positive supply/demand factors, an improved prepay
environment, narrowing swap spreads, and lower interest rate volatility. In
particular, Fannie Mae and Freddie Mac assets grew nearly 30% over 1999.
Looking ahead, it is likely that economic growth and strengthening will continue
into 2000, albeit at a slower rate than that of 1999. All signs point to
probable Fed interest rate increases in the new year, with little inflation on
the horizon.
[TIMELINE]
JUL
In response to rapid economic growth, the U.S. Federal Reserve combines neutral
bias with a 0.25% raise in interest rates to guard against inflation.
[GRAPHIC]
AUG
[GRAPHIC]
Inflation worries resurface at the U.S. economy continues to grow and the
nation's unemployment figure approaches an almost 30-year low. The Fed responds
by raising interest rates another 0.25%.
SEPT
OCT
Investment grade corporate bonds and the high yield market begin their strong
fourth quarter performance.
NOV
[GRAPHIC]
DEC
With the booming U.S. economy showing no signs of a slowdown, the Fed announces
its third rate hike of 0.25%. The fixed-income markets end the year down with
the Lehman Aggregate Bond Index posting a dismal total return of -0.83%.
15
<PAGE>
The Strategic Income Portfolio
For the period ended December 31, 1999, the Strategic Income Portfolio
returned -3.12%, underperforming its benchmark, the Lehman Brothers Aggregate
Bond Index, which returned -0.83%.
During the first quarter of 1999, inflation remained in check. The second
quarter featured stronger than expected growth and an unemployment rate below
4.2%. The Federal Reserve responded in June by increasing interest rates. In
July and August, spread sectors widened dramatically as corporate treasurers
pushed corporate- and asset-backed issues into the market in an attempt to avoid
potential Y2K-induced fourth-quarter liquidity problems. August brought another
Fed rate hike, with a final one occurring in November, prompted by inflation
fears amidst a booming economy and GDP at a robust 5.7%.
The yield curve steepened as the 30-year Treasury bond rose from 5.10% on
January 1, to 6.49% at the close of the year. This increase resulted in the
second worse performance year ever for the fixed income markets, as measured
by the total return of the Lehman Aggregate Bond Index.
Although corporate bonds finished the year strongly, performance throughout 1999
was volatile, with the first and last quarters accounting for all excess
return. The Portfolio was not able to participate in these excess returns
because of an underweight in the corporate bond sector. Excess return was
instead achieved through investments in mortgage-backed securities and
government agency obligations.
1999's dramatic rise in mortgage rates resulted in a significant slow-down in
prepayment speeds, especially for higher coupon mortgages, and a decline in
issuance. Agency demand for mortgages remained robust. Positive supply/demand
factors, an improved prepay environment, narrowing swap spreads, and lower
interest rate volatility helped the mortgage-backed securities market post
strong excess returns for the year.
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 December 31, 1999 the sector allocation of net assets was:
[CHART]
U.S. Government and
Agency Obligations 99%
Corporate Debt 10%
Other (9)%
Average Annual Total Returns
Years ended December 31, 1999 1 Year Life of Fund
The Strategic Income Portfolio -3.12% 1.07%
Lehman Brothers Aggregate Bond Index -0.83% 5.14%
Growth of a $10,000 Investment Since 1996
[GRAPH]
Lehman Brothers
The Strategic Income Portfolio Aggregate Bond Index
2/1/96 $10,000 $10,000
12/31/96 10,044 10,294
12/31/97 10,102 11,287
12/31/98 10,762 12,268
12/31/99 10,426 12,167
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
<PAGE>
The Global Interactive/Telecomm Portfolio
PORTFOLIO OF INVESTMENTS . December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ----------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS - 99.6%
Telephone Systems - 35.8%
10,000 AT&T Corp. - Liberty Media Group, Class A $ 567,500
1,500 BCE, Inc. 135,281
2,000 BCT.Telus Communications, Inc., Class A 48,025
500 Cable & Wireless HKT, Ltd. ADR 14,563
6,000 Cable & Wireless Plc ADR 317,625
2,000 CenturyTel, Inc. 94,750
2,500 Cia. de Telecomunicaciones de Chile SA 45,625
12,000 CommNet Cellular, Inc.* 385,500
5,000 Commonwealth Telephone Enterprises, Inc.* 264,375
1,000 Esat Telecom Group Plc ADR* 91,500
2,000 GST Telecommunications, Inc.* 18,125
8,000 Loral Space & Communications, Ltd.* 194,500
5 NTT Mobile Communcations Network, Inc. 192,319
7,000 Rogers Cantel Mobile Communications, Inc., Class B* 254,625
608 SK Telecom Co. Ltd. ADR 23,320
2,500 Swisscom AG ADR 101,250
2,500 Telephone and Data Systems, Inc. 315,000
1,000 Viatel, Inc.* 53,625
500 Vimpel-Communications ADR* 22,313
----------
3,139,821
----------
Media-Broadcasting & Publishing - 29.0%
500 Audiofina 37,085
200 BHC Communications, Inc., Class A 32,000
1,500 Cablevision Systems Corp.* 113,250
1,620 CBS Corp.* 103,579
4,500 Chris-Craft Industries, Inc. 324,563
2,000 Fisher Companies, Inc. 123,500
10,000 Granite Broadcasting Corp.* 101,250
3,500 Gray Communications Systems, Inc., Class B 47,250
5,000 Holdingmaatschappij De Telegraaf NV 110,253
2,000 Lee Enterprises, Inc. 63,875
3,000 Media General, Inc., Class A 156,000
2,500 MediaOne Group, Inc.* 192,031
2,000 Pulitzer, Inc. 80,625
10,000 Rogers Communications, Inc., Class B 247,500
2,500 Salem Communications Corp., Class A* 56,563
500 Spanish Broadcasting System, Inc., Class A* 20,125
1,500 The McClatchy Company, Class A 64,875
1,000 The McGraw-Hill Companies, Inc. 61,625
1,000 The Times Mirror Company, Class A 67,000
3,000 Tribune Co. 165,188
2,000 USA Networks, Inc.* 110,500
4,500 Viacom, Inc., Class A 271,969
----------
2,550,606
----------
Communications - 10.7%
1,000 Aerial Communications, Inc.* 60,875
2,500 American Tower Corporation, Class A* 76,406
2,000 COMSAT Corp. 39,750
2,400 Globalstar Telecommunications, Ltd.* 105,600
1,000 Nextel Communications, Inc., Class A* 103,125
500 Omnipoint Corp.* 60,313
5,000 Paxson Communications Corp.* 59,688
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------------------------------------------------
<C> <S> <C>
Communications (continued)
6,000 Price Communications Corp. $ 166,875
11,000 Telecom Italia Mobile SPA 122,271
1,000 Telecom Italia SPA-Sp ADR 140,000
----------
934,903
----------
Industrial - Diversified - 5.1%
400 Mannesmann AG 96,381
1,500 Mark IV Industries, inc. 26,531
3,600 Vivendi 323,483
----------
446,395
----------
Entertainment & Leisure - 5.1%
5,000 Ascent Entertainment Group, Inc.* 63,438
1,500 Blockbuster Inc., Class A 20,063
3,000 Gaylord Entertainment Co. 89,813
6,000 GC Companies, Inc.* 155,250
2,000 The Walt Disney Co. 58,500
800 Time Warner, Inc. 57,950
----------
445,014
----------
Commercial Services - 2.1%
4,099 Cendant Corp.* 108,880
2,500 The Dun & Bradstreet Corp. 73,750
----------
182,630
----------
Water Companies - 2.0%
1,500 Aquarion Co. 55,500
1,000 SJW Corp. 120,250
----------
175,750
----------
Lodging - 1.9%
8,000 Aztar Corp.* 87,000
13,000 Hilton Group Plc 41,538
4,000 Hilton Hotels Corp. 38,500
----------
167,038
----------
Electric Utilities - 1.6%
5,000 Citizens Utilities Co., Class B* 70,938
2,000 MidAmerican Energy Holdings Co. 67,375
----------
138,313
----------
Oil & Gas - 1.5%
2,000 MCN Energy Group, Inc. 47,500
3,000 WICOR, Inc. 87,563
----------
135,063
----------
Insurance - 1.4%
3,000 The Liberty Corp. 126,563
----------
Electronics - 1.1%
2,000 PubliCARD, Inc.* 13,125
300 Sony Corp. ADR 85,425
----------
98,550
----------
Retailers - 1.0%
8,000 Lillian Vernon Corp. 89,000
----------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------
F-1
<PAGE>
The Global Interactive/Telecomm Portfolio
PORTFOLIO OF INVESTMENTS, Continued . December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -------------------------------------------------------------------------
<C> <S> <C>
Advertising - 0.7%
3,500 Ackerley Group, Inc. $ 63,438
----------
Transportation - 0.3%
3,000 Travel Services International, Inc.* 27,375
----------
Beverages, Food & Tobacco - 0.3%
500 The Seagram Company, Ltd. 22,469
----------
Total Common Stocks 8,742,928
----------
(Cost $5,686,844)
CONVERTIBLE PREFERRED STOCKS - 1.5%
Telephone Systems - 0.9%
1,000 Sprint, 8.25% 74,250
----------
Electric Utilities - 0.6%
1,000 Citizens Utilities Co., 5.00% 56,375
----------
Total Convertible Preferred Stocks 130,625
----------
(Cost $84,049)
<CAPTION>
Maturity
Amount
--------
<C> <S> <C>
REPURCHASE AGREEMENTS - 0.6%
Investors Bank & Trust Repurchase Agreement - 0.6%
$ 56,167 Dated 12/31/1999 at 3.06%, due 01/03/2000,
collateralized by a Fannie Mae Obligation, 6.98%,
04/01/2026, with a market value of $59,073 56,153
----------
Total Repurchase Agreements 56,153
----------
(Cost $56,153)
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- -----------------------------
<C> <S> <C>
Total
Investments -
101.7% $8,929,706
----------
(Cost
$5,827,046)
Net Other
Assets and
Liabilities -
(1.7)% (147,924)
----------
Total Net
Assets -
100.0% $8,781,782
==========
</TABLE>
- ------------------
* Non-income producing security.
ADR American Depositary Receipt
FEDERAL INCOME TAX INFORMATION (NOTE 2)
At December 31, 1999, the aggregate cost of investment securities for tax pur-
poses was $5,839,868. Net unrealized appreciation (depreciation) aggregated
$3,089,838, of which $3,312,236 related to appreciated investment securities
and $(222,398) related to depreciated investment securities.
OTHER INFORMATION
For the year ended December 31, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $5,696,098
and $2,880,235 of non-governmental issuers, respectively.
See Notes to Financial Statements.
------------------------------------------------------
F-2
<PAGE>
The International Growth Portfolio
PORTFOLIO OF INVESTMENTS . December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- ------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 99.8%
Switzerland - 18.5%
575 Geberit International AG $ 196,807
480 Synthes-Stratec, Inc.* 219,758
400 The Selecta Group - Registered 125,604
----------
542,169
----------
United Kingdom - 13.1%
80,000 McBride Plc 127,238
30,000 Photobition Group Plc 158,644
45,200 Victrex Plc 99,989
----------
385,871
----------
Sweden - 13.1%
17,600 Investment AB Bure 119,967
13,500 IRO AB 147,550
8,325 Nobel Biocare AB 117,405
----------
384,922
----------
Israel - 10.9%
2,100 Orbotech, Ltd. 162,750
5,500 Tecnomatix Technologies, Ltd.* 158,125
----------
320,875
----------
Norway - 10.0%
5,300 Kverneland ASA 107,117
28,500 Norsk Lotteridrift ASA 110,224
7,500 ProSafe ASA* 77,194
----------
294,535
----------
Netherlands - 8.0%
2,263 Endemol Entertainment Holding NV 121,498
2,000 Van Melle NV 114,724
----------
236,222
----------
Hong Kong - 7.1%
264,000 Hung Hing Printing Group, Ltd. 99,338
630,750 Lung Kee (Bermuda) Holdings 109,540
----------
208,878
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
- --------------------------------------------------------------------------
<C> <S> <C>
Italy - 6.7%
44,100 Ducati Motor Holding SpA* $ 114,279
10,500 Industria Macchine Automatiche 82,853
----------
197,132
----------
France - 4.3%
20,000 Lectra Systemes* 124,989
----------
Canada - 4.2%
25,000 Danier Leather, Inc.* 96,985
4,830 Shermag, Inc.* 25,932
----------
122,917
----------
Mexico - 3.9%
89,600 Nadro SA, Class B 113,478
----------
Total Common Stocks 2,931,988
----------
(Cost $2,599,812)
<CAPTION>
Maturity
Amount
--------
<C> <S> <C>
REPURCHASE AGREEMENTS - 1.5%
Investors Bank & Trust Repurchase Agreement - 1.5%
$43,271 Dated 12/31/1999 at 3.06%, due 01/03/2000,
collateralized by a Freddie Mac Obligation, 6.22%,
01/01/2021, with a market value of $45,531 43,260
----------
Total Repurchase Agreements 43,260
----------
(Cost $43,260)
Total Investments - 101.3% 2,975,248
----------
(Cost $2,643,072)
Net Other Assets and Liabilities - (1.3)% (37,862)
----------
Total Net Assets - 100.0% $2,937,386
==========
</TABLE>
- ------------------
*Non-income producing security.
FEDERAL INCOME TAX INFORMATION (NOTE 2)
At December 31, 1999, the aggregate cost of investment securities for tax pur-
poses was $2,643,297. Net unrealized appreciation (depreciation) aggregated
$331,951, of which $634,355 related to appreciated investment securities and
$(302,404) related to depreciated investment securities.
OTHER INFORMATION
For the year ended December 31, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $1,589,682
and $2,026,600 of non-governmental issuers, respectively.
See Notes to Financial Statements.
- --------------------------------------------
F-3
<PAGE>
The International Growth Portfolio
PORTFOLIO OF INVESTMENTS Continued . December 31, 1999
- --------------------------------------------------------------------------------
Industry Concentration
of Common Stocks
as a Percentage of Net
Assets:
<TABLE>
<S> <C>
Medical Supplies 11.4%
Computer Software &
Processing 9.6%
Miscellaneous 8.8%
Building Materials 6.7%
Heavy Machinery 6.5%
Financial Services 5.6%
Electronics 5.5%
Advertising 5.4%
Household Products 4.3%
Food Retailers 4.3%
Media - Broadcasting &
Publishing 4.1%
Beverages, Food & Tobacco 3.9%
Automotive 3.9%
Pharmaceuticals 3.9%
Entertainment & Leisure 3.8%
Chemicals 3.4%
Forest Products & Paper 3.4%
Retailers 3.3%
Oil & Gas 2.6%
Home Construction,
Furnishings & Appliances 0.9%
Net Other Assets and
Liabilities -1.3%
------
100.0%
======
</TABLE>
See Notes to Financial Statements.
------------------------------------------------------
F-4
<PAGE>
The Growth Portfolio
PORTFOLIO OF INVESTMENTS . December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
- -------------------------------------------------------------
COMMON STOCKS - 93.3%
Computer Software & Processing - 13.2%
287 America Online, Inc. $ 21,651
1,001 Computer Associates International, Inc. 70,007
476 Electronic Data Systems Corp. 31,862
819 First Data Corp. 40,387
2,513 Microsoft Corp. 293,393
2,163 Novell, Inc.* 86,385
182 Yahoo!, Inc.* 78,749
----------
622,434
----------
Computers & Information - 9.3%
455 Cisco Systems, Inc. 48,742
1,750 Dell Computer Corp. 89,250
980 Hewlett-Packard Co. 111,659
1,260 International Business Machines Corp. 136,080
140 Lexmark International Group, Inc.* 12,670
854 Pitney Bowes, Inc. 41,259
----------
439,660
----------
Telephone Systems - 8.0%
1,715 Bell Atlantic Corp. 105,580
2,268 BellSouth Corp. 106,171
343 GTE Corp. 24,203
987 MCI WorldCom, Inc. 52,373
875 Sprint Corp. 58,898
154 Sprint Corp. (PCS Group)* 15,785
168 U.S. West, Inc. 12,096
----------
375,106
----------
Pharmaceuticals - 7.6%
1,176 Amgen, Inc. 70,633
1,106 Bristol-Myers Squibb Co. 70,991
294 Eli Lilly and Co. 19,551
826 Merck & Co., Inc. 55,394
1,365 Pfizer, Inc. 44,277
1,666 Schering-Plough Corp. 70,284
294 Warner-Lambert Co. 24,090
----------
355,220
----------
Automotive - 5.0%
1,827 Ford Motor Co. 97,630
1,358 General Motors Corp. 98,710
217 Navistar International Corp.* 10,280
637 PACCAR, Inc. 28,227
----------
234,847
----------
Insurance - 4.9%
1,344 American International Group, Inc. 145,320
1,085 CIGNA Corp. 87,410
----------
232,730
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
- --------------------------------------------------------------------
Banking - 4.9%
2,366 Firstar Corp. $ 49,982
308 J. P. Morgan & Company, Inc. 39,000
1,022 PNC Bank Corp. 45,479
1,232 The Chase Manhattan Corp. 95,711
----------
230,172
----------
Media-Broadcasting & Publishing - 4.7%
266 CBS Corp.* 17,007
1,463 Comcast Corp. 73,973
889 MediaOne Group, Inc.* 68,286
896 Tribune Co. 49,336
245 Viacom, Inc., Class B 14,807
----------
223,409
----------
Electronics - 4.4%
1,932 Intel Corp. 159,028
616 Micron Technology, Inc.* 47,894
----------
206,922
----------
Oil & Gas - 4.1%
959 Atlantic Richfield Co. 82,953
602 Exxon Mobil Corp. 48,499
882 Phillips Petroleum Co. 41,454
1,484 Union Pacific Resources Group, Inc. 18,921
----------
191,827
----------
Beverages, Food & Tobacco - 3.9%
1,225 Anheuser-Busch Companies, Inc. 86,822
413 General Mills, Inc. 14,765
1,197 The Coca-Cola Co. 69,725
231 Unilever NV 12,575
----------
183,887
----------
Industrial-Diversified - 3.8%
1,064 General Electric Co. 164,654
273 Honeywell International Inc. 15,749
----------
180,403
----------
Medical Supplies - 2.6%
1,323 Johnson & Johnson 123,204
----------
Metals - 2.6%
2,086 Freeport-McMoRan Copper & Gold, Inc., Class B* 44,067
3,353 Inco, Ltd.* 78,795
----------
122,862
----------
Communications - 2.4%
1,512 Lucent Technologies, Inc. 113,117
----------
Restaurants - 2.4%
15,375 New York Restaurant Group (A) 111,315
----------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------
F-5
<PAGE>
The Growth Portfolio
PORTFOLIO OF INVESTMENTS, Continued . December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
- ----------------------------------------------------------------
Apparel Retailers - 1.7%
1,820 The Limited, Inc. $ 78,829
----------
Financial Services - 1.4%
455 Providian Financial Corp. 41,433
595 The Charles Schwab Corp. 22,833
----------
64,266
----------
Airlines - 1.1%
1,015 Delta Air Lines, Inc. 50,560
----------
Food Retailers - 0.9%
1,596 The Great Atlantic & Pacific Tea Co., Inc. 44,489
----------
Forest Products & Paper - 0.9%
861 Georgia-Pacific Group 43,696
----------
Electric Utilities - 0.9%
1,568 Edison International 41,062
----------
Transportation - 0.8%
1,778 Brunswick Corp. 39,560
----------
Chemicals - 0.5%
553 Occidental Petroleum Corp. 11,959
77 The Dow Chemical Co. 10,289
----------
22,248
----------
Retailers - 0.4%
259 Wal-Mart Stores, Inc. 17,903
----------
Building Materials - 0.4%
910 Owens Corning 17,574
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
- --------------------------------------------------------------------------
Heavy Machinery - 0.3%
294 Cummins Engine Co., Inc. $ 14,204
----------
Commercial Services - 0.2%
259 The Dun & Bradstreet Corp. 7,641
----------
Total Common Stocks 4,389,147
----------
(Cost $4,008,995)
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (B) - 0.8%
U.S. Treasury Bill - 0.8%
40,000 4.83%, 03/16/2000 (C) 39,174
----------
Total U.S. Government and Agency Obligations 39,174
----------
(Cost $39,174)
<CAPTION>
Maturity
Amount
--------
<C> <S> <C>
REPURCHASE AGREEMENTS - 6.6%
Investors Bank & Trust Repurchase Agreement - 6.6%
$308,794 Dated 12/31/1999 at 3.06%, due 01/03/2000,
collateralized by a Freddie Mac Obligation, 7.50%,
05/15/2023, with a market value of $327,265 308,716
----------
Total Repurchase Agreements 308,716
----------
(Cost $308,716)
Total Investments - 100.7% 4,737,037
----------
(Cost $4,356,885)
Net Other Assets and Liabilities - (0.7)% (33,960)
----------
Total Net Assets - 100.0% $4,703,077
==========
</TABLE>
- ------------------
* Non-income producing security.
(A) Security is valued by management (Note 1).
(B) Effective yield at time of purchase.
(C) Security has been deposited as initial margin on futures contracts. At
December 31, 1999, the Portfolio's open futures contracts were as follows:
<TABLE>
<CAPTION>
Number of
Contracts Contract Expiration Aggregate Market Value at
Purchased Type Date Cost December 31, 1999
- --------- -------- ---------- --------- -----------------
<S> <C> <C> <C> <C>
2 S & P 500 Mar-2000 $714,875 $742,100
======== ========
</TABLE>
FEDERAL INCOME TAX INFORMATION (NOTE 2)
At December 31, 1999, the aggregate cost of investment securities for tax pur-
poses was $4,391,625. Net unrealized appreciation (depreciation) aggregated
$345,412, of which $488,297 related to appreciated investment securities and
$(142,885) related to depreciated investment securities.
For the period ended December 31, 1999, the Portfolio has elected to defer
$16,604 of capital losses attributable to Post-October losses.
OTHER INFORMATION
For the year ended December 31, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $15,840,297
and $16,644,261 of non-governmental issuers, respectively.
See Notes to Financial Statements.
------------------------------------------------------
F-6
<PAGE>
The Value Portfolio
PORTFOLIO OF INVESTMENTS . December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
- ----------------------------------------------------------------
COMMON STOCKS - 98.4%
Beverages, Food & Tobacco - 18.8%
9,000 Archer-Daniels-Midland Co. $ 109,687
7,000 Bush Boake Allen, Inc.* 171,937
9,000 Celestial Seasonings, Inc.* 167,485
8,000 Corn Products International, Inc. 262,000
30,000 General Cigar Holdings, Inc.* 249,375
1,501 General Cigar Holdings, Inc., Class B* 12,477
1,000 General Mills, Inc. 35,750
2,000 H.J. Heinz Co. 79,625
3,000 Kellogg Co. 92,438
1,500 Pepsi Bottling Group, Inc. 24,844
7,000 PepsiAmericas, Inc.* 26,250
3,000 Ralston-Ralston Purina Group 83,625
3,000 The Topps Co., Inc.* 31,125
10,000 Weider Nutrition International, Inc. 36,875
7,500 Whitman Corp. 100,781
----------
1,484,274
----------
Media-Broadcasting & Publishing - 8.0%
500 Cablevision Systems Corp.* 37,750
5,000 Gray Communications Systems, Inc., Class B 67,500
2,000 Lee Enterprises, Inc. 63,875
2,000 Media General, Inc., Class A 104,000
2,500 MediaOne Group, Inc.* 192,031
1,000 The McClatchy Co., Class A 43,250
2,000 Viacom, Inc., Class A 120,875
----------
629,281
----------
Heavy Machinery - 6.0%
3,000 Ampco-Pittsburgh Corp. 30,375
10,000 Baldwin Technology Co., Class A* 21,250
10,000 Fedders Corp. 55,000
2,000 Fedders Corp., Class A 10,250
4,000 Flowserve Corp. 68,000
5,000 Hussmann International, Inc. 75,313
2,000 IDEX Corp. 60,750
1,000 Modine Manufacturing Co. 25,000
4,000 SPS Technologies, Inc.* 127,750
----------
473,688
----------
Electronics - 5.5%
40,000 Oak Technology, Inc.* 377,500
200 Sony Corp. ADR 56,950
----------
434,450
----------
Electric Utilities - 5.4%
10,100 Citizens Utilities Co., Class B* 143,294
20,000 El Paso Electric Co.* 196,250
2,000 Florida Progress Corp. 84,625
----------
424,169
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
- ---------------------------------------------------------
Pharmaceuticals - 5.1%
15,000 Carter-Wallace, Inc. $ 269,062
5,000 IVAX Corp.* 128,750
----------
397,812
----------
Automotive - 4.9%
2,000 Arvin Industries, Inc. 56,750
5,000 AutoNation, Inc.* 46,250
2,000 Dana Corp. 59,875
20,000 Earl Scheib, Inc.* 58,750
1,000 Meritor Automotive, Inc. 19,375
1,000 Standard Motor Products, Inc. 16,125
2,800 Tenneco Automotive Inc. 26,075
7,000 Wynn's International, Inc. 98,875
----------
382,075
----------
Oil & Gas - 4.6%
500 Eastern Enterprises 28,719
3,200 MCN Energy Group, Inc. 76,000
6,000 Southwest Gas Corp. 138,000
4,000 WICOR, Inc. 116,750
----------
359,469
----------
Insurance - 3.7%
2,000 Argonaut Group, Inc. 39,750
5,000 The Liberty Corp. 210,938
2,000 The Midland Co. 41,500
----------
292,188
----------
Food Retailers - 3.6%
1,000 Albertson's, Inc. 32,250
2,000 Hannaford Brothers Co. 138,625
10,000 Ingles Markets, Inc., Class A 111,250
----------
282,125
----------
Entertainment & Leisure - 3.3%
5,000 Gaylord Entertainment Co. 149,687
3,000 GC Companies, Inc.* 77,625
500 Time Warner, Inc. 36,219
----------
263,531
----------
Forest Products & Paper - 3.2%
5,000 Greif Bros. Corp. 148,750
5,000 Nashua Corp.* 37,500
6,000 Pactiv Corp.* 63,750
----------
250,000
----------
Retailers - 3.1%
12,000 Lillian Vernon Corp. 133,500
4,000 Neiman Marcus Group, Inc., Class A* 111,750
----------
245,250
----------
Water Companies - 3.0%
1,000 E-Town Corporation 62,250
5,000 United Water Resources, Inc. 170,938
----------
233,188
----------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------
F-7
<PAGE>
The Value Portfolio
PORTFOLIO OF INVESTMENTS, Continued . December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
- ---------------------------------------------------------------
Aerospace & Defense - 2.8%
2,500 Sequa Corp., Class B* $ 150,000
7,365 The Fairchild Corp., Class A* 66,745
----------
216,745
----------
Commercial Services - 2.6%
5,000 Burns International Services Corp.* 54,062
10,000 Rollins, Inc. 150,000
----------
204,062
----------
Lodging - 2.3%
6,000 Aztar Corp.* 65,250
10,000 Hilton Hotels Corp. 96,250
7,000 Trump Hotels & Casino Resorts, Inc.* 23,625
----------
185,125
----------
Chemicals - 2.0%
3,000 Ferro Corp. 66,000
3,000 Sybron Chemicals Inc* 35,250
1,500 The Dexter Corp. 59,625
----------
160,875
----------
Financial Services - 2.0%
10,000 The Pioneer Group, Inc.* 157,500
----------
Real Estate - 1.9%
12,000 Catellus Development Corp.* 153,750
----------
Metals - 1.7%
2,000 CIRCOR International, Inc.* 20,625
1,000 Curtiss-Wright Corp. 36,875
5,000 Watts Industries, Inc., Class A 73,750
----------
131,250
----------
Telephone Systems - 1.6%
1,000 AT&T Corp. - Liberty Media Group, Class A 56,750
500 Hector Communications Corp. 7,002
500 Telephone and Data Systems, Inc. 63,000
----------
126,752
----------
</TABLE>
<TABLE>
<CAPTION>
Value
Shares (Note 2)
<C> <S> <C>
- --------------------------------------------------------------------------
Advertising - 1.2%
2,500 Ackerley Group, Inc. $ 45,312
2,000 Penton Media, Inc. 48,000
----------
93,312
----------
Transportation - 1.1%
2,500 GATX Corp. 84,375
----------
Electrical Equipment - 0.7%
1,000 AMETEK, Inc. 19,063
3,000 Kollmorgen Corp. 36,938
----------
56,001
----------
Communications - 0.3%
2,000 Allen Telecom, Inc.* 23,125
----------
Total Common Stocks 7,744,372
----------
(Cost $7,783,123)
CONVERTIBLE PREFERRED STOCKS - 0.9%
Telephone Systems - 0.9%
1,000 Sprint, 8.25% 74,250
----------
Total Convertible Preferred Stocks 74,250
----------
(Cost $42,800)
<CAPTION>
Maturity
Amount
--------
<C> <S> <C>
REPURCHASE AGREEMENTS - 1.5%
Investors Bank & Trust Repurchase Agreement - 1.5%
$119,015 Dated 12/31/1999 at 3.06%, due 01/03/2000,
collateralized by a Freddie Mac Obligation, 5.91%,
07/15/2008, with a market value of $125,161 118,985
----------
Total Repurchase Agreements 118,985
----------
(Cost $118,985)
Total Investments - 100.8% 7,937,607
----------
(Cost $7,944,908)
Net Other Assets and Liabilities - (0.8)% (64,920)
----------
Total Net Assets - 100.0% $7,872,687
==========
</TABLE>
- ------------------
* Non-income producing security.
FEDERAL INCOME TAX INFORMATION (SEE NOTE 2)
At December 31, 1999, the aggregate cost of investment securities for tax pur-
poses was $7,987,584. Net unrealized appreciation (depreciation) aggregated
$(49,977), of which $1,058,001 related to appreciated investment securities and
$(1,107,978) related to depreciated investment securities.
OTHER INFORMATION
For the year ended December 31, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $4,803,005
and $1,248,270 of non-governmental issuers, respectively.
See Notes to Financial Statements.
------------------------------------------------------
F-8
<PAGE>
The Strategic Income Portfolio
PORTFOLIO OF INVESTMENTS . December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Moody's Ratings Value
Par Value (Unaudited) (Note 2)
- ------------------------------------------------------------------------
<C> <S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 98.7%
Fannie Mae - 40.5%
$ 40,000 6.00%, 05/15/2008 Aaa $ 37,445
34,032 6.00%, 08/01/2013 Aaa 32,316
72,106 6.00%, 01/01/2029 Aaa 66,037
70,000 6.50%, 04/29/2009 Aaa 65,698
90,359 6.50%, 06/01/2013 Aaa 87,712
44,331 6.50%, 07/01/2014 Aaa 43,033
69,062 6.50%, 10/01/2028 Aaa 65,117
164,656 7.00%, TBA Aaa 159,202
43,473 7.50%, 03/01/2028 Aaa 43,031
25,000 7.50%, TBA Aaa 24,719
----------
624,310
----------
U.S. Treasury Bond - 13.5%
45,000 7.13%, 02/15/2023 Aaa 46,870
145,000 7.63%, 02/15/2025 Aaa 160,724
----------
207,594
----------
Ginnie Mae - 13.5%
69,154 6.50%, 11/15/2028 Aaa 64,983
69,579 7.00%, TBA Aaa 67,274
74,242 8.00%, 08/15/2025 Aaa 75,062
----------
207,319
----------
Farmer Mac - 9.8%
150,000 6.92%, 02/10/2001 Aaa 150,812
----------
Sallie Mae - 9.7%
150,000 6.05%, 09/14/2000 Aaa 149,748
----------
Tennessee Valley Authority - 9.7%
150,000 6.50%, 08/20/2001(A) AAA 149,473
----------
U.S. Treasury Note - 2.0%
30,000 6.88%, 05/15/2006 Aaa 30,534
----------
Total U.S. Government and Agency
Obligations 1,519,790
----------
(Cost $1,585,420)
CORPORATE DEBT - 9.8%
Lucent Technologies, Inc. - 2.8%
50,000 6.45%, 03/15/2029 A 43,681
----------
Safeway, Inc. - 1.6%
25,000 7.50%, 09/15/2009 Baa 24,729
----------
American General Corp. - 1.6%
25,000 5.80%, 03/15/2002 A 24,323
----------
Ford Motor Credit Co. - 1.5%
25,000 5.80%, 01/12/2009 A 22,225
----------
</TABLE>
<TABLE>
<CAPTION>
Moody's Ratings Value
Par Value (Unaudited) (Note 2)
- -----------------------------------------------------------------------------
<C> <S> <C> <C>
CORPORATE DEBT - (continued)
International Paper Co. - 1.4%
$ 25,000 6.88%, 04/15/2029 A $ 21,858
----------
IBM Corp. - 0.9%
15,000 6.50%, 01/15/2028 A 13,318
----------
Total Corporate Debt 150,134
----------
(Cost $164,370)
ASSET BACKED SECURITIES - 3.2%
Citibank Credit Card Master Trust -
1.6%
25,000 6.65%, 11/15/2006 Aaa 24,576
----------
Discover Card Master Trust I, Series
1993-3, Class A - 1.6%
25,000 6.20%, 05/16/2006 Aaa 24,328
----------
Total Asset Backed Securities 48,904
----------
(Cost $49,489)
SOVEREIGN DEBT OBLIGATIONS - 1.5%
Province of Alberta - 1.5%
25,000 4.88%, 10/29/2003 Aa 23,410
----------
Total Sovereign Debt Obligations 23,410
----------
(Cost $23,655)
<CAPTION>
Maturity
Amount
--------
<C> <S> <C> <C>
REPURCHASE AGREEMENTS - 2.8%
Investors Bank & Trust Repurchase
Agreement - 2.8%
$ 43,320 Dated 12/31/1999 at 3.06%, due
01/03/2000, collateralized by a
Ginnie Mae Obligation, 6.38%,
01/20/2026, with a market value of
$45,722 43,309
----------
Total Repurchase Agreements 43,309
----------
(Cost $43,309)
Total Investments - 116.0% 1,785,547
----------
(Cost $1,866,243)
Net Other Assets and Liabilities - (16.0)% (245,962)
----------
Total Net Assets - 100.0% $1,539,585
==========
</TABLE>
- ------------------
(A) Standard & Poor's credit ratings are used in the absence of a rating by
Moody's Investors Service, Inc.
TBA Forward Commitment (Note 2)
See Notes to Financial Statements.
- --------------------------------------------
F-9
<PAGE>
The Strategic Income Portfolio
PORTFOLIO OF INVESTMENTS, Continued . December 31, 1999
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (NOTE 2)
At December 31, 1999, the aggregate cost of investment securities for tax pur-
poses was $1,866,243. Net unrealized appreciation (depreciation) aggregated
$(80,696), of which $0 related to appreciated investment securities and
$(80,696) related to depreciated investment securities.
For the period ended December 31, 1999, the Portfolio has elected to defer
$25,871 of capital losses attributable to Post-October losses.
At December 31, 1999, the Portfolio had a capital loss carryforward of $24,394
which expires in 2007.
OTHER INFORMATION
For the year ended December 31, 1999, the aggregate cost of purchases and the
proceeds of sales, other than from short-term investments, included $149,531
and $23,884 of non-governmental issuers, respectively, and $2,711,226 and
$2,759,445 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:
<TABLE>
<CAPTION>
Moody's Ratings Standard & Poor's Ratings
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Aaa 79.5% AAA 8.4%
Aa 1.3%
A 7.0%
Baa 1.4%
NR 2.4%
--------
91.6%
========
</TABLE>
See Notes to Financial Statements.
------------------------------------------------------
F-10
<PAGE>
The Fulcrum Trust
STATEMENTS OF ASSETS AND LIABILITIES . December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global
Interactive/ International Strategic
Telecomm Growth Growth Value Income
Portfolio Portfolio Portfolio Portfolio Portfolio
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments (Note 2):
Investments at cost.... $5,827,046 $2,643,072 $4,356,885 $7,944,908 $1,866,243
Net unrealized
appreciation
(depreciation)........ 3,102,660 332,176 380,152 (7,301) (80,696)
---------- ---------- ---------- ---------- ----------
Total investments at
value................. 8,929,706 2,975,248 4,737,037 7,937,607 1,785,547
Receivable for
investments sold....... -- 103,845 -- -- --
Receivable for expense
reimbursement (Note
5)..................... -- 9,091 3,715 442 2,186
Receivable for variation
margin................. -- -- 1,700 -- --
Interest and dividend
receivables............ 5,616 6,163 5,349 7,033 24,559
Dividend tax reclaim
receivables............ 552 2,606 -- -- --
Deferred organizational
expense (Note 2)....... 5,172 5,825 5,166 5,166 --
Deferred insurance
expense................ 1,653 1,657 1,657 1,657 1,657
---------- ---------- ---------- ---------- ----------
Total Assets........... 8,942,699 3,104,435 4,754,624 7,951,905 1,813,949
---------- ---------- ---------- ---------- ----------
LIABILITIES:
Payable for investments
purchased.............. 54,687 -- -- 6,775 254,764
Payable for shares
repurchased............ 10,380 3,600 5,658 9,276 2,503
Payable to custodian.... -- 103,845 -- -- --
Advisory fee payable
(Note 3)............... 56,116 15,675 5,279 2,522 3,369
Accrued expenses and
other payables......... 39,734 43,929 40,610 60,645 13,728
---------- ---------- ---------- ---------- ----------
Total Liabilities...... 160,917 167,049 51,547 79,218 274,364
---------- ---------- ---------- ---------- ----------
NET ASSETS.............. $8,781,782 $2,937,386 $4,703,077 $7,872,687 $1,539,585
========== ========== ========== ========== ==========
NET ASSETS consist of
Paid-in capital (Note 1
and Note 5)............ $5,567,628 $2,573,831 $3,958,150 $7,726,253 $1,670,546
Undistributed
(distribution in excess
of) net investment
income (loss).......... (2) 83 10,277 -- --
Accumulated
(distribution in excess
of) net realized gain
(loss) on investments
sold, forward foreign
currency contracts, and
foreign currency
transactions........... 111,495 31,123 327,273 153,735 (50,265)
Net unrealized
appreciation
(depreciation) of
investments, assets and
liabilities in foreign
currency and futures
contracts.............. 3,102,661 332,349 407,377 (7,301) (80,696)
---------- ---------- ---------- ---------- ----------
TOTAL NET ASSETS........ $8,781,782 $2,937,386 $4,703,077 $7,872,687 $1,539,585
========== ========== ========== ========== ==========
Shares of beneficial
interest outstanding
(unlimited
authorization, par value
of $0.001 per share).... 401,313 240,367 326,187 612,767 162,903
NET ASSET VALUE,
Offering and redemption
price per share (Net
Assets/Shares
Outstanding)............ $ 21.88 $ 12.22 $ 14.42 $ 12.85 $ 9.45
========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------
F-11
<PAGE>
The Fulcrum Trust
STATEMENTS OF OPERATIONS . For the year ended December 31, 1999
- --------------------------------------------------------------------------------
<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....................... $ 33,822 $ 6,044 $ 18,587 $ 9,133 $ 129,249
Dividends...................... 36,067 67,097 70,715 96,666 --
Less net foreign taxes
withheld...................... (624) (6,838) (2,000) (223) --
---------- --------- --------- --------- ---------
Total investment income........ 69,265 66,303 87,302 105,576 129,249
---------- --------- --------- --------- ---------
EXPENSES
Investment advisory fees (Note
3)............................ 176,236 35,057 17,663 -- 7,785
Custodian fees and Fund
Accounting fees............... 49,732 54,977 63,762 53,559 49,531
Legal fees..................... 16,836 12,777 13,297 22,664 6,562
Audit fees..................... 29,343 12,339 21,691 37,077 9,569
Trustees' fees and expenses
(Note 3)...................... 7,627 3,196 5,618 9,603 2,478
Reports to shareholders........ 12,050 25,021 12,785 17,298 4,304
Registration and filing
expense....................... 142 88 149 257 55
Amortization of organization
costs (Note 2)................ 4,753 4,756 4,756 4,756 --
Insurance...................... 3,830 3,826 3,826 3,826 3,826
Miscellaneous.................. 261 257 259 258 258
---------- --------- --------- --------- ---------
Total expense before
reimbursements................ 300,810 152,294 143,806 149,298 84,368
Less expense reimbursements
(Note 5)...................... (21,353) (73,873) (66,781) (47,639) (43,569)
Less expenses waived (Note
4)............................ -- -- -- -- (2,788)
---------- --------- --------- --------- ---------
Total expenses net of expense
reimbursements................ 279,457 78,421 77,025 101,659 38,011
---------- --------- --------- --------- ---------
NET INVESTMENT INCOME (LOSS).... (210,192) (12,118) 10,277 3,917 91,238
---------- --------- --------- --------- ---------
REALIZED AND UNREALIZED
GAIN (LOSS ON INVESTMENTS (Note
2):
Net realized gain (loss) on
investments sold.............. 1,389,435 327,160 926,058 1,145,729 (47,005)
Net realized gain (loss) on
forward foreign currency
contracts..................... (2) (2,796) -- -- 1
Net realized gain (loss) on
foreign currency
transactions.................. (12) (645) -- -- --
Net change in unrealized
appreciation (depreciation) of
investments and futures
contracts..................... 2,112,983 582,256 (56,459) (545,444) (105,347)
Net change in unrealized
appreciation (depreciation) of
forward foreign currency
contracts..................... -- (98) -- -- --
Net change in unrealized
appreciation (depreciation) of
assets and liabilities in
foreign currency.............. 1 299 -- -- --
---------- --------- --------- --------- ---------
NET GAIN (LOSS) ON INVESTMENTS.. 3,502,405 906,176 869,599 600,285 (152,351)
---------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS..................... $3,292,213 $ 894,058 $ 879,876 $ 604,202 $ (61,113)
========== ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
------------------------------------------------------
F-12
<PAGE>
[INTENTIONALLY LEFT BLANK]
F-13
<PAGE>
The Fulcrum Trust
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Global Interactive/ International Growth
Telecomm Portfolio Portfolio
- -------------------------------------------------------------------------------
Year Ended December Year Ended December
31, 31,
1999 1998 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSETS at beginning of
year......................... $5,433,249 $3,016,441 $2,664,454 $3,207,002
---------- ---------- ---------- ----------
Increase in net assets
resulting from operations:
Net investment income
(loss)...................... (210,192) (79,801) (12,118) 15,588
Net realized gain (loss) on
investments sold and foreign
currency transactions....... 1,389,421 560,131 323,719 (291,313)
Net change in unrealized
appreciation (depreciation)
of investments and assets
and liabilities in foreign
currency.................... 2,112,984 591,625 582,457 25,567
---------- ---------- ---------- ----------
Net increase (decrease) in
net assets resulting from
operations.................. 3,292,213 1,071,955 894,058 (250,158)
---------- ---------- ---------- ----------
Distributions to shareholders
from:
Net investment income........ (1,612) -- (13,007) --
Net realized gain on
investments................. (1,071,940) (464,938) -- --
---------- ---------- ---------- ----------
Total distributions......... (1,073,552) (464,938) (13,007) --
---------- ---------- ---------- ----------
Capital share transactions:
Net proceeds from sales of
shares...................... 3,892,877 2,941,300 575,704 900,378
Issued to shareholders in
reinvestment of
distributions............... 1,073,552 464,938 13,007 --
Cost of shares repurchased... (3,836,557) (1,603,065) (1,196,830) (1,200,491)
---------- ---------- ---------- ----------
Net increase (decrease) from
capital share
transactions............... 1,129,872 1,803,173 (608,119) (300,113)
---------- ---------- ---------- ----------
Total increase (decrease) in
net assets................. 3,348,533 2,410,190 272,932 (550,271)
---------- ---------- ---------- ----------
Capital contributions from
manager (Note 5): 6,618 7,723
---------- ---------- ---------- ----------
NET ASSETS at the end of year
............................. $8,781,782 $5,433,249 $2,937,386 $2,664,454
========== ========== ========== ==========
Undistributed (distribution in
excess of) net investment
income (loss)............... $ (2) $ -- $ 83 $ 13,007
========== ========== ========== ==========
OTHER INFORMATION:
Share transactions:
Sold......................... 202,391 195,105 57,913 95,378
Issued to shareholders in
reinvestment of
distributions............... 50,760 29,315 1,240 --
Repurchased.................. (194,425) (108,258) (116,733) (127,374)
---------- ---------- ---------- ----------
Net increase in shares
outstanding................ 58,726 116,162 (57,580) (31,996)
========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
------------------------------------------------------
F-14
<PAGE>
The Fulcrum Trust
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Strategic Income
Growth Portfolio Value Portfolio Portfolio
- -------------------------------------------------------------------------
Year Ended December Year Ended December Year Ended December
31, 31, 31,
1999 1998 1999 1998 1999 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
---------- ---------- ---------- ---------- ---------- ----------
10,277 (18,609) 3,917 399 91,238 50,293
926,058 (217,499) 1,145,729 532,066 (47,004) (12,556)
(56,459) 187,404 (545,444) (8,738) (105,347) 52,055
---------- ---------- ---------- ---------- ---------- ----------
879,876 (48,704) 604,202 523,727 (61,113) 89,792
---------- ---------- ---------- ---------- ---------- ----------
-- -- (5,859) -- (90,266) (2,856)
-- -- (926,098) (611,642) (1,119) (49,760)
---------- ---------- ---------- ---------- ---------- ----------
-- -- (931,957) (611,642) (91,385) (52,616)
---------- ---------- ---------- ---------- ---------- ----------
1,324,267 2,072,492 1,532,025 4,655,108 1,263,289 1,149,135
-- -- 931,957 611,642 91,385 52,616
(2,172,361) (1,826,374) (3,252,466) (2,783,030) (1,781,951) (1,827,441)
---------- ---------- ---------- ---------- ---------- ----------
(848,094) 246,118 (788,484) 2,483,720 (427,277) (625,690)
---------- ---------- ---------- ---------- ---------- ----------
31,782 197,414 (1,116,239) 2,395,805 (579,775) (588,514)
---------- ---------- ---------- ---------- ---------- ----------
10,350 8,469 7,936
---------- ---------- ---------- ---------- ---------- ----------
$4,703,077 $4,671,295 $7,872,687 $8,988,926 $1,539,585 $2,119,360
========== ========== ========== ========== ========== ==========
$ 10,277 $ -- $ -- $ 399 $ -- $ --
========== ========== ========== ========== ========== ==========
102,674 171,896 110,731 330,785 126,164 112,047
-- -- 73,447 45,339 9,655 5,152
(165,339) (156,624) (236,397) (198,954) (180,264) (183,153)
---------- ---------- ---------- ---------- ---------- ----------
(62,665) 15,272 (52,219) 177,170 (44,445) (65,954)
========== ========== ========== ========== ========== ==========
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------
F-15
<PAGE>
The Fulcrum Trust
FINANCIAL HIGHLIGHTS - For a Share Outstanding Throughout Each Period
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Income from Investment Operations Less Distributions
--------------------------------------------- -------------------------------------------------------
Net Realized
and
Net Asset Net Unrealized Dividends Distributions
Value Investment Gain (Loss) Total from from Net from Net
Beginning Income on Investment Investment Realized Return of Total
Year Ended December 31, of Year (Loss)(/2/) Investments Operations Income Capital Gains Capital Distributions
- ----------------------- --------- ----------- ------------ ---------- ---------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Global Interactive/
Telecomm Portfolio(/1/)
1999 $15.86 $(0.52) $9.43 $8.91 $ -- (/5/) $(2.89) $ -- $(2.89)
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 8.94 (0.05) 3.37 3.32 (0.04) -- -- (0.04)
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 12.01 0.03 2.38 2.41 -- -- -- --
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 13.52 0.01 1.07 1.08 (0.01) (1.74) -- (1.75)
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 10.22 0.45 (0.77) (0.32) (0.45) -- (/5/) -- (0.45)
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 assets would have
been 0.35% and 0.67% for the years ended December 31, 1999 and December 31,
1998, respectively.
(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 $(0.58) for the year
ended December 31, 1999, $(0.50) in 1998, $(0.62) in 1997 and $(1.34) in
1996 for Global Interactive/Telecomm Portfolio; $(0.40) for the year ended
December 31, 1999, $(0.29) in 1998, $(0.45) in 1997, and $(7.56) in 1996
for the International Growth Portfolio; $(0.17) for the year ended December
31, 1999, $(0.52) in 1998, $(0.68) in 1997, and $(5.61) in 1996 for the
Growth Portfolio; $(0.08) for the year ended December 31, 1999, $(0.22) in
1998, $(0.34) in 1997, and $(1.22) in 1996 for the Value Portfolio; and
$(0.26) for the year ended December 31, 1999, ($0.11) in 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 year ended December 31, 1998, the total return
includes capital infusions totaling $41,096. Absent the infusions, total
returns 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 returns 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) Distribution is less than $0.005 per share.
See Notes to Financial Statements.
------------------------------------------------------
F-16
<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 Year Income (Loss) Expenses Management Turnover
Value Year Returns(/3/)(/4/) (000's) (A) (B) (A) (B) Fee Rate
- ---------- --------- ----------------- ---------- ------ ------ ----- ------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$6.02 $21.88 56.89% $8,782 (2.95)% (3.25)% 1.45% 1.75% 2.47% 45%
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)%* (14.82)%* 9.83%* 16.45%* 0.80%* 71%
3.28 12.22 37.26% 2,937 (0.42)% (2.97)% 1.50% 4.06% 1.21% 57%
(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%
2.41 14.42 20.07% 4,703 0.21% (1.14)% 1.20% 2.55% 0.36% 351%
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%
(0.67) 12.85 8.17% 7,873 0.05% (0.52)% 1.20% 1.76% 0.00% 15%
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%
(0.77) 9.45 (3.12)% 1,540 4.15% 2.04% 1.50% 3.61% 0.23%+ 136%
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>
See Notes to Financial Statements.
- --------------------------------------------
F-17
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1.ORGANIZATION
The Fulcrum Trust (the "Trust") is registered under the Investment Company Act
of 1940, as amended, as a diversified 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 management to make 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 December 31, 1999, one equity security with a value of $111,315 or 2.4% 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 exchange a specific
currency at a specific price at a future date in an attempt to hedge against
fluctuations in the value of the underlying currency of certain portfolio
instruments. Forward foreign currency contracts are valued at the daily
exchange rate of the underlying currency with any fluctuations recorded as
unrealized gains or losses. Receivables and payables of forward foreign cur-
rency 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 cur-
rency 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.
------------------------------------------------------
F-18
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
The use of forward foreign currency contracts does not eliminate fluctuations
in the underlying prices of the Portfolios, but it does establish a rate of
exchange that can be achieved in the future. Although forward foreign currency
contracts used for hedging purposes limit the risk of loss due to a decline in
the value of the hedged currency, they also limit any potential gain that might
result should the value of the currency increase. In addition, the Portfolios
could be exposed to risks if the counterparties to the contracts are unable to
meet the terms of their contracts.
Foreign Currency Translation: Investment valuations, other assets and liabili-
ties denominated in foreign currencies are translated each business day into
U.S. dollars based upon current exchange rates. Purchases and sales of foreign
investments and income and expenses are translated 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
as of trade date. Realized gains and losses from security transactions are
determined on the basis of identified cost. Interest income, including amorti-
zation of premium and accretion of discount on securities, is accrued daily.
Dividend income is recorded on the ex-dividend date, except that certain divi-
dends from foreign securities are recorded as soon as the Portfolios are
informed of the ex-dividend date.
Federal Income Taxes: The Trust treats each Portfolio as a separate entity for
Federal income tax purposes. Each Portfolio intends to continue to qualify as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended. By so qualifying, each Portfolio will not be subject to
Federal income taxes to the extent it distributes all of its taxable income and
net realized gains, if any, for its tax year ending December 31, 1999. In addi-
tion, by distributing during each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, each Port-
folio will not be subject to Federal excise tax. Therefore, no Federal income
tax provision is required. Withholding taxes on foreign dividend income and
gains have been paid or provided for in accordance with the applicable
country's tax rules and rates.
Distributions to Shareholders: Dividends from net investment income and distri-
butions 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. Income and capital gain distributions are determined in accor-
dance with income tax regulations which may differ from generally accepted
accounting principles. These differences are primarily due to differing book
and tax treatments in the timing of the recognition of gains or losses, includ-
ing "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 discount, and non-taxable
dividends. Any taxable income or gain remaining at fiscal year end is distrib-
uted in the following year. Permanent book and tax basis differences relating
to shareholder distributions will result in reclassifications to paid in capi-
tal. Undistributed net investment income may include temporary book and tax
basis differences which will reverse in a subsequent period. Permanent book-tax
differences, if any, are not included in ending undistributed 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, including the fees and expenses of registering and
qualifying its shares for distribution under applicable securities regulations
were capitalized and are being amortized on a straight-line basis over a period
of five years beginning with the commencement of each Portfolio's operation.
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.
Cash Account: From time to time the Portfolios may leave cash overnight in
their account. IBT has been contracted on behalf of the Portfolios to sweep
these moneys into a demand note account, which will pay interest equal to 75%
of that days U.S. Treasury Bill rate back to the Portfolios. During the year
interest in the amount of $33,799, $5,339, $16,564, $9,078 and $7,460 was
earned by Global Interactive/Telecomm Portfolio, International Growth Portfo-
lio, Growth Portfolio, Value Portfolio and Strategic Income Portfolio, respec-
tively.
- --------------------------------------------
F-19
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
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 Portfolio Manager deems it
appropriate to do so. At December 31, 1999, the Strategic Income Portfolio des-
ignated $40,000 as collateral for forward commitments.
Repurchase Agreements: Each Portfolio may engage in repurchase agreement trans-
actions with institutions that the Sub-Adviser has determined are creditworthy
pursuant to guidelines established by the Trust's Board of Trustees. Each
repurchase agreement transaction is recorded at cost. Each Portfolio requires
that the securities purchased in a repurchase agreement transaction be trans-
ferred to the Trust's Custodian in a manner that is intended to enable the
Portfolio to obtain those securities in the event of a counterparty default.
The Investment Adviser monitors the value of the securities, including accrued
interest, daily to ensure that the value of the collateral equals or exceeds
amounts due under the repurchase agreement. Repurchase agreement transactions
involve certain risks in the event of default or insolvency of the
counterparty, including possible delays or restrictions upon the Portfolio's
ability to dispose of the underlying securities, and a possible decline in the
value of the underlying securities during the period while the Portfolio seeks
to assert its rights.
3.INVESTMENT 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 performance of the Portfolio Managers. AFIMS, a Massachusetts corporation,
is registered with the Securities and Exchange Commission as an investment
adviser. AFIMS is an indirect wholly-owned subsidiary of Allmerica Financial
Corporation ("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 December 31, 1999, GAMCO has invested approximately $324,000 in The Global
Interactive/Telecomm Portfolio and $149,000 in The Value Portfolio. During the
year ended December 31, 1999, GAMCO redeemed 20,129 shares with an aggregate
value of $400,000 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 portfolio accounting and cus-
tody services to the Trust and receives fees and reimbursement of certain out-
of-pocket expenses for its services from the Trust. AFIMS has entered into an
Administrative Services Agreement with IBT, whereby IBT performs certain admin-
istrative services for the Portfolios and is entitled to receive an administra-
tive fee and certain out-of-pocket expenses. AFIMS is solely responsible for
the payment of the administrative fee to IBT. As part of the custody contract,
the custodian bank has a lien on the securities of a Portfolio to cover any
advances made by the custodian bank. At December 31, 1999, the payable to cus-
todian balance for International Growth Portfolio represents the amount due for
cash advanced for the settlement of a security purchased.
------------------------------------------------------
F-20
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
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 year
ended December 31, 1999 amounted to $8,367 for The Global Interactive/Telecomm
Portfolio and $14,110 for The Value Portfolio.
The Trust pays no salaries or compensation to any of its officers. Trustees who
are not directors, officers or employees of the Trust or any investment adviser
are reimbursed for their travel expenses in attending meetings of the Trustees,
and receive quarterly meeting and retainer fees for their services. Such
amounts are paid by the Trust.
4.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 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 Incentive 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.
During the period January 1, 1999 through July 31, 1999, the Growth Portfolio's
management fee was calculated at the lesser of (i) the fee the Growth Portfolio
would have paid under the performance based fee arrangement described above and
(ii) 0.80% of the Growth Portfolio's average daily net assets.
During the period from January 1, 1999 through April 30, 1999, the Strategic
Income Portfolio's management fee was calculated at an annual rate of 0.80% of
the Strategic Income Portfolio's average daily net assets. AFIMS and AAM volun-
tarily agreed to limit their fees for this period to an annual rate of 0.40% of
average daily net assets. Management fees waived amounted to $2,788. Effective
May 1, 1999, AFIMS and AAM began receiving compensation in accordance with the
performance based fee arrangement described above.
5.EXPENSE LIMITATIONS AND CONTINGENT REIMBURSEMENT OBLIGATIONS
AFIMS agreed to limit certain operating expenses for the year ended December
31, 1999 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, 1.50%; International Growth Portfolio, 1.50%; Growth Portfolio,
1.20%; Value Portfolio, 1.20%; and Strategic Income Portfolio, 1.50%. At Decem-
ber 31, 1999, the aggregate amount of 1999 expenses reimbursed subject to
repayment were as follows: Global Interactive/Telecomm Portfolio, $21,353;
International Growth Portfolio, $73,873; Growth Portfolio, $66,781; Value Port-
folio, $47,639; and Strategic Income Portfolio, $43,569.
Retroactive to January 1, 1998, AFIMS had agreed to limit certain operating
expenses for the year ended December 31, 1998 to the extent that each Portfo-
lio'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, 1.00%; Value Portfolio, 1.00%; and Strate-
gic Income Portfolio, 1.20%. This expense limitation was implemented effective
February 13, 1998. The aggregate amount
- --------------------------------------------
F-21
<PAGE>
The Fulcrum Trust
NOTES TO FINANCIAL STATEMENTS, Continued
- --------------------------------------------------------------------------------
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; and Strategic
Income Portfolio, $74,187.
Amounts contributed to offset expenses accrued in excess of the expense limita-
tion during the period January 1, 1998 through Febuary 12, 1998 have been
treated as capital contributions. The amounts of capital contributions were:
Global Interactive/Telecomm Portfolio, $6,618; International Growth Portfolio,
$7,723; Growth Portfolio, $10,350; Value Portfolio, $8,469; and Strategic
Income Portfolio, $7,936.
The Portfolios are required to repay all or a portion of any reimbursement of
expenses received under these arrangements 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 in effect at the time the
expense limitation was calculated as specified above. The Portfolios' reim-
bursement liability for 1998 and 1999 expense limitations will cease two years
after each respective 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.
7.PLAN OF SUBSTITUTION
An application has been filed with the Securities and Exchange Commission
("SEC") seeking an order approving the substitution of shares of Allmerica
Investment Trust: Investment Grade Income Fund ("IGIF") for all of the shares
of the Strategic Income Portfolio ("SIP"). To the extent required by law,
approvals of such substitution will also be obtained from the state insurance
regulators in certain jurisdictions. The effect of the substitution will be to
replace SIP shares with IGIF shares. After the proposed substitution, the name
of IGIF will be changed to the Allmerica Investment Trust: Select Investment
Grade Income Fund. The substitution is planned to be effective on or about July
1, 2000.
------------------------------------------------------
F-22
<PAGE>
The Fulcrum Trust
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of The Fulcrum Trust
In our opinion, the accompanying statements of assets and liabilities, includ-
ing the portfolios of investments (except for Moody's and S&P Ratings), and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
the Global Interactive/Telecomm Portfolio, International Growth Portfolio,
Growth Portfolio, Value Portfolio, and Strategic Income Portfolio (constituting
The Fulcrum Trust, hereafter referred to as the "Trust") at December 31, 1999,
the results of each of their operations, the changes in each of their net
assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and financial highlights (hereafter referred to as "finan-
cial statements") are the responsibility of the Trust's management; our respon-
sibility is to express an opinion on these financial statements based on our
audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States, which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and signifi-
cant estimates made by management, and evaluating the overall financial state-
ment presentation. We believe that our audits, which included confirmation of
investments at December 31, 1999 by correspondence with the custodian and bro-
kers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 15, 2000
- --------------------------------------------
F-23
<PAGE>
The Fulcrum Trust
OTHER INFORMATION
- --------------------------------------------------------------------------------
------------------------------------------------------
SHAREHOLDER VOTING RESULTS: (UNAUDITED)
A special meeting of the Trust's shareholders was held on November 10, 1999 at
which shareholders approved one proposal. The voting results were as follows:
Proposal 1 To approve a new Portfolio manager Agreement, pursuant to which Bee
& Associates Incorporated would continue to serve as Portfolio Man-
ager for the International Growth Portfolio.
<TABLE>
<CAPTION>
Shares Shares Percent of Shares
Shares For Against Abstaining Voted
---------- ------- ---------- -----------------
<S> <C> <C> <C> <C>
International Growth 282,013 716 9,702 100.00%
</TABLE>
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.
SHAREHOLDER TAX INFORMATION
- --------------------------------------------------------------------------------
Distributions from long-term capital gains for the year ended December 31, 1999
are as follows:
The Global Interactive/Telecomm Portfolio: $ 696,928
The Value Portfolio: $ 687,042
CLIENT NOTICES
- --------------------------------------------------------------------------------
This 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.
F-24
<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]
[LOGO OF ALLMERICA FINANCIAL]
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
