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[LOGO]
May 13, 1998
Dear Valued Client:
On May 12, 1998, the Allmerica Securities Trust (NYSE trading symbol: ALM) Board
of Trustees declared a quarterly dividend of $.21 per share from net investment
income. The dividend is payable June 30, 1998, to shareholders of record on May
29, 1998. For the 12 months ended March 31, 1998, the Trust paid dividends of
$.84 per share, producing a current yield of 7.77%, based on the first-quarter
closing price of $10.81. By comparison, the 10-year Treasury note yield was
5.73% on March 31, 1998.
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ALLMERICA SECURITIES TRUST FACTS
At March 31, 1998
Market Value $10.813
Net Asset Value $11.868
Total Net Assets (000's) $101,975
Shares Outstanding (000's) 8,592
* Net Investment Income Per Share $0.21
* Increase/Decrease in
Per Share Value Resulting
from Investment Operations $0.21
TOTAL RETURNS AT 3/31/98
Allmerica Securities Trust
Three Months 1.89%
Twelve Months 13.66%
Lehman Brothers Corporate
Bond Index
Three Months 1.53%
Twelve Months 13.05%
* For three months ended March 31, 1998
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THIRD QUARTER REVIEW
The first quarter of 1998 witnessed a modest decline in yield of ten basis
points for short-through intermediate-term Treasuries, while the benchmark
thirty year Treasury bond rose one basis point to end the quarter at 5.93%. The
total return for the bond market as represented by the Lehman Aggregate Bond
Index was a respectable 1.56% for the quarter ending March 31, 1998.
Bullish investor sentiment early in the quarter brought the yield on the
thirty year Treasury to 5.69%, which was the lowest yield in more than thirty
years. Many market participants were focused on rosy federal budget scenarios
that predict a surplus as early as this year, which will translate into lower
Treasury debt issuance throughout 1998. In addition, the Southeast Asian
economic crisis was still very much in the news, and many investors began
speculating that the Federal Reserve Board (the "Fed") would be forced to ease
interest rates in order to avoid global economic panic. Meanwhile, inflation
indicators moved below 2%, calming investors' fears that strong economic growth
would lead to accelerating inflation.
All these factors contributed to the bond market rally, but bullishness
soon gave way to caution, and the thirty year Treasury bond was yielding just
over 6% by early March. The low interest rate environment led to heavy corporate
debt issuance, while unseasonably warm weather contributed to robust gains in
the housing market. In addition, job gains and retail sales surpassed market
expectations, causing many economists to revise upward their first quarter GDP
forecasts. As a result, interest rates took a breather and have settled back
into a trading range of 5.75% to 6.00%.
Current bond market conditions are somewhat unusual in that investors are
not rewarded a great deal of incremental yield for assuming greater risk by
buying longer-term bonds. For example, the difference between two year and ten
year Treasury notes is only ten basis points, whereas this spread has
historically hovered between eighty to one hundred basis points, or 0.80% to
1.00%. This situation may change if the Fed is compelled to cut interest rates,
which would drive short-term rates to perhaps fall more than long-term rates.
However, if economic growth remains healthy and the Southeast Asian crisis is
resolved satisfactorily, the Fed's most likely course of action this year will
be to do nothing. In the event that inflation stays below 2% or moves lower and
Treasury issuance declines markedly, the yield curve could invert, meaning
longer-term bonds could yield less than short-term bonds. Although unusual, such
a development would not be the first occurrence of an inverted yield curve.
The current economic expansion may soon become the longest-running post-war
expansion on record. It is very unusual to experience lower inflation in the
midst of late-cycle growth, but this expansion is marked by a very unique
confluence of factors. One important factor is the global de-coupling in growth
that has occurred. Japan has been mired in recessionary conditions for most of
this decade, while Europe is undergoing Monetary Union-related restructuring.
Meanwhile, technological advances have increased corporate productivity and led
to greater innovation in many fields. Demographic factors have also influenced
the nature of this expansion, with baby boomers entering the prime earning and
saving years of their lives. This unusual set of circumstances has produced a
remarkable economic boom in this country that continues to amply reward both
equity and bond investors.
First Allmerica Financial Life Insurance Company
Allmerica Financial Life Insurance and Annuity Company
(licensed in all states except NY & HI)
Allmerica Trust Company, N.A. * Allmerica Investments, Inc.
Allmerica Investment Management Company, Inc. * Allmerica Asset Management, Inc.
Allmerica Property & Casualty Companies, Inc. * The Hanover Insurance Company
Sterling Risk Management Services, Inc. * Citizens Corporation
Citizens Insurance Company of America * AMGRO, Inc.
440 Lincoln Street, Worcester, Massachusetts 01653
<PAGE>
ALLMERICA SECURITIES TRUST
SCHEDULE OF INVESTMENTS, March 31, 1998 (Unaudited)
MOODY'S
PAR VALUE RATINGS VALUE
CORPORATE NOTES AND BONDS - 71.81%
FINANCE - 17.30%
$ 500,000 AT&T Capital Corp., Series 4, MTN
6.26%, 02/18/99 Baa $ 500,215
1,150,000 BCH Cayman Islands
Yankee Subordinated Notes, Guaranteed
6.50%, 02/15/06 A 1,135,993
1,400,000 Capital One Financial Corp.
7.25%, 12/01/03 Ba 1,421,300
1,000,000 Cenfed Financial Corp., Senior Debenture
11.17%, 12/15/01 (A) Bb 1,110,000
1,500,000 Colonial Capital II, Series A, Guaranteed
8.92%, 01/15/27 (A) NR 1,620,102
975,000 Compass Trust I, Series A, Guaranteed
8.23%, 01/15/27 NR 1,035,476
800,000 Conseco Financing Trust III
8.80%,04/01/27 Ba 895,050
1,000,000 First Tennessee National Corp.
Subordinated Notes
6.75%, 11/15/05 Baa 1,020,043
1,000,000 Homeside Lending, Inc., MTN
6.88%, 05/15/00 Baa 1,012,667
169,725 Jennifer Holding Corp.
12.25%, 12/30/98 (B) NR 173,530
539,209 Mack Trust, Inc.
10.91%, 04/01/99 (B) NR 560,767
550,000 MBNA Corp., MTN
6.96%, 09/12/02 Baa 546,906
1,000,000 Merita Bank, Ltd.
Yankee Subordinated Notes
6.50%, 01/15/06 A 985,515
1,000,000 The Money Store, Inc.
8.05%, 04/15/02 Ba 1,056,321
1,000,000 Providian Capital, Series A, Guaranteed
9.53%, 02/01/27 (A) Baa 1,125,990
1,000,000 Riggs Capital Trust
8.63%, 12/31/26 (A) Baa 1,056,824
1,000,000 St. George Bank, Ltd., Yankee Debenture
7.15%, 10/15/05 (A) Baa 1,028,790
1,250,000 Zions Institutional Capital Trust
Series A, Guaranteed
8.54%, 12/15/26 A 1,353,061
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17,638,550
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INDUSTRIAL - 12.33%
2,000,000 Bethlehem Steel Corp., Senior Notes
10.38%, 09/01/03 B 2,120,000
950,000 Buckeye Cellulose Corp.
Senior Subordinated Notes
9.25%, 09/15/08 Ba 1,011,750
1,000,000 CSC Holdings Inc., Debenture
7.88%, 02/15/18 Ba 995,000
1,000,000 Georgia Gulf Corp.
7.63%, 11/15/05 Ba 1,020,224
649,000 Homeside, Inc., Senior Notes, Series B
11.25%, 05/15/03 (A) Ba 773,933
1,000,000 Interpool, Inc.
7.35%, 08/01/07 (A) Ba 1,020,367
1,000,000 LTV Corp., Senior Notes, Guaranteed
8.20%, 09/15/07 (A) Ba 1,012,500
500,000 McDermott (J. Ray) SA
Senior Subordinated Notes
9.38%, 07/15/06 B 536,250
950,000 Owens-Illinois, Inc., Senior Notes
7.85%, 05/15/04 Ba 983,924
1,000,000 RPM, Inc., Senior Notes
7.00%, 06/15/05 Baa 1,026,508
1,000,000 Stone Container Corp., Senior Notes
11.88%, 12/01/98 B 1,028,750
1,000,000 Westinghouse Electric Corp., Debenture
8.38%, 06/15/02 Ba 1,047,979
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12,577,185
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OIL, GAS AND PETROLEUM - 9.45%
2,000,000 ANR Pipeline Co., Debenture
9.63%, 11/01/21 Baa 2,648,792
1,000,000 Clark Oil & Refining Corp., Senior Notes
9.50%, 09/15/04 Ba 1,032,500
1,000,000 Oryx Energy Co.
8.13%, 10/15/05 Ba 1,067,602
1,450,000 Seagull Energy Corp., Senior Notes
7.88%, 08/01/03 Ba 1,468,125
1,250,000 Texas Eastern Transmission Corp.
Debenture
10.00%, 08/15/01 A 1,391,164
1,000,000 Tosco Corp.
7.00%, 07/15/00 Baa 1,015,060
900,000 Valero Management Partnership, LP
First Mortgage, Series J-12
10.02%, 03/15/07 (B) NR 1,008,846
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9,632,089
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COMMUNICATIONS - 7.84%
500,000 Clear Channel Communications, Inc.
Debenture
7.25%, 10/15/27 Baa 509,713
1,000,000 Comcast Cable Communications, Inc.
8.13%, 05/01/04 (A) Baa 1,081,409
1,000,000 Continental Cablevision, Inc.
8.50%, 09/15/01 Baa 1,064,440
750,000 Continental Cablevision, Inc.
8.30%, 05/15/06 Baa 824,272
700,000 Hearst-Argyle Television, Senior Notes
7.00%, 01/15/18 Baa 686,077
300,000 Kerrville Telephone Co.
9.76%, 03/29/00 (B) NR 314,175
1,850,000 TCI Communications, Inc.
7.88%, 02/15/26 Ba 1,989,878
1,000,000 Viacom, Inc., Senior Debenture
Guaranteed
7.63%, 01/15/16 Ba 1,035,038
450,000 WorldCom, Inc.
7.75%, 04/01/07 Ba 484,724
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7,989,726
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UTILITIES - 7.07%
1,550,000 Connecticut Light & Power Co.
First Mortgage, Series 94D
7.88%, 10/01/24 Ba 1,605,528
569,250 Midland Cogeneration Venture, Debenture
10.33%, 07/23/02 Ba 612,786
1,247,000 North Atlantic Energy Corp.
First Mortgage, Series A
9.05%, 06/01/02 B 1,279,976
1,270,000 Sithe/Independence Funding Corp.
Series A
9.00%, 12/30/13 Baa $ 1,521,079
1,500,000 Texas-New Mexico Power Co.
First Mortgage, Series U
9.25%, 09/15/00 Ba 1,588,828
600,000 Texas Utilities Electric Co.
First Mortgage
7.38%, 10/01/25 Baa 605,736
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7,213,933
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CONSUMER PRODUCTS - 3.77%
1,000,000 Chiquita Brands International, Inc.
9.13%, 03/01/04 B 1,040,000
1,000,000 DiMon, Inc., Senior Notes, Series B
8.88%, 06/01/06 Ba 1,067,970
1,600,000 Ralston Purina Co., Debenture
7.75%, 10/01/15 Baa 1,738,465
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3,846,435
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TRANSPORTATION - 3.61%
1,000,000 AMR Corp., Debenture
10.00%, 02/01/01 Baa 1,096,793
1,203,934 Delta Airlines, Inc.
9.23%, 07/02/02 (B) NR 1,211,591
659,000 U.S. Air, Inc., Equipment Trust, Series D
10.30%, 01/15/00 B 686,559
661,000 U.S. Air, Inc., Equipment Trust, Series F
10.30%, 01/15/00 B 688,643
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3,683,586
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MERCHANDISING AND RETAIL - 3.18%
1,000,000 Federated Department Stores, Inc.
Senior Notes
10.00%, 02/15/01 Baa 1,097,677
1,000,000 Kroger Co., Senior Subordinated Notes
10.00%, 05/01/99 Ba 1,035,028
1,000,000 USG Corp., Senior Notes
8.50%, 08/01/05 Ba 1,107,500
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3,240,205
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SECURITIES BROKERS, DEALERS
AND EXCHANGES - 3.05%
1,000,000 Donaldson Luffkin & Jennrette, Inc.
Senior Notes
6.88%, 11/01/05 Baa 1,020,331
1,000,000 Jones (Edward D.) & Co., LP
7.95%, 04/15/06 (B) NR 1,090,020
1,000,000 Legg Mason, Inc., Senior Notes
6.50%, 02/15/06 Baa 995,107
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3,105,458
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PRINTING AND PUBLISHING - 2.15%
850,000 Time Warner Entertainment Co., LP
Senior Debenture
8.38%, 03/15/23 Baa 967,339
1,000,000 Time Warner, Inc., Debenture
9.15%, 02/01/23 Ba 1,228,826
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2,196,165
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HEALTH CARE - 2.06%
675,000 Allegiance Corp.
7.30%, 10/15/06 Baa 709,885
1,000,000 Tenet Healthcare Corp., Senior Notes
9.63%, 09/01/02 Ba 1,080,000
300,000 Tenet Healthcare Corp.
Senior Subordinated Notes
8.63%, 01/15/07 Ba 310,875
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2,100,760
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TOTAL CORPORATE NOTES AND BONDS 73,224,092
(Cost $68,926,195)
U.S. GOVERNMENT OBLIGATIONS - 15.87%
U.S. TREASURY NOTES - 8.50%
375,000 5.50%, 02/29/00 Aaa 374,297
405,000 6.25%, 02/28/02 Aaa 412,847
2,650,000 6.88%, 05/15/06 Aaa 2,839,642
4,665,000 7.00%, 07/15/06 Aaa 5,038,200
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8,664,986
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U.S. TREASURY BONDS - 7.37%
1,450,000 7.13%, 02/15/23 Aaa 1,654,360
5,150,000 7.25%, 05/15/16 Aaa 5,859,736
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7,514,096
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TOTAL U.S. GOVERNMENT OBLIGATIONS 16,179,082
(Cost $15,643,961)
ASSET-BACKED SECURITIES - 8.21%
1,000,000 American Airlines, Inc
Pass-Through Trust, Series 1991 - C2
9.73%, 09/29/14 A 1,248,340
1,000,000 BankBoston RV Asset Backed Trust
Series 1997 - 1, Class A8
6.54%, 02/15/09 NR 1,011,500
375,000 Barnett Auto Trust
Series 1997-A, Class A3
6.03%, 11/15/01 NR 375,701
201,711 Eaglemark Trust
Harley-Davidson, Series 1995 - 1
6.80%, 12/15/01 (A) Aaa 205,931
999,704 First Plus Home Loan Trust
Series 1996-2, Class A5
7.47%, 02/20/11 NR 1,023,147
582,201 Green Tree Financial Corp.
Series 1995-A, Class A
7.25%, 07/15/05 P 590,946
808,772 Green Tree Recreational Equipment &
Consumer Trust
Series 1997-B, Class A-1
6.55%, 07/15/28 NR 816,440
665,301 National Auto Finance
Series 1996-1, Class A
6.33%, 12/21/02 Aaa 668,761
650,000 Resolution Trust Corp.
Series 1995 - 1, Class A4C, CMO
6.85%, 02/25/27 Aaa 644,313
1,339,328 United Air Lines, Inc.
Pass Through Trust, Series 1991 - B1
9.30%, 03/22/08 Baa 1,522,347
36,486 Western Financial Grantor Trust
Series 1994-2, Class A2
6.38%, 09/01/99 Aaa 36,528
230,123 Western Financial Grantor Trust
Series 1995-2, Class A2
7.10%, 07/01/00 Aaa 231,640
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TOTAL ASSET-BACKED SECURITIES 8,375,594
(Cost $7,881,482) ------------
FOREIGN BONDS (C) - 2.46%
950,000 Republic of Columbia, Series E, MTN
8.66%, 10/07/16 (A) Ba 966,921
1,500,000 United Mexican States
Yankee Emerging Market Notes
8.50%, 09/15/02 Ba 1,545,000
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TOTAL FOREIGN BONDS 2,511,921
(Cost $2,131,580) ------------
INVESTMENT COMPANY - 0.15%
151,333 State Street Bank Temporary Fund NR 151,333
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TOTAL INVESTMENT COMPANY 151,333
(Cost $151,333) ------------
TOTAL INVESTMENTS - 98.50% 100,442,022
(Cost $94,734,551)
NET OTHER ASSETS AND LIABILITIES - 1.50% 1,532,990
------------
NET ASSETS - 100.00% $101,975,012
============
(A) Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold, in transactions exempt from
registration, to qualified institutional buyers. At March 31, 1998, these
securities amounted to $11,002,767 or 10.79% of net assets.
(B) Restricted securities - Represent ownership in private placement
investments which have not been registered with the Securities and Exchange
Commission under the Securities Act of 1933. At March 31, 1998, these
securities amounted to $4,358,929 or 4.27% of net assets.
(C) U.S. currency denominated
CMO Collateralized Mortgage Obligation
MTN Medium Term Note.
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MOODY'S QUALITY RATINGS
Ba 30%
Baa 26%
Aaa 18%
Private Placements and Not Rated 11%
B & Bb 9%
A 6%
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SECURITY DIVERSIFICATION
Corporates 72%
U.S. Government Obligations 16%
Asset-Backed Securities 8%
Other 2%
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Shareholder inquires regarding account
information may be directed to: The Bank of New York
Shareholder Relations Department -11E
PO Box 11258
Church Street Station
New York, New York 10286
1-800-432-8224
<PAGE>
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STATEMENT OF ASSETS AND LIABILITIES
March 31, 1998 (Unaudited)
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ASSETS:
Investments :
Investments at cost ........................................ $ 94,734,551
Net unrealized appreciation (depreciation) ................. 5,707,471
------------
Total investments at value ................................. 100,442,022
Interest and dividend receivables ............................. 1,850,008
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Total Assets ............................................... 102,292,030
------------
LIABILITIES:
Advisory fee payable .......................................... 41,392
Payable to Custodian .......................................... 216,576
Accrued expenses and other payables ........................... 59,050
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Total Liabilities .......................................... 317,018
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NET ASSETS ....................................................... $101,975,012
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NET ASSETS CONSIST OF:
Par value ..................................................... $ 8,592,306
Paid-in capital ............................................... 88,551,952
Undistributed (distribution in excess of net investment income) 37,653
Accumulated (distribution in excess of) net realized gain
(loss) on investments sold .................................. (914,370)
Net unrealized appreciation (depreciation) of investments ..... 5,707,471
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TOTAL NET ASSETS ................................................. $101,975,012
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SHARES OF BENEFICIAL INTEREST OUTSTANDING ........................ 8,592,306
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NET ASSET VALUE
Per share ..................................................... $ 11.868
============
MARKET VALUE
Per share ..................................................... $ 10.813
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<PAGE>
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STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1998 (Unaudited)
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INVESTMENT INCOME:
Interest ...................................................... $ 1,923,530
Dividends ..................................................... 2,038
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Total investment income .................................... 1,925,568
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EXPENSES:
Investment advisory fees ...................................... 124,542
Fund accounting fees .......................................... 9,172
Transfer agent fees ........................................... 8,868
Legal fees .................................................... 1,177
Audit fees .................................................... 2,703
Trustees' fees and expenses ................................... 5,357
Reports to shareholders ....................................... 886
New York Stock Exchange fees .................................. 1,595
Miscellaneous ................................................. 4,148
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Total expenses ............................................. 158,448
------------
NET INVESTMENT INCOME ............................................ 1,767,120
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NET REALIZED AND UNREALIZED
GAIN(LOSS) ON INVESTMENTS:
Net realized gain(loss) on investments sold ................... 278,532
Net change in unrealized appreciation
(depreciation) of investments .............................. 161,591
------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS ........................................... 440,123
------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS ................................ $ 2,207,243
============
For the first quarter of 1998, investment grade corporate bonds slightly
underperformed comparable duration U.S. Treasuries. Yield spreads ended the
quarter nearly unchanged; however, during the period the market gyrated in
response to credit-related events and supply. Fears of mounting credit problems
in Asia led to wider spreads in January. Compounding market jitters was a heavy
new issuance calendar driven by corporate Treasurers eager to take advantage of
historically low interest rates. Approximately $123 billion of investment and
below investment grade debt was issued during the quarter. By February, credit
spreads stabilized as investors were comforted by International Monetary Fund
agreements in Asia and were drawn back to the corporate sector by the need to
invest accumulated cash positions. Solid gains during the second half of the
quarter largely offset the damage realized in January.
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U.S. Treasury Yield Curves
Bond Equivalent Yield Percentage
December 31, March 31,
1997 1998
---- ----
3 Months 5.19 5.20
6 Months 5.35 5.38
1 Year 5.56 5.50
2 Years 5.63 5.57
3 Years 5.68 5.63
5 Years 5.71 5.62
10 Years 5.73 5.65
30 Years 5.92 5.93
Maturity
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It is noteworthy that for the first time in ten years, the market did not
experience the "first quarter effect" in which BBB-rated issues outperform
higher quality issues. Rather, BBB-rated bond performance lagged A-rated bond
performance by 43 basis points. Wider nominal spreads for all corporates
apparently mitigated the need to dip down in credit quality to gain incremental
yield.
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MATURITY DIVERSIFICATION
Under 3 Years 16%
4-5 Years 16%
5-10 years 33%
11-20 Years 15%
21 Years and Over 20%
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Seventy-two percent of the Fund was invested in corporate bonds.
Communications remains one of the largest sector weightings, and was modestly
increased with the recent purchases of cablevision systems and Hearst-Argyle, an
owner/operator of network television affiliates. Other key sector exposures
include Domestic Banks, which should gain from ongoing financial services
industry consolidation, and Airlines, which are benefiting from the combined
effect of a robust economy and low fuel prices.
In contrast to the preference for higher credit quality among investment
grade corporate bond buyers, demand for high yield securities was robust. Buying
due to the combination of massive mutual fund inflows and new collateralized
bond obligation transactions led to excess returns of 175 basis points, making
high yield the best performing sector of the bond market in the first quarter.
Twenty seven percent of the Fund is invested in below investment grade
securities.
Sincerely,
/s/ John F. O'Brien /s/ Richard M. Reilly
John F. O'Brien Richard M. Reilly
Chairman President
[LOGO]
ALLMERICA
FINANCIAL(SM)
440 Lincoln Street, Worcester, MA 01653
Allmerica Securities Trust is a Massachusetts Business Trust under an Agreement
and Declaration of Trust dated February 26, 1986 as amended and on file with the
Secretary of the Commonwealth of Massachusetts. This document is executed by the
Trustees or Officers as such and not individually, and no obligation of the
Trust shall be binding upon any of the Trustees, Officers or Shareholders, but
shall only bind the assets and property of the Trust.
08415NS (5/98)
