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[logo]
April, 1999
Dear Valued Client:
The first quarter of 1999 was a turbulent time for the U.S. bond market. The
troubles of September and October, 1998 which hurt relative performance of the
spread sectors (agency, corporate and mortgage-backed bonds) were unsettling for
bond investors since spreads widened and the price of risk in the bond market
increased. The steep drop in rates did produce outsized price gains, however, so
the pain was not as apparent and not as harsh as it could have been. In
contrast, the last three months has seen strong performance by the spread
sectors in terms of spread tightening, but disappointing performance in terms of
absolute yields. Yields rose most dramatically during February due to renewed
signs of a very strong domestic economy coupled with growing fears of rising
inflation and tightening by the Federal Reserve (the "Fed").
ALLMERICA SECURITIES TRUST FACTS
At March 31, 1999
Market Value $11.000
Net Asset Value $11.683
Total Net Assets (000's) $100,388
Shares Outstanding (000's) 8,592
* Net Investment Income Per Share $0.20
* Increase/Decrease in
Per Share Value Resulting
from Investment Operations $(0.08)
TOTAL RETURNS AT 3/31/99
Allmerica Securities Trust
Three Months (0.64)%
Twelve Months 5.47%
Lehman Brothers Corporate
Bond Index
Three Months (0.71)%
Twelve Months 6.18%
* For three months ended March 31, 1999
During February, the Lehman U.S. Treasury Bond Index suffered its worst month of
the 1990's and second worst February since the 1973 inception of the index. The
result was a negative total return for the three-month period ending March 31,
1999 for the Lehman Aggregate Index of -0.50%.
We wrote at length last year about the conditions that led to the huge Treasury
market rally in 1998. Such extreme moves do lend themselves to reversals,
however, since interest rates can not decline indefinitely, a point that is
worth mentioning as it seems that stock prices can rise indefinitely. Our 1999
economic forecast did not place much likelihood of such a rapid turnaround in
rates based on our outlook for a slowing economy. Most market analysts were
predicting a swift slow-down of GDP growth during 1999 in response to the global
weakness experienced in Latin America, Europe and Asia. Instead, recent data
indicate the U.S. economy continues to roar along, with jobs growing at a fast
pace, housing and auto sales robust, and even the moribund manufacturing sector
on the rebound. In addition, Asian weakness appears to have plateaued, and
indeed several rating upgrades have occurred in the region. All these signs of
fundamental strength have caused a great many market analysts to substantially
revise their forecasts for growth and inflation in 1999, and this has even
caused some to predict a tightening action by the Fed.
Where does that leave us? The U.S. economy is the only source of real growth in
the world, and thus far no major imbalances appear to threaten its demise.
Housing inventory is lower than normal, auto production has kept pace with
demand, and the labor market is tight but adaptive to the needs of the economy.
Low inflation is the order of the day, and technological advances are improving
productivity in ways even the Fed does not yet fully understand. At this
advanced stage, however, the domestic economy remains most vulnerable to an
exogenous event such as a devaluation of the Chinese currency, an escalation of
military conflict in Europe, or political upheaval in Southeast Asia. For
example, the sudden failure of a major financial institution could cause
widespread risk aversion to return to the capital markets, which would probably
result in a Treasury market rally and a widening of spreads such as occurred
last autumn. A dramatic plunge in the U.S stock market is probably the only
domestic event that could derail consumer confidence and threaten our growth
scenario. Barring such speculative occurrences, the economy looks set to post 3%
to 4% GDP growth this year, and interest rates are unlikely to rise dramatically
from current levels.
<TABLE>
<S> <C>
First Allmerica Financial Life Insurance Company o Allmerica Financial Life Insurance and Annuity Company
(licensed in all states except NY & HI)
Allmerica Trust Company, N.A. o Allmerica Investments, Inc. o Allmerica Investment Management Company, Inc.
The Hanover Insurance Company o AMGRO, Inc. o Allmerica Financial Alliance Insurance Company
Allmerica Asset Management, Inc. o Allmerica Financial Benefit Insurance Company o Sterling Risk Management Services, Inc.
Citizens Corporation o Citizens Insurance Company of America o Citizens Management Inc.
440 Lincoln Street, Worcester, Massachusetts 01653
</TABLE>
<PAGE>
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ALLMERICA SECURITIES TRUST
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, MARCH 31, 1999 (UNAUDITED)
MOODY'S
PAR VALUE RATINGS VALUE
--------- ------- -----
CORPORATE NOTES AND BONDS - 73.37%
FINANCE - 18.69%
$ 1,150,000 BCH Cayman Islands
Yankee Subordinated Notes, Guaranteed
6.50%, 02/15/06 A $ 1,134,544
1,400,000 Capital One Financial Corp.
7.25%, 12/01/03 Ba 1,390,576
1,000,000 Charter Commercial Holdings LLC
Senior Notes
8.25%, 04/01/07 (A) B 1,022,500
1,000,000 Chase Manhattan Corp.
6.38%, 02/15/08 A 1,002,986
1,500,000 Colonial Capital II, Series A, Guaranteed
8.92%, 01/15/27(A) (D) BB 1,418,749
975,000 Compass Trust I, Series A, Guaranteed
8.23%, 01/15/27 A 1,013,843
800,000 Conseco Financing Trust III
8.80%, 04/01/27 Ba 747,093
1,000,000 First Tennessee National Corp.
Subordinated Notes
6.75%, 11/15/05 Baa 1,018,832
649,000 Homeside, Inc., Senior Notes, Series B
11.25%, 05/15/03 (A) A 746,350
1,000,000 Homeside Lending, Inc., MTN
6.88%, 05/15/00 A 1,007,724
270,458 Mack Trust, Inc.
10.91%, 04/01/99 (B) NR 270,458
550,000 MBNA Corp., MTN
6.96%, 09/12/02 Baa 551,989
498,371 Midland Funding Corp., Series C
Senior Secured Lease Obligation
10.33%, 07/23/02 Ba 532,558
1,000,000 The Money Store, Inc.
8.05%, 04/15/02 A 1,059,746
1,000,000 Providian Capital, Series A, Guaranteed
9.53%, 02/01/27 (A) Ba 957,808
1,500,000 RBF Finance Co., Guaranteed
11.00%, 03/15/06 (A) Ba 1,563,750
1,000,000 Riggs Capital Trust
8.63%, 12/31/26 (A) Baa 1,010,561
1,000,000 St. George Bank, Ltd., Yankee Debenture
7.15%, 10/15/05 (A) Baa 1,018,360
1,250,000 Zions Institutional Capital Trust
Series A, Guaranteed
8.54%, 12/15/26 A 1,292,217
------------
18,760,644
------------
INDUSTRIAL - 11.95%
2,000,000 Bethlehem Steel Corp., Senior Notes
10.38%, 09/01/03 Ba 2,165,000
950,000 Buckeye Cellulose Corp.
Senior Subordinated Notes
9.25%, 09/15/08 Ba 1,002,250
1,000,000 CSC Holdings, Inc., Debenture
7.88%, 02/15/18 Ba 1,012,500
1,000,000 Georgia Gulf Corp.
7.63%, 11/15/05 Ba 1,026,143
1,000,000 Interpool, Inc.
7.35%, 08/01/07 (A) Ba 842,874
1,000,000 LTV Corp., Senior Notes, Guaranteed
8.20%, 09/15/07 (A) Ba 935,000
950,000 Owens-Illinois, Inc., Senior Notes
7.85%, 05/15/04 Ba 972,887
1,000,000 Qwest Communications International
Senior Notes
7.25%, 11/01/08 (A) Ba 1,022,500
950,000 Republic Group, Inc., Senior Notes
9.50%, 07/15/08 (A) B 957,125
1,000,000 RPM, Inc., Senior Notes
7.00%, 06/15/05 Baa 996,061
1,000,000 Westinghouse Electric Corp., Debenture
8.38%, 06/15/02 Baa 1,063,328
------------
11,995,668
------------
COMMUNICATIONS - 8.92%
500,000 Clear Channel Communications, Inc.
Debenture
7.25%, 10/15/27 Baa 492,708
1,000,000 Comcast Cable Communications, Inc.
8.13%, 05/01/04 (A) Baa 1,087,405
1,000,000 Continental Cablevision, Inc.
8.50%, 09/15/01 Baa 1,058,777
750,000 Continental Cablevision, Inc.
8.30%, 05/15/06 Baa 821,966
700,000 Hearst-Argyle Television, Senior Notes
7.00%, 01/15/18 Baa 681,136
1,000,000 Lucent Technologies, Inc., Debentures
6.45%, 03/15/29 A 976,151
1,175,000 MCI WorldCom, Inc.
7.75%, 04/01/07 Baa 1,290,472
950,000 Sprint Capital Corp.
5.70%, 11/15/03 Baa 940,381
500,000 Viacom, Inc., Senior Notes
7.75%, 06/01/05 Baa 532,832
1,000,000 Viacom, Inc., Senior Debenture, Guaranteed
7.63%, 01/15/16 Baa 1,072,440
------------
8,954,268
------------
UTILITIES - 8.76%
1,000,000 CMS Energy Corp., Senior Notes
7.50%, 01/15/09 Ba 1,004,638
1,550,000 Connecticut Light & Power Co.
First Mortgage, Series 94D
7.88%, 10/01/24 Ba 1,601,833
1,162,000 North Atlantic Energy Corp.
First Mortgage, Series A
9.05%, 06/01/02 B 1,193,026
1,450,000 Ocean Energy, Inc.
Senior Notes, Series B
7.63%, 07/01/05 Ba 1,392,000
1,270,000 Sithe/Independence Funding Corp.
Series A
9.00%, 12/30/13 Baa 1,432,547
1,500,000 Texas-New Mexico Power Co.
First Mortgage, Series U
9.25%, 09/15/00 Baa 1,561,755
600,000 Texas Utilities Electric Co.
First Mortgage
7.38%, 10/01/25 A 604,632
------------
8,790,431
------------
OIL, GAS AND PETROLEUM - 7.85%
2,000,000 ANR Pipeline Co., Debenture
9.63%, 11/01/21 Baa 2,439,991
1,000,000 Clark Oil & Refining Corp., Senior Notes
9.50%, 09/15/04 Ba 1,000,000
1,000,000 Oryx Energy Co.
8.13%, 10/15/05 Baa 1,063,946
1,250,000 Texas Eastern Transmission Corp., Debenture
10.00%, 08/15/01 A 1,364,422
1,000,000 Tosco Corp.
7.00%, 07/15/00 Baa 1,008,922
900,000 Valero Management Partnership, LP
First Mortgage, Series J-12
10.02%, 03/15/07 (B) NR 1,004,967
------------
7,882,248
------------
TRANSPORTATION - 3.38%
1,000,000 AMR Corp., Debenture
10.00%, 02/01/01 Baa 1,066,217
949,052 Delta Airlines, Inc.
9.23%, 07/02/02 (B) NR 988,599
659,000 U.S. Air, Inc., Equipment Trust,Series D
10.30%, 01/15/00 Ba 668,948
661,000 U.S. Air, Inc., Equipment Trust, Series F
10.30%, 01/15/00 Ba 672,217
------------
3,395,981
------------
MERCHANDISING AND RETAIL - 3.05%
1,000,000 Kroger Co., Senior Subordinated Notes
10.00%, 05/01/99 Ba 1,003,263
950,000 Meyer (Fred), Inc.
7.38%, 03/01/05 Ba 987,677
1,000,000 USG Corp., Senior Notes
8.50%, 08/01/05 Baa 1,070,000
------------
3,060,940
------------
SECURITIES BROKERS, DEALERS AND EXCHANGES - 2.92%
1,000,000 Donaldson Lufkin & Jenrette, Inc.
Senior Notes
6.88%, 11/01/05 A 1,014,747
888,859 Jones (Edward D.) & Co., LP
7.95%, 04/15/06 (B) NR 916,227
1,000,000 Legg Mason, Inc., Senior Notes
6.50%, 02/15/06 Baa 998,856
------------
2,929,830
------------
CONSUMER PRODUCTS - 2.66%
1,000,000 DiMon, Inc., Senior Notes, Series B
8.88%, 06/01/06 Ba 926,830
1,600,000 Ralston Purina Co., Debenture
7.75%, 10/01/15 Baa 1,746,068
------------
2,672,898
------------
PRINTING AND PUBLISHING - 2.23%
1,000,000 Time Warner, Inc., Debenture
9.15%, 02/01/23 Baa 1,247,586
850,000 Time Warner Entertainment Co., LP
Senior Debenture
8.38%, 03/15/23 Baa 989,379
------------
2,236,965
------------
HEALTH CARE - 1.98%
675,000 Allegiance Corp.
7.30%, 10/15/06 A 717,694
300,000 Tenet Healthcare Corp.
Senior Subordinate Notes
8.63%, 01/15/07 Ba 300,000
1,000,000 Tenet Healthcare Corp.
Senior Notes
7.63%, 06/01/08 (A) Ba 975,000
------------
1,992,694
------------
TECHNOLOGY - 0.98%
1,000,000 International Business Machine Corp.
6.50%, 01/15/28 A 980,207
------------
TOTAL CORPORATE NOTES AND BONDS 73,652,774
(Cost $71,728,003) ------------
U.S. GOVERNMENT OBLIGATIONS - 13.73%
U.S. TREASURY BONDS - 9.94%
5,150,000 7.25%, 05/15/16 Aaa 5,909,625
3,525,000 7.13%, 02/15/23 Aaa 4,070,275
------------
9,979,900
------------
U.S. TREASURY NOTES - 3.79%
375,000 5.38%, 02/15/01 Aaa 377,344
425,000 5.88%, 02/15/04 Aaa 437,484
570,000 6.88%, 05/15/06 Aaa 618,628
2,165,000 7.00%, 07/15/06 Aaa 2,367,969
-------------
3,801,425
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS 13,781,325
(Cost $13,430,603) ------------
ASSET-BACKED SECURITIES - 8.91%
1,000,000 American Airlines, Inc.
Pass-Through Trust , Series 1991 - C2
9.73%, 09/29/14 A 1,214,310
1,000,000 BankBoston RV Asset Backed Trust
Series 1997 - 1, Class A8
6.54% , 02/15/09 Aaa 1,013,500
374,740 Barnett Auto Trust
Series 1997-A, A3
6.03%, 11/15/01 Aaa 376,793
983,279 Donaldson Lufkin & Jennrette
Commercial Mortgage Corp.
Series 1998-CF2, Class A1A
5.88%, 11/12/31 Aaa 974,528
999,704 First Plus Home Loan Trust
Series 1996-2, Class A5
7.47%, 02/20/11 Aaa 1,005,442
1,000,000 First Security Auto Owner Trust
Series 1999-1, Class A4
5.74%, 06/15/04 Aaa 1,000,590
543,350 Green Tree Recreational Equipment &
Consumer Trust
Series 1997-B, Class A1
6.55%, 07/15/28 (D) Aaa 550,440
533,221 Green Tree Financial Corp.
Series 1995-A, Class A
7.25%, 07/15/05 Baa 533,386
361,481 National Auto Finance
Series 1996-1, Class A
6.33%, 12/21/02 Aaa 365,205
432,021 Resolution Trust Corp.
Series 1995-1, Class A4C, CMO
6.85%, 02/25/27 Aaa 433,161
1,245,239 United Air Lines, Inc.
Pass-Through Trust, Series 1991 - B1
9.30%, 03/22/08 Baa 1,394,642
85,388 Western Financial Grantor Trust
Series 1995-2, Class A2
7.10%, 07/01/00 Aaa 85,732
------------
TOTAL ASSET-BACKED SECURITIES 8,947,729
(Cost $8,563,009) ------------
FOREIGN BONDS (C) - 2.31%
1,000,000 Banco Nacional Com Ext
8.00%, 07/18/02 Ba 966,250
950,000 Republic of Colombia, Series E, MTN
8.66%, 10/07/16 (A) Baa 851,754
500,000 United Mexican States
Yankee Emerging Market Notes
8.50%, 09/15/02 Ba 506,250
------------
TOTAL FOREIGN BONDS 2,324,254
(Cost $2,255,075) ------------
SHARES
INVESTMENT COMPANY - 0.02%
14,497 SSgA Prime Money Market Fund NR 14,497
------------
TOTAL INVESTMENT COMPANY 14,497
(Cost $14,497) ------------
TOTAL INVESTMENTS - 98.34% 98,720,579
(Cost $95,991,187)
NET OTHER ASSETS AND LIABILITIES - 1.66% 1,667,441
------------
NET ASSETS - 100.00% $100,388,020
============
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(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold, in transactions exempt from registration,
to qualified institutional buyers. At March 31, 1999, these securities
amounted to $14,409,736 or 14.35% of net assets.
(B) Restricted Security - Represents ownership in a private placement investment
which has not been registered with the Securities and Exchange Commision
under the Securities Act of 1933. At March 31, 1999, these securities
amounted to $3,180,251 or 3.17% of net assets.
(C) U.S. currency denominated.
(D) Standard & Poor's (S&P) credit ratings are used in the absence of a rating
by Moody's Investors, Inc.
CMO Collateralized Mortgage Obligation
MTN Medium Term Note
MOODY'S QUALITY RATINGS(D) SECURITY DIVERSIFICATION
Ba 28% Corporate Notes and Bonds 73%
Baa 27% U.S. Government Obligations 14%
Aaa 20% Asset-Backed Securities 9%
A 18% Other 2%
B 4% Foreign Bonds 2%
Not Rated 3%
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, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
ASSETS:
Investments :
Investments at cost ........................................ $ 95,991,187
Net unrealized appreciation ................................ 2,729,392
------------
Total investments at value .............................. 98,720,579
Receivable for investments sold ............................... 51,331
Interest and dividend receivables ............................. 1,802,925
------------
Total Assets ............................................ 100,574,835
------------
LIABILITIES:
Advisory fee payable .......................................... 128,031
Payable to Custodian .......................................... 6,393
Accrued expenses and other payables ........................... 52,391
------------
Total Liabilities ....................................... 186,815
------------
NET ASSETS ....................................................... $100,388,020
============
NET ASSETS CONSIST OF:
Par value ..................................................... $ 8,592,306
Paid-in capital ............................................... 88,445,043
Undistributed (distribution in excess of) net investment income 51,927
Accumulated (distribution in excess of) net realized gain on
investments sold ............................................ 569,352
Net unrealized appreciation of investments .................... 2,729,392
------------
TOTAL NET ASSETS ................................................. $100,388,020
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING (10,000,000 authorized
shares with par value of $1.00) ................................ 8,592,306
------------
NET ASSET VALUE
Per share ..................................................... $ 11.683
============
MARKET VALUE (closing price on New York Stock Exchange)
Per share ..................................................... $ 11.000
============
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STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest .................................................... $ 1,911,289
Dividends ................................................... 8,271
-----------
Total investment income .................................. 1,919,560
-----------
EXPENSES:
Investment advisory fees .................................... 128,031
Fund accounting fees ........................................ 9,170
Custodian and securities lending fees ....................... 871
Transfer agent fees ......................................... 18,641
Legal fees .................................................. 1,177
Audit fees .................................................. 5,116
Trustees' fees and expenses ................................. 5,357
Reports to shareholders ..................................... 17,104
New York Stock Exchange fees ................................ 3,987
Miscellaneous ............................................... 885
-----------
Total expenses ........................................... 190,339
-----------
NET INVESTMENT INCOME .......................................... 1,729,221
-----------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments sold ...................... 846,726
Net change in unrealized appreciation of investments ....... (3,239,629)
-----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS ................ (2,392,903)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $ (663,682)
===========
<PAGE>
U.S. Treasury Yield Curves
Bond Equivalent Yield Percentage
--------------------------------
Maturity 12/31/97 9/30/98
-------- -------- -------
3 Months 4.46% 4.47%
6 Months 4.54% 4.52%
1 Year 4.52% 4.71%
2 Years 4.53% 4.98%
5 Years 4.54% 5.10%
10 Years 4.65% 5.23%
30 Years 5.09% 5.62%
The investment grade corporate bond market continued to benefit from positive
momentum created in late-November, with liquidity improving across all industry
and quality sectors during the quarter. A number of factors underpinned this
sector - the resiliency of the U.S. economy, which shows little sign of
significant slowing; the early signs of a rebound in the global economy, as
witnessed by the return of Republic of Korea to investment grade ratings; the
support that higher oil prices provides to petroleum-exporting emerging market
economies; and the abundance of cash earmarked for investment in corporate
bonds. As evidence of the health of the sector, the market easily absorbed the
much awaited AT&T transaction which raised eight billion dollars. So far, nearly
60% of the spread widening has been recaptured from the fall of 1998. We believe
there is room for further spread narrowing in corporates.
MATURITY DIVERSIFICATION
Under 3 years 11%
3-5 years 13%
5-10 years 39%
10-20 years 15%
20 years and Over 22%
The high yield market performed very well during the first quarter of the year,
returning 1.85%, as compared to -0.71% for the investment grade corporate
market. Strong demand for a new benchmark transaction, Charter Communications,
signaled improvement from the environment of the third quarter of 1998. The
three tranche deal raised over $3.5 billion dollars and was oversubscribed. And,
as with the investment grade market, returns for lower-rated sectors, i.e.
B-rated, posted stronger gains than did higher-rated sectors, BB/BBB-rated,
indicating a broadening of investor interest. At the end of the quarter, high
yield holdings accounted for 30% of the Fund.
Sincerely,
/s/ John F. O'Brien /s/ Richard M. Reilly
John F. O'Brien Richard M. Reilly
Chairman President
[LOGO]
ALLMERICA
FINANCIAL(R)
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.
